Water privatization – when private corporations buy or operate public water utilities – is often suggested as a solution to municipal budget problems and aging water systems. However, critics say privatizing local water and sewer systems usually does far more harm than good for our communities.

Need for privatization:

Water is a basic need of life and even the United Nations (UN) has recognized this need as a human right. The UN World Water Report of 2006 notes that “there is enough water for everyone” and “water insufficiency is often due to mismanagement, corruption, lack of appropriate institutions, bureaucratic inertia and a shortage of investment in both human capacity and physical infrastructure“.

• However, the process whereby all resources not limited to water are transformed from a public good to a tradable commodity is due to economic processes at work.
• Fears over water scarcity and the need to manage water efficiently by giving it an economic value is the starting point from where privatization is pushed.
• Critics of public supply of water insisted on the state’s inability to operate efficiently and created a case for a shift towards market-based water governance.

Why privatization of water is not a good idea?

• By privatizing water and sewer systems, local government officials abdicate control over a vital public resource.
• Privatization limits public accountability. Multinational water corporations are primarily accountable to their stockholders, not to the people they serve.
• Loss of transparency. Private operators usually restrict public access to information and do not have the same level of openness as the public sector.
• The objectives of a profit-extracting water company can conflict with the public interest. Because a water corporation has different goals than a city does, it will make its decisions using a different set of criteria, often one that emphasizes profitability. This can create conflict.
• Private water companies are unlikely to adopt the same criteria as municipalities when deciding where to extend services. They are prone to cherry-picking service areas to avoid serving low-income communities where low water use and frequent bill collection problems could hurt corporate profits.
• As a result of price hikes, service disconnections, inadequate investment and other detrimental economic consequences, water privatization often interferes with the human right to water.
• Empirical evidence indicates that there is no significant difference in efficiency between public and private water provision. In theory, competition would lead to cheaper contracts, but in practice, researchers have found that the water market is “rarely competitive.” The only competition that can exist is the competition for the contract, and there are only a few private water companies that bid to take over municipal water systems. Once a contract is awarded, the winning company enjoys a monopoly. A lack of competition can lead to excess profits and corruption in private operations.
• A survey of 10 privatization contracts found that after taking over a system, water companies reduce the workforce by 34% on average. Other surveys have found similar results.

India’s experience:

In 2012, municipal body in Nagpur handed over its water supply to a subsidiary of the French water corporation, Veolia, for 25 years. Since then, the project has seen allegations of corruption, four increases in water tariffs, cost overruns, and delays in plugging leaks. The municipal body’s financial losses from water works has reportedly increased by Rs 60 crore per annum, leading to demands, from both opposition parties and the local community, for the ouster of the private player.

• Nagpur was the first large city in India to hand over its entire water service to a private firm. Smaller experiments in privatisation in Khandwa, Mysore, and Aurangabad, among others, have followed similar trajectories. Social mobilisation against the introduction of PPP (Public-Private Partnership) projects in metros such as Mumbai, Delhi and Bangalore have led to the plans being aborted.
• Water services Latur were handed over to a private operator — but within a few years, the Maharashtra water supply department had to take back control after high tariffs without any improvement in water quality triggered strong protests.

Global experience:

A 2014 study by the Transnational Institute lists 180 case studies in the last 15 years of public authorities wresting back control from private players — including in capital cities such as Paris, Berlin, Buenos Aires, Budapest, Kuala Lumpur and Bogota. 75% of these cases have been in high-income countries. The US has seen the largest number of cases — 59 — followed by France (49), home to the world’s largest water corporations, Veolia and Suez, and the country with the longest history of water privatisation.

Forty-four cases were recorded in middle- and low-income countries. The smaller number has been attributed to the fact that these countries are more likely to be subject to conditionalities of multilateral lenders. Also, the transaction cost of remunicipalising often involves paying huge compensation to the private operators for lost profits.

Then, what role should the private sector play?

From developing new technologies to providing construction crews for new treatment plants, the private sector plays an important role in protecting our water resources and finding innovative solutions to the water crisis. Although the public and private sectors work well together in many areas, businesses should not operate, manage or own public drinking water or wastewater systems. Those duties should fall under the purview of local governments, who have a responsibility to ensure safe and affordable service for all.

What can be done?

Instead of privatizing water systems, municipalities can partner together through public-public partnerships. Public partners are more responsive, reliable and cost-effective than private water companies. Intermunicipal cooperation, interlocal agreements and bulk purchasing consortiums can improve public services and reduce costs, while allowing communities to retain local control.

• As the drafted National Water Framework Law (NWFL) states, “water is the common heritage of the people of India; an inseparable part of a people’s landscape, society, history and culture; and in many cultures, a sacred substance, being venerated in some as a divinity”. Such a resource must never be privatised.
• Indeed, as the NWFL goes on to say: “The State at all levels holds water in public trust for the people and is obliged to protect water as a trustee for the benefit of all”. And that no one’s use of water should lead to depriving anyone of his or her basic right to water for life. So much so that even a “delegation of water service provision to a private agency will, in no event, constitute the privatisation of water”.
• Thus, the Public Trust Doctrine enunciated by the Supreme Court, rather than privatisation or nationalisation, is the answer to India’s water problems.

Conclusion:

Because private sector focuses on profit it is important that Government’s restructure Water Utilities to reverse the infrastructural decay and improve their performance. There is a need to have greater engagement with the public and make Water Utilities accountable and capable of delivering water services.