F E S Private Sector Participation in Water Services Provision PHILIPP TURRI Introductory remarks 1 Well over a third of the world’s population today lack sanitation and more than one bil ‐ lion people has no access to safe water. From a normative human rights(HR) approach, the Committee on Economic, Social and Cultural Rights, in its General Comment No. 15(GC 15), derives a possible right to water from Ar ‐ ticle 11 of the International Covenant on Eco ‐ nomic, Social and Cultural Rights, mentioning the“right to an adequate standard of living ‘including adequate food, clothing and hous ‐ ing’.” Also, the International Bill of Human Rights which postulates the right to life and human dignity might be cited in this context. As States as the primary duty ‐ bearers have apparently failed in too many cases to pro ‐ mote and facilitate people’s access to this ba ‐ 1 Some arguments and ideas depicted in this paper have been inspired by a conference held by the FES on the subject in February 2010 in Geneva. However, they have been taken out of their origi ‐ nal context and may not represent their authors’ views in the way they are used here. sic human right, the question arises to what extent the private sector(PS) can fill this va ‐ cuum. All around the world countless models of ser ‐ vice provision have been established and tested, ranging from partly integrating small independent providers(SIPs) into the national system to corporatizing the national network provider to fully privatizing water and sanita ‐ tion services. States have experienced success as well as failure in doing so, regardless of their geographic, political, and economic situ ‐ ation or the supply model they chose. There ‐ fore, a central premise to mention here is that from a HR perspective there is no specific model of service provision to be favored and that in any case providing a legal framework or regulation mechanisms remain State re ‐ sponsibilities. The challenge in this context is weighing the benefits and risks of private sector participa ‐ tion(PSP); a non ‐ exhaustive set of major is ‐ sues includes the decision ‐ making and con ‐ tract ‐ negotiating processes; the problems of

PSP in Water Services Provision accountability and enforcement; regulation and standards; service extension to margina ‐ lized groups; and the issue of subsidizing wa ‐ ter provision. These factors need to be ex ‐ amined in order to create a possible set of preconditions or else“enabling” conditions for States to comply with their obligation to progressively provide their population with a sufficient water supply. Decision ‐ making and contract ‐ negotiation The first step towards PSP consists of deciding whether to involve private, and possibly for ‐ eign, companies into the domestic water supply system. As this decision is generally considered a serious one, given that a State shares or gives up a vital part of its infrastruc ‐ ture, there are quite a number of factors that need to be taken into account. As for the decision ‐ making process itself, the inclusion of all stakeholders remains a point of disagreement. There is on the one hand strong advocacy for going as far as to holding a referendum on this issue as the initial stage is crucial in determining the general frame which will be in place for a long period of time; on the other hand a typical PS position is that the government has been elected to deal with these complex issues and should have the mandate to work out the best solutions. At any rate, the supposed right to take part in the decision ‐ making process may not be mis ‐ taken to be an end in itself. Contract ‐ negotiations are closely linked to the issue of transparency which is why PSP sup ‐ porters argue that hiring a company is an ac ‐ tual step towards improving transparency be ‐ cause State operators often work without any formal mandate. However, particularly small municipalities complain about power differen ‐ tials in the negotiations with big corporations since in many cases they not only lack exper ‐ tise and adequate legal support but also bar ‐ Page 2 gaining capacity to stand up to big enterprises that gain political influence via their promising investments – the water sector may be re ‐ duced to a trade ‐ in for acquiring fresh capital. The financial constraints experienced by many countries concerned with the question of pri ‐ vatization do not only influence the decision IF a company gets hired but also HOW: It is more than likely that administrations make concessions regarding the applicable HR poli ‐ cy in order not to lose the direly required in ‐ frastructural investments that should accom ‐ pany the privatization. Therefore, another prominent demand is that HR should always have primacy over contractual obligations. Accountability and transparency Before evaluating mechanisms to improve accountability, it is vital to illustrate the source of the conflicting interests: allegedly, in a large Asian country more than 50% of the population admit to have bribed a provider employee. Regardless of whether the client or the employee initiated the bribery, the prob ‐ lem is obviously that the wages are too low to give an incentive to abstain from earning“a little extra”. It is but a commonplace that transparency is the most effective means to fight corruption; a means that is best achieved by establishing a regulatory framework, or rather, to be in line with GC 15 demands,“an effective regula ‐ tory system”. Beyond any doubt, regulation is necessary both in public as in private provi ‐ sion models to address the several problems connected with this issue in a holistic way. First and foremost, a tool most stakeholders demand is a sound and clear legal framework pointing out all actors’ rights and obligations and ensuring that all stakeholders can access any information at any time. This framework should include e.g. concrete standards by which to measure, monitor and publicly

