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It’s a depressing experience reading the debates on clean water from the Earth Summit.  Although most of Africa has government-run water suppliers which have signally failed to deliver clean water and safe sewage disposal to their citizens, the delegates seem to spend most of their time decrying the obvious solution, privatisation.   Unfortunately they don’t provide much evidence for the superiority of government supply.  Instead they seem to think it sufficient to just shout loudly that:

"Water is a human right",  

"Water is too important to be left in the hands of private companies."   

Fine words for environmental jetsetters in luxury hotels with bottled Perrier, but not much good for Africans looking for a drink! 

Fortunately iGreens have checked the facts.   

It turns out there is one good study.   Although its conclusions are generally quoted by the bleeding hearts as showing the harms of privatisation, they obviously never read the report.     Let me help.

The paper is called "Water privatisation in Africa: lessons from three case studies" by Kate Bayliss.  Public Services International Research Unit (PSIRU) School of Computing and Mathematical Sciences, University of Greenwich 30 Park Row London SE10 9LS U.K. Email: psiru@psiru.org Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-7781 www.psiru.org

It’s a longish article, so here are a few factual quotes.  I've not quoted selectively, just left out the opinion sections.  If you don't believe me you can read the full text here 

Ms Bayliss catalogues the main water privatisations in Africa in Table 1.

Table 1: Major water privatisation in Africa

Sources: PSIRU database; Campbell-White and Bhatia, Privatisation in Africa IBRD 1998

Ms Bayliss then describes her three case studies, Guinea, Senegal, and Cote D'Ivoire.  

Example 1. Guinea

"Before reform in 1989, the performance of the water sector in Guinea was very poor. There was low access and high incidence of water borne diseases. The World Bank had sponsored the first ‘Water Supply and Sanitation Project’ for Conakry from 1977 to 1985 but results were disappointing. Political interference and an unfavourable economic climate resulted in poor financial performance and weak institutional development in the water sector. Fewer than 40 percent of the urban population in Guinea had access to piped water. Tariffs bore little relation to supply costs and irregular flow and poor water quality were commonplace.

The Government opted for a lease contract as the means for bringing in private sector participation. Under this arrangement, the private operator was not responsible for the assets of the water sector as these were still owned by the government. The private firm pays a lease fee in return for ‘rental’ of the infrastructure assets and is responsible for operating the system and billing and collecting revenue.

The advantage of this set up is that private investors do not have to commit funds to long-term investment projects. At the time, Guinea was potentially unstable having recently been through a military coup and the judiciary was weak, dependent on the government and had a poor record of enforcing private contracts. So it was considered it would be too risky for firms to invest in long-lived and non-transferable assets.

Such a lease arrangement is also politically appealing because it does not give the impression of selling off the nation’s assets as they are still under government control. The drawback, as we shall see, is that responsibilities for the sector may be confused.

How has it worked?

Things improved but not as much as was hoped. After privatisation, connection rate rose from 38 % in 1989 to 47% in 1996. Labour productivity rose at the time of reform from more than 40 to 20 employees per 1000 connections. Water quality increased, consumer service improved and metering levels rose dramatically.

The main results were:

·        Water quality – almost everyone agrees that this has improved.

·        Improved customer service – it became easier to complain, register faults and get repairs done.

·        Rapid metering – before reform about 5% of customers had working meters. By 1996 98% of private customers were metered and 100% of administration connections were metered.

·        Improved bill collection from private customers. But this fell when the price increased. SEEG can and does cut off supplies to consumers who do not pay their bill for three consecutive months.

·        Higher labour and total factor productivity – the number of connections per workers increased dramatically following the layoffs at the time of reform but failed to increase significantly after that.

·        Prices increased more rapidly than planned and made it difficult for even wealthy people to pay. Prices in Guinea are higher than average in Africa and Latin America. Costs are also higher. Tariffs are high by industrial as well as African standards.

Collection rates: Still low because government still does not pay its bills and because of the weak legal environment which means that even where people do not pay there is little the company can do beyond cutting them off.  

Example 2 Senegal 

The water company had been privately owned at the time of independence, but was nationalised in 1972. During 1970s there was substantial investment but much of it was of low quality due to poor planning and the excessive sophistication of some installations which could not subsequently be properly maintained.

