Water privatization is short for private sector participation in the provision of water services and sanitation. Private sector participation in water supply and sanitation is controversial. Proponents of private sector participation argue that it has led to improvements in the efficiency and service quality of utilities. It is argued that it has increased investment and has contributed to expanded access. They cite Manila, Guayaquil in Ecuador, Bucharest, several cities in Colombia and Morocco, as well as Côte d'Ivoire and Senegal as success stories. Critics however, contend that private sector participation led to tariff increases and has turned a public good into a private good. Many believe that the privatization of water is incompatible with ensuring the international human right to water. Aborted privatizations in Cochabamba, Bolivia, and Dar es-Salaam, Tanzania, as well as privately managed water systems in Jakarta and Berlin are highlighted as failures. Water privatization in Buenos Aires, Argentina and in England is cited by both supporters and opponents, each emphasizing different aspects of these cases.
Even the figures about how many people receive water from the private sector are controversial: One source claims that 909 million people were served by "private players" in 2011 globally, up from 681 million people in 2007. This figure includes people served by publicly owned companies that have merely sourced out the financing, construction and operation of part of their assets, such as water or wastewater treatment plants, to the private sector. The World Bank estimated the urban population directly served by private water operators in developing countries to be much lower at 170 million in 2007. Among them only about 15 million people, all living in Chile, are served by privately owned utilities. The remainder are served by privately managed, but publicly owned companies under concession, lease and management contracts.
Privately owned water utilities were common in Europe, the United States and Latin America in the mid and late 19th century. Their importance gradually faded away until the early 20th century as they proved unable to expand access and publicly owned utilities became stronger. A second global dawn of private water utilities came in the early 1990s in the aftermath of the Thatcher privatizations in England and Wales, the fall of communism and the ensuing global emphasis on free market policies. The World Bank and the International Monetary Fund played an important role in this process through the conditionality of their lending. However, some water privatizations failed, most notably in 2000 in Cochabamba, Bolivia, paving the way for a new pragmatism and a reduced emphasis on privatization.
In England and Wales, the emergence of the first private water companies dates back to the 17th century. In 1820, six private water companies operated in London. However, the market share of private water companies in London declined from 40% in 1860 to 10% in 1900. In the 1980s, their share all over England and Wales was about 25%. The tide turned completely in 1989 when the conservative government of Margaret Thatcher privatized all public water and sewer companies in England and Wales. In Scotland local governments dominated by the Labour party kept water systems in public hands.
The water sector in France has always been characterized by a coexistence of public and private management, with their respective shares fluctuating over time. The two largest private companies are Veolia Environnement, formerly the Compagnie Générale des Eaux and then Vivendi Environnement, and Suez Environnement, formerly Lyonnaise des Eaux and then Ondeo. The Compagnie Générale des Eaux was founded in 1853 and Lyonnaise des Eaux in 1880. In the late 19th century, municipal governments, dissatisfied with high tariffs and the lack of expansion of networks to poor neighborhoods, did not renew private concessions and created instead municipally owned utilities. The share of private water operators declined to 17% in 1936. The share of the private sector gradually increased to 32% in 1954, 50% in 1975 and 80% in 2000 using a new model: Instead of the concession contracts, which gave the responsibility to finance investments to the private company, the new lease contracts (affermages) made the private operator only responsible for operation and maintenance, while major investments became a responsibility of the municipalities. The French water companies also escaped the nationalizations after the war and later under President François Mitterrand, because the central government did not want to interfere with the autonomy of municipalities and was unwilling to finance heavy investments. The water supply of Paris was privatized in 1985 when a conservative mayor awarded two lease contracts, each covering one half of the city. In 2010, a socialist mayor remunicipalized the water system of the French capital.
In Spain, private water companies maintained their position, budging the global trend during the late 19th and early 20th century. The largest private water company in Spain is Aguas de Barcelona. Initially created by French and Belgian investors, it was sold to Spanish investors in 1920, only to gradually come back under French control in the early 21st century.
In Germany, a British private water company had set up the first piped water system and treatment plant in Berlin in 1852, but the city, dissatisfied with the lack of investment in particular in sewerage, cancelled the contract in 1873. In 1887 Gelsenwasser was created, which remains an important regional water supplier in the Ruhr district. The German water sector has always been dominated by municipally owned utilities. Despite this, the water system of Berlin was partially privatized in 1999 for fiscal reasons.
In the United States, 60% of piped water systems were privately owned in 1850. This share declined to 30% in 1924. As of 2010, 2000 water and wastewater facilities in the U.S. were operated under public-private partnerships, a joint effort between the private group and the municipality it was operating in.
European and local private water companies expanded in Latin America, Africa and Asia in the second half of the 19th century, all while their importance declined in Europe. In Uruguay, water supply was privately managed from 1867 to 1950; in Buenos Aires, Argentina, for a brief period from 1887 to 1891 and again from 1993 to 2006; in Cairo and Alexandria, Egypt, from 1867 to 1956; in Beirut, Lebanon, from the 19th century until 1951; in Shanghai, China, from 1875 to 1949; in Casablanca, Morocco, from 1914 to 1962 and then again after 1997; in Senegal until 1971 and then again after 1996; and in Côte d'Ivoire from colonial times until today without interruption.
In Central and Eastern Europe, private companies expanded during the late 1990s, especially in Bulgaria, the Czech Republic, Hungary and Romania.
Broadly speaking, there are two forms of private sector participation in water supply and sanitation. In a full privatization, assets are permanently sold to a private investor. In a public-private partnership, ownership of assets remains public and only certain functions are delegated to a private company for a specific period. Full privatization of water supply and sanitation is an exception today, being limited to England, Chile and some cities in the United States. Public-private partnerships (PPPs) are the most common form of private sector participation in water supply and sanitation today.
