Privatisation of urban water supply: The muddy picture

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.

Written by Shalini Nair | Updated: December 25, 2015 11:30 pm
water supply, Privatisation, water supply Delhi, water supply privatisation, privatisation of water distribution, water distribution, urban India water distribution, public-private participation, Atal Mission, AMRUT, Smart Cities project, Indian express Nagpur was the first large city in India to hand over its entire water service to a private firm.

As the government pushes for more private sector investments in urban infrastructure and basic service provision, it has chosen to showcase Nagpur as its model for water supply privatisation. At Smart City conferences in Delhi, officials have been hailing the Nagpur model as worthy of emulation. But the situation on ground is different.

In 2012, the BJP-led 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.

Although water is a state subject, the Centre’s proposed model concession agreement for PPP in water distribution will likely receive a leg-up from the emphasis on private funding in the flagship urban missions, Smart Cities and AMRUT. This will create an enabling environment for private participation in the urban water supply and distribution sector, which until now has remained the most essential of public services.

The government’s move, however, runs counter to an accelerating global trend towards remunicipalisation of water supply.

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.

And yet, there have been instances such as Johannesburg, where the introduction of prepaid meters that stopped dispensing water until further water credit was purchased, triggered massive unrest in the slums; and Cochabamba and La Paz-El Alto in Bolivia, where intense water wars led to remunicipalisation. Closer home, the former Congress Chief Minister, Vilasrao Deshmukh, had handed over water services in his hometown of Latur 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.

In all 180 cases, contracts were not renewed, or terminated abruptly, as private operators failed to fulfill obligations in terms of holding tariff lines, improving coverage and quality, reducing water losses, and ensuring financial transparency. Even Manila, which is claimed to be a success, has witnessed complaints of a 7- to 10-time increase in water tariff post-privatisation.

The basic premise of the PPP model, promoted in the global South by the World Bank’s International Finance Corporation, is that water should be treated as an economic commodity whose full costs must be recovered from users, so as to ensure efficiency in service provision.

Of all the arguments against treating water as anything other than a basic right, the most compelling has been its repercussions on the health of populations. In rural Ontario, immediately after water-testing was taken over by a private company, there was an E. coli outbreak that killed seven people. The company said that it had detected the contamination early on, but the test results were not made public as they were “confidential intellectual property”.

Similarly, in South Africa’s rural KwaZulu Natal, where a couple of hundred died following a cholera outbreak in the early part of the last decade, studies showed the epidemic to be the direct outcome of private companies stopping free water supply from communal standpipes. This was replaced by a system of prepaid water meters, forcing the poor to use unsafe water sources.

However, merely remunicipalising, or continuing public operators, will not necessarily help in plugging leakages or expanding coverage. In most successful models of remunicipalisation in France, Argentina and Spain, public operators significantly increased their investment in water systems, and kept charges low for the poor. An emerging alternative to the World Bank’s Public-Private Partnership model is Public-Public Partnership, which encourages global partnerships between public water operators in knowledge and technology sharing, as well as in capacity-building measures. The idea is supported by the UN Secretary General’s Advisory Board on Water and Sanitation.

India is currently on track in terms of the Millennium Development Goals target for sustainable access to clean drinking water. Under a system of publicly owned and controlled water utilities, the proportion of urban households with access to clean water sources has increased from 87% in 1990 to 95.3% in 2012. A staggering 65 million people live in urban slums in India, and any reversal of gains made so far in terms of access to water will also hit the modest gains in health, education and gender parity among the urban poor.

shalini.nair@expressindia.com