Privatizing essential services not always the right answer<\/p>\n
Henry Heyneardhi, Fellow Researcher, The Business Watch Indonesia,
\nJakarta, heyneardhi@watchbusiness.org<\/p>\n
Last September 2002, the World Bank launched a draft of the
\nWorld Development Report 2004, focusing on \"making services work
\nfor poor people\". The Bank wrote that the theme is based on the
\nrecognition that success in reaching the Millennium Development
\nGoals will depend not just on faster economic growth and the flow
\nof resources, but on the ability to translate those resources
\ninto basic services.<\/p>\n
It also said that too often, the delivery of services falls
\nfar short of what could be achieved, especially for the poor.<\/p>\n
Today, according to the United Nations in its fact sheets for
\nthe World Summit on Sustainable Development (WSSD), two billion
\npeople, or one third of the total world population, lack access
\nto modern energy services. Some 11 million children under five
\nyears of age die each year in developing countries. Seventy
\npercent of these deaths are caused either by diarrheal diseases,
\nrespiratory infections, malaria, measles or malnutrition.<\/p>\n
In relation to water and sanitation, the World Commission on
\nWater for the 21st Century noted that 1.2 billion people, or a
\nfifth of the world's population, lack an adequate supply of safe
\ndrinking water and over a third lacks adequate sanitation. These
\nstatistics are projected to reach 2.3 billion by 2025.<\/p>\n
How can this critical situation be resolved?<\/p>\n
So far, basic services in most countries is generally managed
\nand delivered by public authorities, yet its management is
\nconsidered inefficient and ineffective. Service delivery,
\nespecially in developing countries, emphasizes the supply side,
\nbut unfortunately reaches only a limited group of beneficiaries.
\nGovernment subsidies are not able to support public agencies to
\noperate and maintain their assets independently for service
\nimprovement and sustainability.<\/p>\n
International financial institutions (IFIs) like the World
\nBank and the IMF are thus promoting a new approach by
\nstrengthening the role of the private sector in service
\nprovision. The World Bank, for example, adopted a Private Sector
\nDevelopment Strategy in February 2002 that legitimizes and
\nenhances private sector participation in infrastructure and
\nessential services.<\/p>\n
The Bank is convinced that private sector participation in
\nprovision is the best choice for delivery of infrastructure and
\nsocial service.<\/p>\n
In addition, in March 2002 the World Bank launched its Water
\nResources Sector Strategy, which stated that water management
\nshould be commercially oriented, focused on beneficiaries, or
\ndemand-based, indicating that water distribution depends on needs
\n(household, irrigation, industry, etc). Every water user is a
\ncustomer, and the water tariff should cover operational and
\nmaintenance costs in order to eliminate subsidies (full cost
\nrecovery).<\/p>\n
Further, the Bank requires private sector participation in the
\nfinancing and development of water supply infrastructures. The
\nindebted governments are obliged to cooperate with the private
\nsector in the form of a Public-Private Partnership (PPP).<\/p>\n
In Indonesia, according to the World Bank's document
\nIndonesia: Private sector development strategy issued in January
\n2001, the Bank will promote conditions for private participation
\nin infrastructure, especially for the next three years.<\/p>\n
The emphasis will be on the creation of competitive market
\nstructures and of independent, regulatory authorities, and on
\nhelping with the privatization of state-run infrastructure
\nenterprises.<\/p>\n
In regards urban water supply, the Bank will, through its
\nprojects, continue to focus on improving the regulatory framework
\nfor private involvement and on promoting investment in water
\nsupply by private operators. Meanwhile, in the health and
\neducation sector, World Bank Group will focus on creating an
\nadequate regulatory environment for private provision.<\/p>\n
To ensure that the developing countries implement its policies
\nin practice, the World Bank, which usually states the same loan
\nconditions as those of the IMF -- known as \"cross conditionality\"
\n-- often includes privatization of public services in its list of
\nconditions. This kind of scenario is likely to happen in
\nIndonesia when the Bank pushes privatization of water management
\nthrough its Water Resources Sector Adjustment Loan (WATSAL).<\/p>\n
Essential service provision is one of the government's duties
\ntoward its citizens. Until the last decade, international
\nfinancial institutions have centered on helping governments to
\naccomplish this obligation, particularly in developing countries.
\nOnly recently, these institutions are changing their policies,
\nand endorsing the privatization of service provision. This is a
\nfundamental engineering project with serious implications.<\/p>\n
Privatization implies transfer of control from public to
\nprivate corporations, allowing an unbalanced bargaining power
\nbetween the corporation and the customers. Private management,
\ntherefore, can arbitrarily raise the service tariff, shifting the
\nburden to customers to pay for business risks and taxes.<\/p>\n
Second, unlike inadequate public services, impacts of a poorly
\nimplemented privatization may be irreversible, especially to the
\npoor. Most privatization contracts are long-term, usually lasting
\nfor 20 to 30 years. It is almost impossible to cancel these
\ncontracts, even when the private operator shows bad performance.<\/p>\n
Third, privatization also undermines accountability. Under
\npublic entities, citizens have a democratic mechanism, for
\nexample through their representatives in parliament, to push the
\ngovernment in providing good and affordable services. Under
\nprivate management, however, there is no such mechanism.
\nMoreover, private firms may hide behind the principle of contract
\nsecrecy to hinder public monitoring, and thereby prevent the
\nrealization of transparency and accountability.<\/p>\n
This does not mean that privatization is inherently bad (or
\ngood). Like any other option, it has its strengths and
\nweaknesses. Privatization should thus be treated as one option
\namong many other alternatives in providing essential services,
\nespecially to the poor. Further, IFIs should not push, nor
\nimpose, the privatization of essential services through
\nconditions applied to loans, grants or debt relief.<\/p>\n
Instead, the decisions as to whether we need to privatize our
\nessential service provision or to reform public service should be
\ndemocratically debated among our citizens. This also goes along
\nwith the discourse disseminated by the World Bank on the
\nimportance of popular participation in policy making, as stated
\nin the draft of the World Development Report 2004: \"Strengthening
\ncitizens' voice and participation in policy making can make
\npublic spending more pro-poor and hold policymakers more
\naccountable for service outputs that affect poor people.\"<\/p>\n
The real issue regarding essential service provision is not
\npublic versus private, but whether citizens, especially poor and
\nmarginalized people, receive affordable, quality service.
\nCriticism and resistance against privatization of essential
\nservices are based on numerous empirical evidence, which show
\nthat private sector participation in service provision tend to
\nraise the service tariff, thus lowering people's access to them.<\/p>\n
In many cases, privatization has also failed to provide good,
\nquality service and is less effective than public service.
\nTherefore, privatization proponents must respond to their
\nopponents by providing arguments and evidence that privatization
\nis not only more effective than public service, but could also
\nserve social goals like equity and protecting the rights of
\npeople.<\/p>\n
Finally, through a rational, democratic and participatory
\nprocess, let the people determine their own choices and
\ndecisions.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/privatizing-essential-services-not-always-the-right-answer-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}