The three most common forms of PPPs, in the order of increasing responsibilities for the private partner, are:
Concessions are the most common form of PPPs in water supply and sanitation. They are followed by leases, also called affermages, that are most commonly used in France and in Francophone West Africa. Management contracts are used in Saudi Arabia, Algeria and Armenia, among others. Mixed-ownership companies are most common in Spain, Colombia and Mexico.
A concession for the construction of a new plant is called a Build-Operate-Transfer (BOT) contract. Under a BOT contract the private operator signs an agreement with a utility that purchases treated water or wastewater treatment services.
The motives for water privatization vary from one case to the other, and they often determine the choice of the mode of privatization: Management and lease contracts are used to increase efficiency and improve service quality, while asset sales and concessions primarily aim to reduce the fiscal burden or to expand access. Ideological motives and external influences also play a role. Often several of the above motives are combined.
In Algeria, Saudi Arabia, Colombia and Cuba increasing efficiency and improving service quality were important motives for water privatization. Proponents argue that public utilities may be poorly managed. This can take the form of low bill collection, high water losses (non-revenue water) of more than 50% and intermittent water supply, sometimes lasting only for a few hours a day or a few days per week.
External influences, such as from the World Bank and the International Monetary Fund (IMF), often play a role, as it was the case in Bolivia and in several African countries. This may take the form of structural adjustment programs. Other aid agencies have also supported water privatization. These include the Inter-American Development Bank (e.g., in Ecuador, Colombia and Honduras), the Asian Development Bank (e.g., in China), the European Bank for Reconstruction and Development in Eastern Europe, German development cooperation through KfW (e.g., in Albania, Armenia, Jordan and Peru), French development cooperation (e.g., in Senegal) and British development cooperation (e.g., in Tanzania and Guyana). In the UK, the World Development Movement campaigned against the support of water privatization through aid from the UK.
In some cases, where access is already universal and service quality is good, fiscal motives dominate, as it was the case in Berlin, Germany, and in Chile. In Berlin the state government sold a 49.9% share of its water utility in 1999 for 1.69bn Euros in exchange for a guaranteed profit for the private shareholders amounting to the interest rate on 10-year government bonds plus 2 percent, as specified in a contract that was kept confidential until the state government was forced by a referendum to make it public. As a result, tariffs increased (15% in 2004 alone) and the state government's revenues from the company declined compared to the situation before privatization (168m Euro profit for the state in 1997 compared to a 10m Euro loss in 2003). In Chile, where no wastewater treatment plants existed prior to privatization, the government's desire to finance their construction off-budget drove privatization in 1998.
There are widely differing estimates of the number of people served by private water companies. The World Bank estimated that, as of 2007, about 270 million people received water from private companies in more than 40 countries, including about 160 million in developed countries and 110 million in developing countries. The report did not include estimates of the number of people served by private companies on the wastewater side. The Pinsent Masons Water Yearbook uses a broader definition including also wastewater services. More importantly, it also includes cases where a water or wastewater treatment plant is operated by a private company on behalf of a publicly owned and operated utility that serves the final customer. On the basis of this broader definition and taking into account the growth of both population and water privatization between 2007 and 2011, it estimates that 909 million in 62 countries or 13% of the world population were served by the private sector in one form or another. This includes 309 million people in China, 61 million in the United States, 60 million in Brazil, 46 million in France, 23 million in Spain, 15 million in India and 14 million in Russia. In England and Wales the entire population of 55 million is served by private companies. In addition, in Chile, the Czech Republic, Armenia and four African countries – Côte d'Ivoire, Ghana, Gabon and Senegal – private companies provide water services to the entire urban population. In Hungary they serve almost half the population. In Algeria, Colombia, Germany, Italy, Malaysia, Mexico, Morocco, Poland and South Africa less than half the population is served by private companies. In the Philippines, Indonesia, Bulgaria, Estonia and Cuba private water companies serve only the capital city. 24 countries, such as Argentina, Bolivia and a number of small countries like Guyana or the Central African Republic, had reverted to public management as of 2009. However, 84 percent of contracts awarded mostly in the 1990s were still active.
List of countries with formal private sector participation in urban water supply with number and type of contracts
|Country||Extent of country served by privatized urban water supply||Type and number of contracts||Start date|
|France||9,000||Concessions and leases||1853|
|England||Entire country||Full privatization (26)||1989|
|United States||73 million people, including through PPPs
14% of water revenues without PPPs
|Investor-owned and 2,000 PPPs||1772 in Providence|
|Côte d'Ivoire||All urban areas||Lease (1)||1960 in Abidjan 1973 country-wide|
|Gabon||All urban areas||Concession (1)||1997|
|Mozambique||Maputo and other cities||Lease (1) and management contract (1)||1999|
|Senegal||All urban areas||Lease (1)||1996|
|South Africa||Mbombela and Dolphin Coast||Concessions (2)||1992|
|Malaysia||Selangor and Penang||Concession (1) and full privatization (1)||1992|
|Armenia||Yerevan and others||Lease (1) and management contracts (2)||2000|
|Brazil||65 cities in 10 states||Concessions||1995|
|Chile||All urban areas||Full privatizations and concession (1)||1998|
|Colombia||Barranquilla, Cartagena, Colombia and more than 40 other cities and towns||Mixed-ownership companies and concessions||1996|
|Morocco||Casablanca, Rabat, Tangiers and Tetouan||Concessions (3)||1997|
|Honduras||San Pedro Sula||Concession (1)||2000|
|Ghana||All urban areas||Management contract (1)||2000|
|Saudi Arabia||Riyadh, Jeddah, Mecca and Taif||Management contracts (3)||2008|
|Algeria||Algiers, Constantine and Oran||Management contracts (3)||2005|
|China||Shenzhen, Fuzhou, Lanzhou, Wuhu City and 23 others||Concessions (22), full privatizations (3) and management contracts (2)||2001|
|Spain||Barcelona and more than 1,000 other municipalities||Mixed-ownership companies and concessions||1867|
|Romania||Bucharest, Timișoara, Ploiești and Otopeni||Concessions (3) and Lease (1)||2000|
|Poland||Gdańsk, Bielsko-Biała, Tarnowskie Góry & Miasteczko Śląskie, Dąbrowa Górnicza, Głogów, Woźniki, Drobin and Toszek||Full privatizations (4), concession (1), leases (2) and management contract (1)||1992|
|Czech Republic||Prague and 23 other cities||Concessions (24)||1993 (reform) and 2001 (Prague)|
|Hungary||Budapest, Szeged, Debrecen and five other cities and towns||Concessions (8)||1994|
|Mexico||Cancún, Saltillo and Aguascalientes||Mixed-ownership company (1) and concessions (2)||1993|
A World Bank report lists the following examples of successful public-private partnerships in developing countries: the full privatization in Chile; the mixed companies in Colombia; the concessions in Guayaquil in Ecuador, Brazil, Argentina, Eastern Manila in the Philippines, Morocco and Gabun; and the lease contracts in Côte d'Ivoire, Senegal and Yerevan in Armenia.