In an effort to reduce government influence, it was decided to transfer all assets and related debt service obligations to a public enterprise, the Societe Nationale d’Exploitation des Eaux du Senegal (SONEES) which had primary responsibility for operation, maintenance and rehabilitation of the urban water supply sector while government undertook to review tariffs twice a year in line with predetermined pricing formula.

Despite efforts at restructuring as well as reasonable levels of technical competence, the finances did not improve because the government failed to increase tariffs,  public authorities failed to pay their bills and the government continued to intervene in investment decisions. So even though SONEES operational performance was satisfactory with high labour productivity (7 employees per thousand connections), revenues were not enough to cover costs and this had a bad effect on the state of the network.

Unaccounted for water was about 30 % in 1994, water quality was unequal and while 80 % of Dakar had access to safe drinking water, this was not the case for a growing number of poor residents.

Results

In Dakar, since privatisation the population with access to safe drinking water has increased from 80 to 82% and UFW (water leakage) was reduced by about 4 % from 30 to 36% over same period."   

I'm quoting the paper eactly.  There's obviously a typo here somewhere.

Example 3 Cote d’Ivoire

"This privatisation came long before any others in Africa. A contract was given to French firm SAUR in 1960 to run the water company SODECI. Generally, performance was considered satisfactory. The water was of high quality, high collection rate from private (although not public) users, high labour productivity (8 workers per 1000 connections) and low levels of unaccounted for water (15 % in 1987).

Management of water came under a department within the Water Directorate of the Ministry of public works and transportation rather than under a specially created state holding company (SHC) as was the case in Guinea and Senegal.

There was a financial crisis in 1980s because of an overly ambitious expansion programme by the Water Directorate which coincided with depressed demand. So this demonstrated that there was a need for greater linkage between the revenue side of things with investment planning.

Before 1987, SODECI had been obliged to operate and maintain any additions made to the existing system but was guaranteed compensation if the amount of water actually consumed fell below some forecasted levels calculated in advance. This guarantee made sure that SODECI’s profits were safeguarded. After 1987, the guarantee was removed.

After 1987, the authorities managed to negotiate a 20 percent reduction in the fees paid to the private operator by suggesting that they might allow other companied to bid for the contract. This in itself suggests that there had been a considerable profit margin accruing to SAUR (The private company running the water company SODECI).

Results

Since 1987, tariffs have increased more slowly than stipulated in the 1987 contract. Regulation and tariff adjustments come under the water directorate but ultimately they have to be approved by the council of ministers. The process remains highly political and has therefore been more erratic and ad hoc than might have been.

The public sector still doesn’t pay its bills and SODECI doesn’t cut them off but withholds payments to FDE and FNE. This means that the funds transferred to these two are in insufficient to cover future investment and debt service needs.

The connection rate has increased since 1989, water quality has remained high, Unaccounted for Water is  still low and labour productivity continues to improve. 1996: 3.8 employees per thousand connections.

Kate Bayliss then concludes as follows:

“The above case studies show that privatisation of water with a lease contract in Africa has only demonstrated improvements in some of the core aspects of raising revenue. Tariffs, billing and collection rates have improved. What is more, it is not clear that the increase in revenue actually reaches the bodies responsible for investment in the sector as the public sector seems to be powerless to find out about the revenue position of the private investors.

High prices and disconnections must mean that the poorest segments of society are likely to be the main losers from the privatisation process. Where this increases use of unsafe water sources, the consequences will be disastrous for public health.

The main winners from the contracts seem to be the private companies whose investments are focused on revenue raising such as meter installation. Private firms are in a powerful position as it is them who receive tariffs and then decide what to pay the government.

This analysis is based on what little evidence there is from water privatisation in Africa. The subject needs extensive further research, particularly into the impact on those excluded from the privatised water supply. These studies show that effective regulation remains elusive. Given the enormous institutional demands presented by privatisation, alternative policy options need to be considered.”

iGreen comment

How odd.  She’s just described three examples in Africa where water privatisation has resulted in increased access to safe water, reduced water leakage and more efficient operations.   This in a continent where most countries water supplies are moving in the opposite direction, and in settings where the government frequently fails to even to pay it’s water bills .   What more evidence do you need Kate?

Jim Thornton. Nottingham. 28 August 2002

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