PSP in Water Services Provision benchmark service providers. To fulfill this role, the regulating body must be functionally and financially independent of the political sphere and be sure not to be removed by a new government. Particularly for the first of these criteria, it is absolutely vital that the regulator be a national or, in large countries, at least a regional institution in order not to depend on the goodwill of small groups of stakeholders. Even if the opinions towards the concrete form of the ideal regulatory body differ, its task is quite clear: It has to ensure transpa ‐ rency and accountability and be empowered to monitor and enforce compliance with con ‐ tracts and standards. Furthermore, effective regulation even may be regarded as a precon ‐ dition for PSP in order to monitor also the pre ‐ contract negotiations. SIPs vs. network The quest for the ideal model of service provi ‐ sion is as old as the privatization debate itself. On the one hand, SIPs do not enjoy too good a reputation due to their high prices for poten ‐ tially unsafe water and often cartel ‐ like struc ‐ tures. On the other hand, these prices are of ‐ ten at least partly justified by the SIPs’ posi ‐ tion at the end of the supply chain and the higher bulk tariffs they are usually charged. Besides, in many undersupplied areas it is the informal sector that guarantees water provi ‐ sion, not the network provider. Speaking of network supply, from a HR pers ‐ pective, this seems to be the most practical way to achieve the ultimate goal of ensuring the provision of safe, accessible, and afforda ‐ ble water. Nevertheless, network supply must not be regarded as an end in itself. Neither is it, with respect to some peoples’ cultural ha ‐ bits, in all cases practicable, e.g. for nomadic peoples living in desert regions. Therefore, at least for medium ‐ term considerations, the Page 3 regulation of SIPs is an often ‐ discussed solu ‐ tion, which may indeed contribute to improv ‐ ing the situation through the implementation of core labor standards as well as some stan ‐ dards for service provision. In this debate, however, one may not fail to respect the do ‐ no ‐ harm ‐ principle: Today about half of the water provision on the Afri ‐ can continent is being accomplished through unregulated services – a prohibition would cut water supplies for millions of people. So, for the time being, SIPs should be accepted as an essential part of the system of water provision and additionally be included into a multi ‐ stakeholder dialogue in order to improve ser ‐ vices in the long run. Service extension Due to political, contractual, and financial re ‐ straints, these issues are not only closely in ‐ terrelated but are also of importance for the discussion about a possible human right to water. Summing up the numerous debates between stakeholders, the PS is usually being reproached for“cherry ‐ picking”, i.e. prefera ‐ bly serving relatively affluent areas, and ignor ‐ ing undersupplied areas unless they are sub ‐ sidized. In contrast to that, a classic PS posi ‐ tion is that private companies have, in prin ‐ ciple, the same goals as States but are often prevented from complying by contractual, political, and legal duties or vacuums respec ‐ tively. Pointing out their arguments, full net ‐ work coverage would actually reduce their costs by minimizing unauthorized water use which does not only involve the loss of water itself but also possible contamination and, of course, damages to the infrastructure. Nevertheless, network expansion is not the only way of extending services, so other sug ‐ gestions include technical training and sharing technologies with SIPs to ensure the popula ‐ tion’s access to safe drinking water. This of

PSP in Water Services Provision course implies additional costs but particularly in dealing with water, from a social democratic point of view one must weigh solidarity with the disadvantaged against mere profit. Dis ‐ connection in case of non ‐ payment remains an issue as well that has not been addressed in GC 15 and needs yet to be clarified. Again, the question is whether to act exclusively in the immediate interest of the company or to respect the singular importance of water, es ‐ pecially since in poor areas often several households share one connection. Some countries have already taken this issue into account and legally prohibited disconnection in case of non ‐ payment. Another obstacle to service expansion be ‐ comes evident by regarding the example of Jakarta where large areas remain undersup ‐ plied even though a public provider is in charge. Whereas normally the majority of HR supporters favor this model due to the State’s obligation to promote and facilitate the reali ‐ zation of HR, there the provider is covered by commercial law; since network expansion to slum areas is not profitable, though, the shareholders could even sue the water pro ‐ vider for complying with a supposed right to water. Basic need