In many countries, such as in Japan, Canada, Egypt, Pakistan or Scandinavia, there are no private water companies. Nicaragua, the Netherlands and Uruguay have even passed laws banning water privatization. In Italy, in June 2011 a law favoring water privatization was repealed by an overwhelming majority of Italians through a referendum. In 2019, the City of Baltimore, Maryland became the first major city in the United States to ban water privatization.
Beyond water privatization, which involves contractual relationships between a government and formally established large companies, there is also "the other private sector" in water supply consisting of small-scale, often informal local operators who exist in most developing countries and sometimes provide a large share of the population of a city with water. For example, a study of six Latin American countries showed that small-scale private providers provide water to 25% of the population with water in seven cities. Many small-scale water operators provide water through tanker trucks or animal-drawn carts. Others operate water distribution networks fed by wells, as it is the case in Asunción, Paraguay, and in Sanaa, Yemen. Small-scale operators can be owned by individual entrepreneurs or can take the form of cooperatives, as it is the case in Honduras. Small-scale operators do not always comply with technical norms and the quality of the water they provide or their tariffs are often not regulated. They typically lack capital to further expand their network. However, in a few pilot cases – such as in Kenya, Uganda, Cambodia and Vietnam – international aid agencies have provided grants to them to increase access, often in the form of output-based aid.
Private companies are typically selected through international competitive bidding and need to have demonstrated previous experience. Selection is either done through a combination of price and quality, or solely based on price. In the case of a management contract, the price is the management fee (fixed fee plus performance-based fee); in the case of a lease it is the lease fee per unit of water sold; in a concession it is the water tariff; and in an asset sale it is the price paid for the company. In some cases – such as in Casablanca in 1997 and in Jakarta in 1998 – private companies have been selected through direct negotiations without competitive bidding. In other cases – such as in Cartagena (Colombia) in 1995, Cochabamba (Bolivia) in 1999 and Guayaquil (Ecuador) in 2000 – only a single bid was submitted. If development aid agencies are involved in directly financing private sector participation, they systematically require competitive bidding. However, in some cases – such as in Timişoara, Romania – the European Bank for Reconstruction and Development has financed parallel investments, while a concession was awarded by the government after direct negotiations.
Being monopolies, all water utilities – public or private – need to be regulated concerning tariff approvals, service quality, environmental compliance and other aspects. The awareness for the need to regulate typically increases substantially when profit-oriented private operators become involved: Monitoring the performance of both the private and the public partner, applying sanctions in case of non-compliance and dispute resolution become particularly important. The regulatory tasks depend on the form of private sector participation: Under a management contract the monitoring of the achievement of performance standards, on which the remuneration of the private company depends, is typically carried out by an independent consulting firm. Under a concession contract or in the case of an asset sale, tariff regulation through a regulatory agency or the government is a key regulatory function. Water concessions are frequently renegotiated, often resulting in better terms for the private company. For example, negotiations of concessions in Buenos Aires and Manila resulted in investment requirements being reduced, tariffs being increased and tariffs being indexed to the exchange rate to the US dollar. The quality and strength of regulation is an important factor that influences whether water privatization fails or succeeds. The tasks, form and capacity of the public entities charged with regulation vary greatly between countries.
Globally, regulation of private water companies is being carried out by the following types of public entities or, sometimes, a combination of them.
|Type of entity charged with the regulation of private water providers||Examples|
|Municipality or an association of smaller municipalities||France and Spain|
|Specialized body at the city level set up to regulate a single contract||Guayaquil, Ecuador; San Pedro Sula, Honduras; Jakarta, Indonesia (with some control by the national government in the latter case); Manila, Philippines; formerly in Buenos Aires, Argentina|
|Specialized regulatory agency at the supra-municipal sub-national level||Public Utilities Commissions in U.S. states; some Brazilian states|
|Specialized regulatory agency set up permanently under law at the country level||OFWAT in England; Water Superintendency SISS in Chile; Water Regulatory Commission CRA in Colombia|
|Specialized unit in a Ministry set up temporarily by decree||Ministry of Water in Jordan|
|Ministerial department||Ministry of Interior in Morocco|
The best-known examples of water privatization in the late 20th century are those undertaken in England under Margaret Thatcher, the Manila and Buenos Aires concessions as well as the failed privatization in Cochabamba, Bolivia, which became a symbol of the struggle against globalization. Less well known, but just as relevant, are water privatizations in other countries, such as in Colombia.
Private water firms have had a dominant role in France for more than a century. Private water firms (Veolia Water, Suez Environnement and smaller peers such as Saur) control 60 percent of France's water market. Veolia and Suez are the world's largest private international water and wastewater firms.
