Thursday, April 8, 2010

Debate on water privatization


Privately owned drinking water utilities have been providing safe and reliable drinking water to Americans since before the founding of the country. Many private water companies currently in operation can trace their roots back to the Civil War era.

Today, according to the EPA, roughly half the drinking water utilities in the U.S. are privately owned; together, they serve about one in every six Americans. They range in size from very small, single utilities to large companies, operating hundreds, even thousands, of separate utilities in multiple states.

All drinking-water utilities, including those that are privately owned, must comply with drinking-water standards established by the U.S. Environmental Protection Agency and enforced by the states. However, unlike municipal utilities, privately owned utilities are also subject to economic regulation at the state level by independent state Public Utility Commissions (PUCs). The PUCs' basic responsibilities are to ensure fair and affordable rates for consumers, good service, and sound capital investments by the utility to assure the long-term integrity of the system.

[...]Privately owned utilities also make significant economic contributions to the communities they serve by paying local, state, and federal taxes. (Generally, municipal utilities do not pay taxes.) So in addition to providing top quality water service, a privately owned utility also helps fund schools, police and fire departments, etc.

Public-private partnerships, including management contract arrangements between municipalities and private companies, represent a newer model, dating from the 1970s. Such partnerships can take many different forms, but broadly speaking, under a public-private partnership, the municipality continues to own the utility, but a private firm operates and manages all or part of it.

Municipalities pursue such contracts primarily to address increasing costs and environmental or health compliance problems. According to a study we conducted, municipalities often realize savings of anywhere from 10-40 percent in such public-private partnerships. Furthermore, that same study found that of the utilities studied that were out of compliance with environmental regulations before the public-private partnership, every one was in full compliance within one year after the start of the partnership.

[...]Today, private firms operate more than 2,400 publicly owned water and wastewater facilities for nearly 2,000 municipalities. The industry has been growing an average of about 19 percent per year over the last seven years -- excellent growth, especially considering the recent nationwide recession. In addition, a whopping 97 percent of municipalities that had existing water-management contracts come up for renewal in 2002 and 2003 elected to remain in a public-private partnership. Since 1998, an average of 92.5 percent have been renewed. These statistics are clear signs that municipalities are very satisfied with the results of the partnerships they have set up.

In Bolivia, thousands took to the streets in protest after drastic rate increases that a Bechtel-owned private company imposed after taking control of a city's drinking-water system. In the Philippines, the government has had to buy back the system from another Bechtel-owned company after water rates increased by as much as 700 percent in some areas. In Argentina, a corporate consortium composed of French water giants Vivendi (now Veolia) and Suez reneged on a contractual obligation to build a sewage treatment plant, resulting in 95 percent of the city's wastewater being dumped directly into a river. In a South African community, service fees tripled and thousands were cut off who could not afford to pay after a British company took over the water system.

[S]ince you brought up Bolivia, let's talk about Bolivia -- but let's talk about it completely, accurately, and dispassionately.

In the late 1990s, the Bolivian government turned to the private sector because the water and waste-water systems in Cochamba were in horrible disrepair after years of municipal ownership and operation. Service was spotty, unreliable, unsafe, and totally unavailable to 40 percent of the population. Poorer people, if they had service at all, often paid higher rates than wealthy people. Clearly the municipal operation had failed.

A consortium named Aguas del Tunari began operating the city water system in November 1999. They did not buy and did not own the water utility or the water itself. (By the way, Bechtel was only a 27 percent partner in the deal. Aguas del Tunari was not, as you say, a "Bechtel-owned private company.")

In January 2000, the government raised the rates 35 percent, not Aguas del Tunari. The government did this partly to pay down the enormous debt the utility had accumulated under municipal ownership. This rate increase didn't last long, however; it was rolled back the next month.

The government rescinded the contract in April of 2000. However, during the short time Aguas del Tunari managed the system, the availability of water increased 30 percent, hardly "disastrous."

Also, let's look at other parts of Bolivia you did not mention, La Paz and El Alto. Since 1997, Aguas del Illimani, a subsidiary of Suez, has managed the water and sanitation systems in these cities. Since the beginning of the private operation, both communities have gained universal availability of potable water (increased to 100 percent from 82 percent in El Alto and 92 percent in La Paz), plus the operational deficits that had built up under previous municipal operation were eliminated. These are clear success stories.

You mentioned an increase in water distribution in cities like La Paz but spoke nothing of the tremendous rate increases that prevent citizens from being able to afford this water. In Cochabamba, such rate increases ensured a minimum 15 percent profit margin that was guaranteed to the private company in its contract. (Sounds like cronyism to me)

[...]It should be noted that the tragic situation in Cochabamba raises an alarming issue around the privatization of water services: Once a water utility is in private hands, it can become subject to the laws of international trade. [...]In fact, some cities have been so concerned with this threat that it has become one of the reasons they choose to keep their water systems in completely public hands.


Another example of your rhetorical opinion unsupported by fact is the accusation that water companies working in more than one country "may leave our governments open to trade disputes in the future." I would be very interested if you have any legal documentation and examples supporting this theory, because the facts I have state otherwise.

International agreements and laws do not take precedence over U.S. law in the provision of water. The World Trade Organization itself is on record stating that international trade agreements are irrelevant to water issues, regardless of ownership. In a WTO document entitled "GATS Fact and Fiction, Misunderstandings, and Scare Stories: The WTO Is Not After Your Water," the WTO clearly states, "it is of course inconceivable that any Government would agree to surrender the right to regulate water supplies, and WTO Members have not done so."

[...]Another flaw in your arguments against the private sector is that virtually all the private projects you have criticized are foreign. Unfortunately, they don't relate to what is happening in the United States. The business, regulatory, and political environment in the U.S. is substantially different, so these projects shouldn't be used to draw conclusions about private water's activities and successes in the U.S. market.
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  1. This is a great summary of solid arguments. Not sure how I found this site but bravo.