Privatizing Water

On April 8, 2000, Robinson Iriarte de la Fuente, a U.S.-trained captain in the Bolivian army, lifted his rifle and fired into a barricade line of protestors. The previous evening, Bolivia's President Hugo Banzer had imposed martial law and called in the military to clear the streets in Cochabamba, the country's third largest city. Despite the crackdown, thousands of people-retired workers, middle-class students, street children, small-scale farmers-had stormed the central plaza to continue their months-long demonstration against the government's privatization of the city's water works.

The World Bank had threatened to withhold $600 million in debt relief if Bolivia did not privatize its water utilities. So in September 1999, Cochabamba signed over control of its aging, inadequate waterworks to Aguas del Tunari, an international consortium led by the U.S.-based corporation Bechtel. Water bills in the average household rose in one month by 35 percent. Meanwhile service generally remained sporadic, with water running less than four hours a day in many parts of the city. In response, the Coordinadora for the Defense of Water and Life, a coalition of labor organizers, environmentalists, and social activists, organized a general strike that shut down the city.

Iriarte's shot instantly killed 17-year-old student Victor Hugo Daza, enraging the protesters. Hundreds more were injured. With the violence growing, the executives of Aguas del Tunari fled the city. Government officials called an emergency meeting and rescinded the water contract, saying the company had abandoned its 40-year, $2.5 billion concession.

The protesters declared victory. The Bolivian government returned control of the water system to the utility, and has involved the Coordinadora. "The people-not the leaders-said no to privatization of water because it is a resource we cannot live without," said labor organizer and head of the Coordinadora, Oscar Olivera, at a speech a few days later in Washington, D.C. But Cochabamba's water troubles are far from over.

Privatization of state-run industries and utilities has long been a prescription of the World Bank and the International Monetary Fund (IMF). But privatization "shock therapy," intended to help indebted countries lure investment from international corporations, has only recently been applied to public water systems. When world leaders at the Rio Earth Summit in 1992 recognized water as an "economic good," they were acknowledging the failure of governments to provide clean drinking water to more than 1.1 billion people. This international commodification of water has opened the door for corporations to prospect for profits from a crucial resource that many consider to be a human right.

"Water is a public trust and it is the responsibility of governments to see to it that all of their people have access to a safe and adequate supply," said Sandra Postel, director of the Global Water Policy Project in Amherst, Massachusetts. "But they haven't done this, so how will the job get done? Can the private sector be a helpful partner?" The answers to these questions are certain to be the center of fierce debates in the future, as more and more governments are now turning to privatization as a means to attract much-needed investment in aging and inadequate water systems.

There are now 36 countries-all in Africa, Asia, or the Middle East-that are water stressed, meaning that they do not have enough fresh water to meet the industrial, municipal, and food production needs of their people. Seven more countries-including Ethiopia, Iran, and Nigeria-will join the ranks of the water stressed by 2015.

With more and more demand for water and fewer available supplies, the water industry estimates that potential returns in the global water market could run around $1 trillion. The untapped market is vast: private companies currently provide less than 10 percent of the water services worldwide. The two largest water corporations, Vivendi and Suez Lyonnaise des Eaux (both based in France), each draw annual revenues of roughly $10 billion from water and wastewater services. Together they provide water to more than 200 million people in more than 120 countries.

While countries with generally well-run public water utilities like the United States have been slow to privatize water systems, many developing countries-faced with rapid urbanization and deteriorating water systems-are looking to the corporate sector for assistance. The World Bank estimates that providing infrastructure to meet increased demands for water in the next decade will cost more than $60 billion a year. Privatization has offered some governments the chance to attract the private capital and expertise needed to build and expand expensive water systems, and help connect the millions who currently make do without piped water.

Many poor communities currently rely on questionable water sources and expensive, small-scale private suppliers. In Abidjan, Cote d'Ivoire, poor families pay 5 times the municipal rate; in Dhaka, Bangladesh, they pay 25 times; in Cairo, Egypt, 40 times. Privatization of the water utility in El Alto, Bolivia-where poor families currently pay more than 10 times as much for their water from tanker trucks than wealthier residents with piped water-is connecting poor communities to the municipal water system and reducing their water bills.

"In many countries water is a paternalistic sector-people expect water delivered at a low cost or for free," said Keegan Eisenstadt, a hydrologist with U.S.-based consulting firm Development Alternatives. "But as cities grow, this expectation makes it difficult for public utilities to raise enough money to maintain current systems, let alone build additional infrastructure." Managed carefully, privatization can help utilities improve their services by providing the capital and expertise needed to, for example, repair leaks in water mains, expand connections to unserved communities, or improve billing systems. But where governments have failed to provide adequate oversight, the results have been explosive.

Privatization schemes around the world have resulted in drastic rate increases, significant job cuts, fewer environmental safeguards, dropped conservation initiatives, and halted service to poor or remote communities. "Because the companies are motivated by profit and not public service, they have no incentive to supply the poor with water," says Maude Barlow, a leading opponent of water privatization with the advocacy group Council of Canadians, in her report Blue Gold.

In Tucuman Province in Argentina, a Vivendi subsidiary was forced to cancel its contract after large rate increases and poor water quality led to a general strike against paying water bills. In Ghana, where the average income is barely over $1 a day, massive protests broke out after the government nearly doubled water rates to prepare for privatization under pressure from the International Monetary Fund. In Atlanta, Georgia, the city council has threatened to cancel its contract with Suez after numerous cases of water contamination, and a decline in efficiency (the company has significantly cut staff to reduce its operating costs).

"The potential advantages of privatization are often greatest where governments have been weakest and failed to meet basic water needs," finds the Pacific Institute for Studies in Development, Environment, and Security in its thoughtful new report on water privatization. "Unfortunately, the worst risks of privatization are also where governments are weakest, where they are unable to provide the oversight and management functions necessary to protect public interests."

"Water privatization can foster corruption and result in rate hikes, inadequate customer service, and a loss of local control and accountability," said Wenonah Hauter of Public Citizen, a public advocacy group based in Washington, D.C. After years of lobbying from groups like Public Citizen, local unions, and other organizations, in November the city of New Orleans, Louisiana, turned down bids from Suez and Vivendi for a 20 year, billion dollar water contract.

"There is little doubt that the headlong rush to private markets has failed to address some of the most critical issues and concerns about water," said Peter Gleick, lead author of the Pacific Institute's report, "The New Economy of Water." Privatization may leave poor and under-served communities neglected, undermine conservation programs, or degrade ecosystems through efforts to tap new water sources. Still, the report concludes that private control of some elements of water provision-especially contracts with strong public oversight and the participation of affected parties-may help provide basic water needs for people and ecosystems, improve the efficiency and productivity of water systems, and facilitate equitable access to water for poor communities.

"How do we mobilize the capital needed to put in the pumps, pipes, and wells that are needed, and do it in a way that is fair, affordable, and environmentally sound?" asks Postel of the Global Water Policy Project. "Ideally, I'd rather the corporations stay out of it," she says. "They are motivated more by profits than public service, and they are accountable first and foremost to their shareholders, not the public. But that means governments need to step up to the plate."

Back in Cochabamba, the future of the city's water system is uncertain. While the Coordinadora's water cooperative has established new connections to a number of underserved communities and set up a huge new water tank, the system is still in disrepair and the utility is saddled by debts. New foreign investment looks unlikely, and 40 percent of the city remains without water service. And Bechtel is suing for breach of contract, demanding $25 million for its lost investment. But the Cochabamba water war has struck a chord around the world and raised serious questions about who will control water.