In England and Wales, water tariffs and profits increased substantially after privatization in 1989, but investments also increased and water quality in rivers improved. Tariffs increased by 46% in inflation-adjusted terms during the first nine years after privatization. Operating profits have more than doubled (+142%) in the first eight years. On the other hand, privatization increased investments: In the six years after privatization the companies invested £17 billion, compared to £9.3 billion in the six years before privatization. It also brought about compliance with stringent drinking water standards and led to a higher quality of river water. According to data from OFWAT, the economic regulator of water and sewer companies in England and Wales, from the early 1990s until 2010, network pressure has improved substantially, supply interruptions have become less frequent, the responsiveness to complaints has improved and leakage has been reduced.
Water privatization in Manila began in 1997 with the award of two concession contracts for the Eastern and Western halves of Metro Manila. The concessions represent the largest population served by private operators in the developing world. As of 2010, the concession in Eastern Manila is highly successful and has led to significant improvements in access, service quality and efficiency: the population served more than doubled from 3 in 1997 to 6.1 million in 2009, the share of customers with continuous water supply increased from 26% to more than 98% and non-revenue water declined from 63% to 16%. The concession in Western Manila failed when the company Maynilad went bankrupt in 2003. It was sold to new investors in 2007 and performance has improved since then. The share of the population with access to piped water in Western Manila increased from 67% in 1997 to 86% in 2006 and the share of customers that enjoys 24-hour water supply increased from 32% in 2007 to 71% in early 2011.
Water privatization in Argentina began in 1992 under the government of Carlos Menem as part of one of the world's largest privatization programs. Concessions were signed in 28% of the country's municipalities covering 60% of the population, including in 1993 for the metropolitan area of Buenos Aires. After the 2001 economic crisis, under the government of Néstor Kirchner, almost all concessions were terminated, including in Buenos Aires in 2006. The impact of the concession remains controversial. The government and critics argue that the concessionaire failed to achieve the targets set under the concession contract in terms of expansion of access, investment and service quality. Proponents concede that targets were not reached, but argue that a freeze in tariffs at the time of the devaluation of the Peso during the Argentinian economic crisis in 2001 violated the contract and thus made it impossible to achieve the original targets. According to the Argentinian economist Sebastian Galiani, the public company OSN had invested only US$25m per year between 1983 and 1993, while the private concessionaire Aguas Argentinas increased investments to around US$200m per year between 1993 and 2000. According to the private concessionnaire Suez, during the 13-year-duration of its concession it extended access to water to 2 million people and access to sanitation to 1 million people, despite the economic crisis. In July 2010 the International Center for the Settlement of Investment Disputes (ICSID) ruled that the Argentinian government unfairly refused to allow the private concessionaires to raise tariffs during the period after the devaluation of the Argentine peso in 2001 and that the private companies are entitled to damages. The private companies announced that they would seek US$1.2bn in damages.
In the mid-1990s the government of Bolivia, under pressure from the World Bank, decided to privatize water supply in the country's third largest city, Cochabamba. In the previous years, despite encumbered funds made available by the World Bank to support the public utility of Cochabamba, access to piped water in the city had decreased to 40%, water losses had remained high at 40% and water was supplied only 4 hours a day. Those not connected to the network paid ten times as much for their water to private vendors as those who were. This contrasted with the situation in Bolivia's second largest city, Santa Cruz, where a utility run as a cooperative had managed to increase access and improve service quality with the support of the World Bank. In Santa Cruz privatization had never been considered.
In 1997 a first bid for a water concession in Cochabamba had been declared void at the request of the mayor of Cochabamba, Manfred Reyes Villa. He wanted the construction of a large dam, the Misicuni dam, and a pipeline from the dam to the city to be included in the concession. The World Bank had opposed the dam as unnecessarily expensive and subsequently ended its involvement related to water supply in the city. Despite this, in the view of the public the World Bank remains inseparably linked to the Cochabamba privatization.
The government proceeded to bid out the concession, this time including the Misicuni dam. Only a single company submitted a bid, Aguas del Tunari, a consortium led by Bechtel. The government accepted the bid and signed the concession. The consortium was guaranteed a minimum 15% annual return. In parallel, a law was passed that appeared to give a monopoly to Aguas del Tunari over all water resources, including water used for irrigation, communal water systems and even rainwater collected on roofs. Upon taking control the company raised water tariffs by 35%.
Demonstrations and a general strike erupted in January 2000 in protest against the tariff increase and the perceived privatization of water resources. The government arrested the leader of the protesters, Oscar Olivera. But the protests spread to the entire country and the government declared a state of emergency in April. Protests still continued and several people were killed. In the midst of the turmoil the employees of Aguas del Tunari fled from Cochabamba. The government finally released Oscar Olivera and signed an agreement with him stating that the concession would be ended. The government then told Aguas del Tunari that by leaving Cochabamba they had abandoned the concession and parliament revoked Law 2029. The Cochabamba protests became a worldwide symbol of struggle against neoliberalism and the Cochabamba privatization is probably, both among activists against globalization and the general public, by far the best known example of the failure of water privatization.
The company, insisting that it had been forced out, filed a $25 million lawsuit in the International Centre for Settlement of Investment Disputes. The proceedings, which were held behind closed doors, ended in 2006 with a settlement under which Bechtel dropped its claim. With financing from the Inter-American Development Bank the city expanded its piped water system in the aftermath of the riots. Nevertheless, under public management half of the 600,000 people of Cochabamba remain without piped water and those with it continue to receive intermittent service. Oscar Olivera the leading figure in the protests admitted, "I would have to say we were not ready to build new alternatives."
