Water Privatization: The WB’s Latest Market Fantasy

9 January 2004 by Maude Barlow , Tony Clarke

Maude Barlow is member of the Council of Canadians. Tony Clarke, of the Polaris Institute [Canada].

The impacts of World Bank World Bank
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
programs on countries in the Global South have been well-documented in the areas of health and education, food security and jobs. However, less is known about the impacts of the World Bank’s latest obsession — the privatization of water services. In country after country in recent years, the World Bank has been quietly imposing a for-profit Profit The positive gain yielded from a company’s activity. Net profit is profit after tax. Distributable profit is the part of the net profit which can be distributed to the shareholders. system of water delivery, leaving millions of people without access to water.

The Bank is taking advantage of the “Washington Consensus” model of development now adopted by its donor countries and promoting the interests of a handful of transnational water corporations. Instead of using its massive funds to promote expertise in the public sector, thereby acknowledging that water is a human right and an essential public service, the Bank is forcing many countries to commodify their water resources and put them on sale to the highest bidder.

There are ten major corporate players now delivering fresh water services for profit. Between them, the three biggest — Suez and Vivendi [recently renamed Veolia Environment] of France and RWE-AG of Germany — deliver water and wastewater services to almost 300 million customers in over 100 countries, and are in a race, along with the others such as Bouygues SAUR, Thames Water (owned by RWE) and Bechtel-United Utilities, to expand to every corner of the globe. Their growth is exponential; a decade ago, they serviced around 51 million people in just 12 countries. And, although less than 10 percent of the world’s water systems are currently under private control, at the rate they are expanding, the top three alone will control over 70 percent of the water systems in Europe and North America in a decade.

The revenue growth of the big three has kept apace. Vivendi earned $5 billion a decade ago in its water-related revenues; by 2002, it had increased to over $12 billion. RWE, which moved into the world market with its acquisition of Britain’s Thames Water, increased its water revenue a whopping 9,786 percent in 10 years. All three are among the top 100 corporations in the world; together their annual revenues in 2001 were almost $160 billion and growing at ten percent a year — outpacing the economies of many of the countries in which they operate. They also employ more staff than most governments: Vivendi employs 295,000 worldwide; Suez employs 173,000.

The World Bank serves the interests of water companies both through its regular loan programs to governments, which often come with conditions that explicitly require the privatization of water provision, and through its private sector arm, the International Finance Corporation, which invests in privatization projects and makes loans to companies carrying them out. Lending about $20 billion to water supply projects over the last decade, the World Bank has been the principle financer of privatization. A year-long study by the International Consortium of Investigative Journalists, a project of the Washington-based Center for Public Integrity, released in February, 2003, found that the majority of World Bank loans for water in the last five years have required the conversion of public systems to private as a condition for the transaction.

The performance of these companies in Europe and the developing world has been well documented: huge profits, higher prices for water, cut-offs to customers who cannot pay, little transparency in their dealings, reduced water quality, bribery, and corruption.

There are many examples. Bolivia’s famed “water war” of 2001 was a direct result of a World Bank initiative involving a Bechtel subsidiary. When the price of water tripled after privatization was introduced, thousands took to the streets until the government backed down and told the company to leave. Now, Bechtel is suing the government of Bolivia for millions of dollars under a bilateral investment treaty for losses in future profits (see World Bank’s ICSID to Hear Case on Bolivia Water Privatization, Economic Justice News, October 2002).

In July 2002, Suez terminated its World Bank-backed 30-year contract to provide water and sewerage services to the city of Buenos Aires, when the financial meltdown of Argentina’s economy meant that the company would not be able to maintain its profit margins. To make matters worse, the company also left a mess behind it. During the first eight years of the contract, weak regulatory practices and contract re-negotiations that eliminated corporate risk enabled the Suez subsidiary, Aguas Argentinas S.A., to earn a 19 percent profit rate on its average net worth. Water rates, which the company said would be reduced by 27 percent, actually rose 20 percent. Fifty percent of the employees were laid off, and Aguas Argentinas reneged on its contractual obligations to build a new sewage treatment plant. As a result, over 95 percent of the city’s sewerage is now dumped directly into the Rio del Plata River.

SAUR distributes the water on a for-profit basis for all of Senegal. In 1996, the company was awarded the contract with a $96 million loan from the World Bank. The deal explicitly states that its aim is “cost recovery” — meaning profit for investors — and stipulates the need to charge for the cost of water, even to poor households. As a result, as in many other countries in Africa, many Senegalese citizens are forced to turn to untreated water systems for their water needs. The government of South Africa, for instance, has cut off water supplies to over 10 million people in the last two years because they could not afford to pay for the newly privatized service — despite a constitutional guarantee of access to water for all!.

In an effort designed to attract World Bank funds, President Vincente Fox of Mexico has established a national program called PROMAQUA. Now operating in 27 of the country’s 30 states, PROMAGUA actively promotes the privatisation of water services in cities of over 100,000 people. Largely financed by a World Bank grant of $250 million, PROMAGUA encourages cities to open up their public water systems to private water corporations by signing concessions lasting between 5 and 50 years. As a result, the two water giants, Suez and Vivendi, together with United Utilities and Aquas de Barcelona, have developed joint ventures with Mexican companies to take over the running of public water systems on a for-profit basis. Close to 20 percent of municipal water systems in Mexico are now privatised. What’s more, there are numerous examples where these private water companies have jacked-up water rates and cut-off services to those who can’t pay the bills, while reducing water quality and refusing to make investments for the improvement of infrastructure such as leaky pipes.

Stories like these have produced a huge backlash against these companies and, in many countries, they are sounding a hasty retreat. Yet in site of growing public opposition, the World Bank just announced that it has increased its funding for water privatization projects from US$1.3 billion in 2003 to US$4 billion in 2004. This is because the water corporations are demanding guaranteed financing to maintain their profit margins, even in communities where there is fierce resistance to their presence.

The World Bank says it has learned from its past mistakes. Its actions around the world’s growing water crisis shows that it is still the old, unreformed institution.

For more information, see the authors’ landmark study, Blue Gold, The Fight to Stop Corporate Theft of the World’s Water (PDF), now published in 17 countries.

Source: Economic Justice News, 50 years is enough.



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