vs. commodity Closely related to the expansion debate is the ongoing struggle for subsidies. For example, critics depict cases when corporations alle ‐ gedly maneuvered themselves into positions from which they could put immense pressure on the State administration to grant them fi ‐ nancial support in order not to endanger the national water supply. However, more important in the HR context is the issue of cross ‐ subsidies, namely financing poor regions’ water supply via charging higher tariffs for big water consumers or high ‐ income Page 4 customers. In other words, this means to dif ‐ ferentiate between water as a basic need and water as a commodity. According to leading scientists, the quantity of available water is usually not the actual problem but its quality. Therefore, a certain daily amount of free wa ‐ ter should be assigned to every human being as his or her basic provision depending on the geographical, cultural and economic situation. This could easily be cross ‐ subsidized by charg ‐ ing corresponding bulk tariffs e.g. for private swimming pools or industrial use of water. The key to a possibly large coverage lies in a viable social policy. A working model exists e.g. in Portugal where cross ‐ subsidies are as ‐ signed nationally according to a region ‐ based economical index for affordability. One task of social policy, though, is to assess which part of the population must be regarded as“poor” or “needy”, especially in a poor country in order not to lose track of the core problems. A different approach to cost ‐ calculation could be another way of addressing the problem of service extension: Some people would be very well able to pay their annual water bill but cannot afford the connection fee, in which case the provider should not charge them the installation but calculate the overall water tariff correspondingly to amortize investments through the water bill – thus, the consumers could practically subsidize themselves. Political impact The debate about a possible right to water is not merely a political issue but has to be put into a larger context. To name but a few, envi ‐ ronmental policy, the industrial and agricul ‐ tural use of water, and public health are close ‐ ly interrelated with it and influence the de ‐ bate. Therefore, it is necessary to establish different ethical levels to distinguish between water rights in the sense of customers’ rights

PSP in Water Services Provision and the HR to water in order to avoid the danger of mixing up the rights of human be ‐ ings, citizens, and consumers. The political sphere will have to deal with the question of priorities and, of course, States’ obligations. As stated above, States are not required to provide water or even full net ‐ work supply themselves but merely to pro ‐ mote and facilitate access to HR. But, as has also been pointed out, the issue of water is closely related to already existing HR such as an adequate standard of living and, of course, the right to life itself. Therefore, providing basic water supply and sanitation, e.g. via standpipes and public toilets, has to be re ‐ garded as a State’ primary duty towards eve ‐ rybody living in its territory. Other require ‐ ments include subsidizing mechanisms, the establishment of institutions such as a regula ‐ tory framework and access to justice, educa ‐ tion to promote hygiene ‐ awareness, and set ‐ ting high but attainable standards. Bottom line While the technical and procedural pros& cons of PSP are relatively easy to assess, a HR approach requires going beyond merely calcu ‐ lating the costs and benefits. From a legal point of view, the appropriate institutions and Page 5 mechanisms must be in place to ensure the respect for HR. A question rarely asked in this context, how ‐ ever, deals with the moral dimension of the water market: Is it morally justifiable to profit from water as long as billions of people lack access to safe and affordable water? Even if this question does not touch the implementa ‐ tion and enforcement of a right to water it ‐ self, one should nevertheless bear it in mind. Whatever one’s attitude towards PSP may be, before deciding on whether to privatize the water sector, a number of questions must be addressed, reaching from defining the various actors’ rights and responsibilities in the run ‐ up to the negotiations to monitoring the company’s compliance with the contract long after it has been signed. Whatever a government decides on the ques ‐ tion of PSP, it has to ensure that a minimum of preconditions is in place – a clear legal framework addressing explicitly HR issues and an independent regulatory body empowered to enforce compliance. Otherwise, it is proba ‐ bly more practicable to delay privatization and stick to a combination of limited public service and SIPs as an interim solution until these conditions are met. About the author: Philipp Turri is student of Political Sciences, History and Romance languages and literature at the University of Freiburg i. Br./ Germany and works as an intern for the Friedrich ‐ Ebert ‐ Stiftung, Geneva Office. – March 2010 – More information is available on www.fes.de/globalization The views expressed in this publication are not necessarily the ones of the Friedrich ‐ Ebert ‐ Stiftung. Friedrich ‐ Ebert ‐ Stiftung, Genf 6 bis, Chemin du Point ‐ du ‐ Jour 1202 Geneva Switzerland Tel.+41 22 733 3450 Fax:+41 22 733 3545 E -mail: info@fes ‐ geneva.org http://www.fes.de/globalization