Between 1996 and 2007, public-private partnerships for water and sewer services in more than 40 Colombian cities were entered into, serving more than 20% of the country's urban population. Most of the contracts were awarded in municipalities with highly deteriorated infrastructure, such as Barranquilla and Cartagena. The central government financed most investments through grants, thus reducing the need to increase tariffs. Water privatization in Colombia was largely homegrown, adapting models used elsewhere to the particular circumstances and culture of Colombia. A model introduced from Spain, the mixed company with a majority stake by the municipality and a minority stake by a private operator, was particularly successful. Foreign water companies won some of the early contracts, but quickly sold a majority of their shares to Colombian operators. There was a significant increase in access under private contracts. For example, in Cartagena water supply coverage increased from 74 percent to almost universal coverage, while sewer coverage went up from 62 percent to 79 percent between 1996 and 2006. Half a million people gained access and 60 percent of the new connections benefited families in the poorest income quintile. To achieve universal coverage, the operator made extensive use of community bulk-supply schemes that provide safe water to the many illegal settlements that were expanding on the city's periphery. However, there are no conclusive evidence showing that access increased more rapidly under private contracts than in the case of publicly managed utilities. In Cartagena, tariffs declined substantially, indicating that the operator passed on efficiency gains to consumers.
The evidence concerning the impact of water privatization is mixed. Often proponents and opponents of water privatization emphasize those examples, studies, methods and indicators that support their respective point of view. As with any empirical study, results are influenced by the methods used. For example, some studies simply compare the situation before privatization to the situation after privatization. More sophisticated studies try to compare the changes in privately managed utilities to those of publicly managed utilities that operate under similar conditions during the same period. The second group of studies often use econometric techniques. The results also depend on the choice of the indicator used to measure impact: One common indicator is the increase in access to water supply and sewerage. Other indicators are changes in tariffs, investments, water-borne diseases or indicators for service quality (e.g. continuity of supply or drinking water quality) and efficiency (e.g. water losses or labor productivity).
A before-after comparative study by the World Bank analyzes how access, quality of service, operational efficiency and tariffs have evolved under 65 public-private partnerships for urban water utilities in developing countries. The study estimates that "PPP projects have provided access to piped water for more than 24 million people in developing countries since 1990". Private operators contributed little in terms of financing, which was provided to a large extent by tariff revenues and development aid. A study that compared changes under PPPs to changes that occurred in publicly managed utilities during the same period in Argentina, Bolivia and Brazil found that access to water supply and sanitation increased both for utilities under private and under public management to the same extent. The study concludes that "private sector participation, per se, may not have been responsible for those improvements". Others have argued that privatization is often associated with increase in tariffs – which reduces the accessibility of the resource for poor households. Water privatization can hinder the accessibility of water. When for-profit companies invest in the water system, the desire to make returns on the investment can create a top-heavy distribution system. In this scenario, the desire to supply poor districts decreases because the poor are unable to pay the tariffs, however small they may be. On the opposite end of the spectrum, investments are made to improve accessibility in richer districts where the people can pay the tariffs. In this manner, the water company's need to make adequate returns is met by supplying water only to those who can pay. However, water supply privatization may in some cases lead to expansion of services to low-income districts. The urban poor who have no official access to water may have a relatively high willingness to pay because they may suffer from even higher tariffs typically charged by informal water vendors.
A study of water privatization's impact on health, as measured by child mortality, found that between 1991–1997 in Argentina child mortality fell 8 percent more in cities that had privatized their water and sewer services compared to those that remained under public or cooperative management. The effect was largest in poorest areas (26 percent difference in reduction). The main reason was a greater expansion of access to water in cities with privatized utilities. This increase was concentrated in poorer areas that did not receive services before private sector participation was introduced.
In almost all cases, water tariffs increased in the long run under privatization. In some cases, such as in Buenos Aires and in Manila, tariffs first declined, but then increased above their initial level. In other cases, such as in Cochabamba or in Guyana, tariffs were increased at the time of privatization. In some cases in Sub-Saharan Africa, where much of the investments are funded through development aid, tariffs did not increase over a long period. For example, in real terms tariffs remained stable in Senegal, while in Gabon they declined by 50% in five years (2001–2006) and by 30% in ten years in Côte d'Ivoire (1990 to 2000). These exceptions notwithstanding, tariff increases are the rule over the long term. However, initial tariffs have been well below cost recovery levels in almost all cases, sometimes covering only a fraction of the cost of service provision. Tariff increases would thus have been necessary under public management as well, if the government wanted to reduce subsidies. The magnitude of tariff increases is influenced by the profit margin of private operators, but also to a large extent by the efficiency of utilities in terms of water losses and labor productivity.
A study of household water expenditures in cities under private and public management in the U.S., however, concludes that "whether water systems are owned by private firms or governments may, on average, simply not matter much."
A World Bank study argues that the most consistent improvement made by public-private partnerships in water supply was in operational efficiency. Private operators thus made a strong indirect contribution to financing by improving efficiency, making it possible for utilities to finance investments internally instead of having to rely on more debt.
An earlier World Bank paper reviews six empirical studies on the impact of private management on the efficiency of water utilities in Africa, Asia, Argentina and Brazil. It concluded that some studies did find evidence for higher cost-efficiency by private operators and for improvements as a result of privatizations, but overall evidence suggests that "there is no statistically significant difference between the efficiency performance of public and private operators in this sector." A 2008 literature review by the Asian Development Bank shows that of 20 studies reviewed, only three show concrete evidence on technical efficiency improvements or cost reductions under private management.
An empirical study of 34 concessions in nine Latin American countries during the 1990s, including 10 water concessions in 5 countries (3 in Argentina, 1 in Bolivia, 1 in Brazil, 3 in Chile and 2 in Colombia), has estimated the profitability of concessions compared to the cost of capital of private companies. According to the study, contrary to public perception, the financial returns of private infrastructure concessions have been modest. The average annual return on capital employed was 7 percent. For a number of concessions the returns have been below the cost of capital. On average telecommunications and energy concessions have fared much better than water concessions. Seven out of 10 water concessions had negative rates of return and two concessions had returns that were lower than the cost of capital of the private companies.
