Water privatization a controversial step around the world

Moch. N. Kurniawan, The Jakarta Post, Phnom Penh, Cambodia

The privatization of water distribution has caused controversy not only in Indonesia but also in other parts of the world, particularly in neighboring Asian countries.

Most people doubt that the privatization of water services will result in the people having greater access to clean water.

During last month's East Asian Journalists Workshop on Water Policy in Phnom Penh, Cambodia, many participants expressed skepticism that the involvement of private firms could effectively expand and improve water distribution.

Many water privatization programs adopted by developing countries and territories such as Bolivia, South Africa and Puerto Rico have failed to meet expectations.

During the workshop, which was sponsored by the World Bank (WB) and the Asia Development Bank (ADB), many participants said private firms would only work for the interests of their shareholders, and thus would focus on making a profit rather than expanding services for the people. They also feared that the involvement of private firms would limit people's access to water.

But other participants said state-owned companies could not be trusted to deliver consistent and quality tap water services, thus making the involvement of other parties necessary.

Responding to the controversy, the WB and ADB emphasized the need for the privatization of private firms, public-private partnerships and autonomous and accountable service providers to improve and expand the delivery of water services, including tap water, irrigation and drainage.

"It is necessary to involve private firms in managing water services, as the government will never have enough funds to finance the expansion of water services amid the growing demand for water," Wouter T. Lincklaen Arriens, a lead water resources specialist at the ADB said.

Indonesia, China, Vietnam, the Philippines and Thailand will require some US$47 billion through 2010 to meet the rising water demand from a growing urban population, according to WB data.

But to lure investment to the water sector, one important thing that must be considered is that the water rate structure must be able to recover the costs of the business, which does not happen at present, Arriens said.

The fees in many developing countries imposed by the government on private tap water providers are higher than tap water rates charged customers, causing tap water providers to suffer losses.

In regard to irrigation services in developing countries, the exemption of farmers from paying water charges and for irrigation system maintenance has resulted in poorly maintained irrigation infrastructure and an unreliable water supply for farmers.

In the bottled water business, however, there is no serious problem for private firms, which are operating in many developing countries with few complaints about their presence.

Arriens said that if water rates were higher than costs, "money would be available for maintenance, sustainability, future growth and expansion would be ensured, poor people would be connected to water and people would be aware of the value of water".

The success of water privatization in the East Zone of Manila, the Philippines, is a good example of a private tap water firm making a profit and increasing its service from three million people in 1997 to four million people in 2002. Water rates in that zone stand at 17 US cents (about Rp 1,500) per cubic meter.

The failure of water privatization in several developing countries should be analyzed case by case, to find out whether the problem was the inefficiency of the private firm or other factors, Arriens said.

For example, he said, in the West Zone of Manila, a private tap water firm failed to meet its expansion target because it was shouldering a huge amount of debt from the previous state-owned company and had to pay the debt in the short term.

Thus, good regulations to ensure that private water providers do not ignore public interests are definitely required, Arriens said.

As the WB and ADB persist in promoting water privatization, non-governmental organizations (NGOs) under the Indonesian Forum on Globalization (INFOG) and farmer associations at home continue to campaign against privatization.

Rather than depending on investment from private firms, INFOG said public funds and taxes should be used to finance the expansion of water services.

The group also raised concerns that access to water would be limited and only the rich would get improved access under water privatization.

It urged the government to maintain the role of state-owned companies in managing various water services, but demanded these companies be transparent about their plans and performance.

Indonesia, with the support of the WB, is preparing a law on water resources that would allow for the great involvement of private firms in managing water services.

Thus, it is unlikely that the drive toward water privatization will stop, unless the people force the government to back down, as they did over the increase in utility prices.