Environmental
Science & Engineering - www.esemag.com
- May 2003
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How is water privatization working?
by Richard M.Temple
Vice President, International Private Water Association,
Europe,Middle East and Africa
Should Canada swim with the tide of growing private sector participation
(PSP) in water worldwide? To read recent press articles one would think
that public sector provision is the only answer. However, these articles
choose selectively from water projects, highlighting where possible increased
prices, lack of investment, poor service and inadequate regulation.
PSP has much to offer. A brief review of the often maligned UK water
privatization model, one of only a limited number of fully privatized water
systems worldwide, reveals a very different story. Let us take each of
the issues in turn:
Pricing
Water prices in England and Wales have increased by 20.1% in real terms
since privatization in 1989. Is this a real disaster? No. This increase
is primarily a result of the massive underinvestment in the years preceding
privatization, followed thereafter by hugely increased investment requirements
mandated by EU regulations and new stringent environmental legislation.
The real question is whether prices would have risen higher if the system
had remained in public hands? Probably yes, but we can only speculate.
Has the system been run more efficiently to temper such price increases?
Again, yes. Based on extensive reviews by the UK’s regulatory bodies there
is no doubt that the current water system in England and Wales operates
more efficiently than it did before 1989.
Investment
By 2005, over £50 billion will have been invested in improved drinking
water quality and higher environmental standards in the UK since 1989.
Annual investment for water and sewage (at 1999/2000 prices) was £1.8
billion in 1985-1990, compared with forecasts of £2.9 billion from
2000- 2005. Investment in water and sewage services is at an all-time high.
Could the public sector have invested these sums? Probably, but at what
cost and with what effect on other public services?
Quality and Service
Since 1991, water industry performance in England and Wales has steadily
improved across the range of levels of service indicators. A survey conducted
by the UK water regulator and WaterVoice during 2001 showed that customers
are now generally satisfied with the standard of service provided and its
value for money. The quality of drinking water in England and Wales, as
assessed by the Drinking Water Inspectorate, reached record levels, with
99.86% of tests meeting the relevant standard in 2001. Since its peak in
1994-95, leakage has fallen by 33%, enough to supply the daily needs of
12 million people.
Proper Regulation
The regulator’s task is never easy. Indeed balancing the needs of customers
in 23 million UK properties with those of private sector companies will
always be challenging. In the years following privatization the private
sector made significant profit, and criticisms were made that prices were
too high. With benefit of hindsight, we can say this may be true; although
there was little way of knowing this in 1989, when costs and efficiencies
were all still unknown. To a great extent these issues have now been tackled
with the windfall tax, a one-off tax on utilities in 1997, and the stringent
price controls in the 1999 five-year price review. Ultimately, the lesson
to be learned from this is that strong regulation is vital to the success
of privatized water services, and that privatization itself is not the
problem.
In global terms, much remains to be done to address the significant
needs for improved water infrastructure and the lack of capital investment
and competing priorities for government funds worldwide. With requirements
in billions of dollars, public funds dwindling and water and sewage systems
ever ageing, the problem is becoming more acute. Around the world, millions
of people live without access to clean water or sewage services. In the
face of such overwhelming need, governments need to at least consider ways
of combining public and private sector involvement. This is particularly
true for poor and rural supplies.
Experience shows that public sector provision is in many cases inadequate
and cannot cope with the huge capital needs of the water and sewage network.
PSP advocates will talk of value for money, transfer of risk, increased
investment, efficient management, maintenance of assets, etc. However,
private sector participation can also be problematic, particularly in the
absence of strong regulation. Ultimately, any assessment of success or
failure is premature; while preliminary signs overall are encouraging,
20-30 year contract durations mean most PSP schemes are still in their
infancy.
The way forward lies in combining the skills of the public and private
sectors through public/private partnerships (PPPs) to make use of their
complementary skills to address the particular needs of a community. It
is shortsighted to champion either fully public or fully private water
delivery as a panacea. What is needed is to look at the individual circumstances,
assess the individual risks and find individual solutions.
Only by using all the tools available to us can we hope to meet the
flood of demand flowing from an ever-increasing need for development and
renewal of our water delivery infrastructure.
Richard Temple is a Partner with CMS Cameron McKenna and his Canadian
practice is conducted through their associated office Power Budd LLP.
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About the IPWA
The International Private Water Association (IPWA), which was formed in
1999, serves as a conduit between the public and private sector players.
IPWA is recognized as one of the few independent organizations that addresses,
as a central part of its mission, the potential expanding role of the private
sector as a viable partner to governments and “parastatals” within the
global water/wastewater project and service arena.
For more information, please contact Kathy Shandling at 1-212-873-0920
or kshandling@nyc.rr.com. |
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