Private water operators come in very different forms from multinational corporations to small enterprises. According to the Pinsent Masons Water Yearbook 2010–11, 909 million people (13% of the world population) were served by private operators. The largest private water companies are:
Domestic water operators have a strong presence in Brazil, Colombia, China, Malaysia, and the Philippines.
Public water companies also sometimes participate in bids for private water contracts. For example, the Moroccan state-owned water utility ONEP has won a bid in Cameroon and the Dutch publicly owned water firm Vitens has won a management contract in Ghana.
Countries and cities with private sector participation in water supply as of 2013:
Countries which had private sector participation in water supply in the past:
The figures are quoted from the Pinsent Masons' 12th Annual Water Yearbook
In 1994, the ruling Conservative Government of the United Kingdom brought forward plans to overhaul a number of aspects of local government in Scotland as part of the Local Government etc. (Scotland) Act 1994. Part II of the Act reorganised Scotland's water supply and sewerage services, previously the responsibility of regional councils. Three water authorities were established: East of Scotland Water; West of Scotland Water; and North of Scotland Water. The main reason for this reorganisation was to prepare for the privatisation of water services, to bring Scotland into line with the rest of the UK. The water authorities in England and Wales had been privatised in 1989. However, public opinion was strongly against such a move, with successive polls showing 86% - 91% of people definitely opposed.Bill Campbell (mayor)
William Craig "Bill" Campbell (born 1953) is an American politician, who served as the 57th Mayor of Atlanta, Georgia from January 1994-January 2002. He was the third African-American mayor in the city's history.Maude Barlow
Maude Victoria Barlow (born May 24, 1947) is a Canadian author and activist. She is the National Chairperson of the Council of Canadians, a citizens’ advocacy organization with members and chapters across Canada. She is also the co-founder of the Blue Planet Project, which works internationally for the human right to water. Maude chairs the board of Washington-based Food & Water Watch, is a founding member of the San Francisco–based International Forum on Globalization, and a Councillor with the Hamburg-based World Future Council. In 2008/2009, she served as Senior Advisor on Water to the 63rd President of the United Nations General Assembly and was a leader in the campaign to have water recognized as a human right by the UN. She has authored and co-authored 18 books.Metropolitan Waterworks and Sewerage System
The Metropolitan Waterworks and Sewerage System (Tagalog: Pangasiwaan ng Tubig at Alkantarilya sa Kalakhang Maynila), formerly known as the National Waterworks and Sewerage System Authority (NAWASA) is the government agency that is in charge of water privatization in Metro Manila in the Philippines. It split the water concession into an east and a west concession with Manila Water being award one contract and Maynilad Water Services being awarded the other.Water privatisation in England and Wales
The water privatisation in England and Wales involved the transfer of the provision of water and wastewater services in England and Wales from the state to the private sector in 1989, through the sale of the ten Regional Water Authorities (RWA). The potable water supply as well as the sewerage and sewage disposal functions of each RWA were transferred to privately owned companies.Water privatisation in Ghana
Water privatization in Ghana has been discussed since the early 1990s as a reaction to poor service quality and low efficiency of the existing urban water utility. The World Bank supported the process of private sector participation in the urban water sector from the beginning. After many tribulations a 5-year management contract was awarded in 2006. When the contract expired in 2011, the government decided not to extend it, saying that the private operator had not lived up to expectations.Water privatisation in Jakarta
Water privatisation in Jakarta began when the British water company Thames Water entered into an agreement with the son of then-President Suharto in 1993 to obtain a water concession. Under the influence of the French water company Suez, however, the government decided to split the city's service area between the two companies. The government awarded Thames Water and Suez each a concession for one half of the city without competitive bidding. The contracts foresaw water charge increases that would allow the companies to earn a comfortable 22 percent rate of return. However, only two months after the contracts were signed, the Indonesian rupiah massively lost in value due to the East Asian financial crisis, and President Suharto was toppled. The concessions survived, but the government imposed a tariff freeze and the contracts had to be renegotiated to reduce their targets. In 2006 Suez sold half and Thames Water all its shares to Indonesian investors.
The main targets of the concession were to increase service coverage from an initial 46 percent and to reduce water losses from 61 percent. The original target of the concessions was to reach 75 percent service coverage in 2008 and 100 percent at the end of the concession. They also aimed to reduce water losses to 25 percent by 2008 and 20 percent by the end of the concession. These targets were substantially loosened during the renegotiations: The new 2008 targets were 68 percent for service coverage and 42 percent for water losses. In 2008 service coverage reached only 64 percent and water losses were reduced to only 50 percent. During the same period, water tariffs increased threefold. This increase was partly due to increases in the cost of electricity and bulk water purchases which are passed through by the private companies to the customers.
On 24 March 2015 the Central Jakarta District Court ruled the privatisation of Jakarta's water was illegal and ordered the return of the water system to public control. The court noted that the private operators were "negligent in fulfilling the human right to water for Jakarta’s residents.” The private operators won an appeal in the Jakarta High Court. In October 2017, the Indonesian Supreme Court overturned the appeal and confirmed the District Court Ruling that the privatization of Jakarta's water was an illegal act.Water privatisation in South Africa
Water privatisation in South Africa is a contentious issue, given the history of denial of access to water and persisting poverty. Water privatisation has taken many different forms in South Africa. Since 1996 some municipalities decided to involve the private sector in water and sanitation service provision through short-term management contracts, long-term concessions and contracts for specific services such as wastewater treatment. Most municipalities continue to provide water and sanitation services through public utilities or directly themselves. Suez of France, through its subsidiary Water and Sanitation Services South Africa (WSSA), and Sembcorp of Singapore, through its subsidiary Silulumanzi, are international firms with contracts in South Africa. According to the Managing Director of Silulumanzi "the South African water market is still in its infancy and municipalities are unsure of how to engage the private sector."Water privatization in Argentina
The privatization of water and sanitation services in Argentina between 1991 and 1999 under the government of Carlos Menem was part of one of the world's largest privatization programs. Water and sanitation concessions with the private sector were signed in 28% of the country's municipalities covering 60% of the population.The highest profile concession was signed in 1993 with a consortium led by the French firm Suez for the metropitan area of Buenos Aires. After the 2001 economic crisis, under the government of Néstor Kirchner, many concessions were renegotiated. Some were even terminated and the responsibility for service provision reverted to public entities, as it was the case in Buenos Aires where the newly created public enterprise Aguas y Saneamientos Argentinos took over the responsibility for service provision in 2006.At the beginning of 2008, the government of the Province of Mendoza announced that it is interested in increasing its control of the provincial water utility Obras Sanitarias de Mendoza, of which it owns 20%, buying another 20% from Saur International.Water privatization in Bolivia
The privatization of water supply and sanitation in Bolivia took place during the second mandate of Bolivian President Hugo Banzer (1997-2001) in the form of two major private concessions: One in La Paz/El Alto to Aguas del Illimani S.A. (AISA), a subsidiary of the French Suez (formerly Lyonnaise des Eaux) in 1997; and a second one in Cochabamba to Aguas del Tunari, a subsidiary of the multinationals Biwater and Bechtel in 1999.Water privatization in Brazil
Water privatization in Brazil has been initiated in 1996. In 2008 private companies provided 7 million Brazilians - 4% of the urban population - in 10 of the country’s 26 states with drinking water. The private sector holds 65 concession contracts in the states of São Paulo, Rio de Janeiro, Espírito Santo, Mato Grosso, Mato Grosso do Sul, Santa Catarina, Minas Gerais, Paraná, Pará and Amazonas. Private companies have committed to invest 4.5 billion reais (US$2.8 bn) in the sector. The bulk of Brazil’s population receives water and sanitation services from public municipal or state-level utilities (see Water supply and sanitation in Brazil).
Water privatization in Brazil has been relatively limited compared to other infrastructure sectors (power, transport, telecommunications). Compared to other Latin American countries, it has been more stable than in Argentina and Bolivia, but also less widespread than for example in Chile. As under all concession contracts, the infrastructure itself remains public, but is being operated by the private sector. Likewise, water resources themselves remain publicly owned. Most concession contracts have been awarded by municipalities. A lack of legal clarity as to the right of state governments to also award concession contracts has thwarted some efforts at water privatization, notably in the state of Rio de Janeiro.
Privatization in Brazil has taken place without having previously developed a comprehensive regulatory regime, as it was the case in Chile. The impact of water privatization on access, investment, service quality, water use, tariffs and efficiency has been assessed in a 2008 study with the support from various Brazilian stakeholders as part of a global multistakeholder dialogue on water and the private sector.Water privatization in Cuba
Water privatization in Cuba began in January 2000 when the socialist government of Cuba created a mixed public-private company to manage the water, sewer and stormwater drainage system in 8 of the 15 municipalities that make up the country's capital Havana. The government avoids the term privatization, despite the involvement of two foreign private companies as key partners in the mixed company. The company operates under a 25-year renewable concession contract. It serves 1.25 million inhabitants in the municipalities of Old Havana, Central Havana, Cerro, Plaza de la Revolución, 10 Octubre, La Lisa, Playa, and Marianao, which together are home to 60 percent of Havana's population. The company, called Aguas de la Habana, has a capital of 8 million USD and is owned by the Cuban state through the National Institute for Water Resources (INRH), the Spanish private company Aguas de Barcelona (Agbar) and the Spanish family firm Grupo Martinon. The contract foresees that ultimately the entire population of Havana will be served by the company.The cooperation between the three companies goes back to a project undertaken in the Cuban tourist resort Varadero since 1994, involving Canaragua, the subsidiary of Aguas de Barcelona operating in the Canary Islands, and the firm Martinon whose owners also come from the Canary Islands. After this successful initial experience, Agbar and INRH signed a contract to operate the water services in three municipalities La Lisa, Playa and Marianao in Western Havana in 1997. Following this pilot project, the creation of the mixed company Aguas de la Habana was decided in a framework agreement signed in February 1999 in Barcelona.Agbar "facilitated" 24.7 million USD of financing through loans. At least some of these loans are soft loans from the Spanish International Cooperation Agency, which financed the first ever major rehabilitation of the more than one century old Albear aqueduct that provides 12% of the capital's water supply. In addition to operating and maintaining the systems, Aguas de La Habana also carries out engineering studies and executes works.
The company's annual billing is US$ 9m for about 115 million cubic meters of water it delivers to its customers. As of 2004, Aguas de Barcelona reported significant progress. According to the company, 95 percent of the city's residents that had to be supplied by tanker trucks before the concession contract relied on tap water as of 2004. The continuity of supply had increased from 7 to 10 hours per day. However, as of 2010 progress was apparently slow, as water distribution losses are still estimated at 50% in 2010 and more than 100,000 inhabitants suffer from intermittent supply.Water privatization in Dar es Salaam
Water privatization in Dar es Salaam began with the award of a 10-year lease contract signed in 2003 for Dar es Salaam, the largest city and former capital of Tanzania. It was signed between the government of Tanzania and City Water, a consortium consisting of the former British firm Biwater, Gauff Engineers from Germany and a Tanzanian company called Superdoll. The government terminated the lease contract in May 2005 amid mutual allegations of breach of contract, and deported the three top executives of City Water.Water privatization in Honduras
Water privatization in Honduras has been limited to the city of San Pedro Sula which has signed a 30-year concession contract with a private operator. Two other cities, Puerto Cortes and Choloma, have introduced an interesting management model that cannot be characterized as either private or public. They have created mixed companies without the involvement of a private company. Instead, the majority of shares in the municipal company are held by cooperatives, unions and the local business association, with a minority ownership by the municipality. (see Water supply and sanitation in Honduras#The case of Puerto Cortes)
In San Pedro Sula, the country's economic capital, the municipality has given a concession to a private operator for 30 years in 2000. As a result, between 1999 and 2003 the number of homes with residential water service in San Pedro Sula increased from 84 percent to 93 percent, thanks to the installation of 13,600 new connections. The proportion of tap water receiving proper treatment rose from 22 percent to 80 percent. Water pressure and continuity increased throughout the system.
The municipality receives additional revenue through a 5% surcharge paid by the concessionaire. According to ESA Consultores, an independent consulting firm in Tegucigalpa, rates in San Pedro Sula are among the lowest in all Central America. On the other hand, tariffs did increase compared to the very low level prior to the concession and residents in poor neighborhoods complain that their service is still far from satisfactory.
The process to award the concession included extensive consultations. A ‘Municipal Transparency Commission’ was created, made up of representatives of civil society, including labor unions, the Dutch consul in Honduras, the Catholic Church and a local university, to oversee the process. The municipal council carefully reviewed all of the documents, at each stage of the process. Three international consortia offered formal bids for the concession. To make sure that the process was transparent, the municipality decided to award the concession based on a single criterion: the lowest water tariff. The bids were opened in public and the concession was awarded to a group of Italian companies called Aguas de San Pedro, headed by Acea which runs water and sanitation systems for the city of Rome. Not only was the tariff offered by this group the lowest, but it was lower than the tariff charged by the municipal water company at the time.The concession contracts foresees the installation of meters, the expansion of the sewer system and the construction of wastewater treatment plants. The concessionaire committed itself to undertake investments of US$ 208 million over the 30-year concession period. Investments have been partially financed by a US$ 13.7 million loan from the Inter-American Development Bank approved in 2002.Despite efforts at community outreach and despite the improvements mentioned above, the concessionaire was met with a lot of suspicion by residents of poor neighborhoods, especially when meters were installed. Residents who were used to leave their taps open until water comes suspected that meters counted air and refused water bills that went up after meters were installed. Unlike in Puerto Cortes, no independent municipal regulatory entity was created. Instead a municipal department to monitor concession contracts was created, but it lacked autonomy from the municipal government.Water privatization in Metro Manila
Water privatization in Metro Manila began when the then President of the Philippines, Fidel Ramos, instructed the government in 1994 to solve what he called the water crisis in Manila by engaging with the private sector. In 1997, two concession contracts for the Eastern and Western halves of Metro Manila were awarded after an open competition. The concessions represent the largest population served by private operators in the developing world. Both winning companies, Maynilad Water Services in West Manila and especially Manila Water in East Manila, submitted bids with extremely low water tariffs. The tariffs proved to be too low to finance the investments needed to improve performance, especially after the East Asian financial crisis and the devaluation of the Filipino Peso.
Maynilad expanded access, but unable to reduce water losses it stopped paying concession fees to the government and went bankrupt in 2003. It was temporarily taken over by the government, sold to new investors in 2007 and performance has improved since. Manila Water struggled initially, but increased its contractual rate of return by arbitration in 1998, improved performance, and in 2003 the International Finance Corporation (IFC) provided a loan and took an equity stake in the company, followed by an Initial Public Offering (IPO) of shares on the Manila stock exchange in 2004 and local currency bond sales in 2008.
Neither company achieved its contractual targets of increased access. Improvements in access and service quality were slow during the first years, especially in West Manila. Progress in water sanitation has been far below the contractual targets of access to sewerage from less than 10 percent to 66 percent in West Manila and 55 percent in East Manila until 2021.
Tariffs in both halves of the metropolitan area were first reduced, but then increased substantially. After adjustment for inflation, in 2008 average tariffs in West Manila were 89 percent higher than the pre-privatization tariff of 1997, and 59 percent higher in East Manila.Water privatization in Morocco
Water privatization in Morocco goes back to the times of the French Protectorate when most water supply systems were run under a private concession. After independence the private utility was nationalized, but in the mid-1990s the Moroccan government privatized water and sewer services again, alongside electricity distribution, in four cities. The privatization process began with the award of the Casablanca concession to Lyonnaise des Eaux (now SUEZ) in 1997, followed by the award of a concession for the capital Rabat in 1998 and the award of another concession for Tangiers and Tetouan to Veolia Environnement. In 2009 private companies provided water and sanitation services to 38% of the urban population of the country.Water privatization in the United States
In some places in the United States private ownership and provision of water was the norm historically. In the latter half of the 19th century, private water systems began to be a part of municipal services. As of 2011, over three quarters of US local governments surveyed by the ICMA (International City/County Management Association) provide water distribution entirely
with public employees. Over two thirds of municipalities provide water treatment publicly, and over half provide sewage collection and treatment publicly. These rates have remained relatively stable over time.The increased interest in privatizing public water services is an outgrowth of political forces and public policies favoring privatization of public services generally, and water resources specifically. A growing number of contracts to privatize public water services is an indicator that privatization has become increasingly attractive to many public water institutions. State legal authority for public entities to privatize water systems has aided the privatization trend. States have enacted statutes authorizing municipalities and other public entities to enter into contracts with private entities to supply water to the public.Water corporations have identified United States public systems as potentially profitable. These are United Water, a subsidiary of the French company Suez Environment, American Water, and Siemens from Germany which acquired US Filter Corps from French Veolia Environment and runs it under the Siemens name.Water supply and sanitation in Chile
Water supply and sanitation in Chile is characterized by high levels of access and good service quality. Compared to most other countries, Chile's water and sanitation sector distinguishes itself by the fact that almost all urban water companies are privately owned or operated (the only exception is SMAPA). The sector also prides itself of having a modern and effective regulatory framework, including an innovative subsidy to water demand by the poor. One weakness of the sector is the relatively high water losses.
This article is part of a series of articles comparing the institutional and financial characteristics of water supply and sanitation around the world.