Third World Centre for Water Management


Public Private Partnership in the Water Sector

The current discussions on private and public sector involvements are often shrouded by dogmas and vested interests, rather than an objective search for a new paradigm. The views of the people and the institutions promoting or opposing private sector participation are often deeply held, and the real needs of the people of the developing world to have access to reliable water supply and sanitation are often subsumed by the interests of the discussants. Accordingly, the discussions on this issue, encompassing both proponents and opponents at various international fora, have mostly ended up as dialogues between the deafs.

Because of the controversies in this area, and the importance and relevance of the issues, the Centre is conducting a series of in-depth and objective analyses on the performances of the private sector in various developing countries. Based on these analyses, following preliminary conclusions can be drawn.

1. Private sector currently serves about 3-6 percent (estimates vary) of urban water consumers in the developing world. This percentage is likely to increase in the coming years, but most likely at a much slower rate that what was anticipated only three years ago. Under all foreseeable conditions, vast majority (say 90 percent) of domestic consumers are likely to receive their water and wastewater services from the publicly-run water companies till 2020.

2. There are many forms of private sector involvement. These could range from outright sales of assets to the private sector, as was the case for England and Wales, to provision of management concessions to run water supply and wastewater collection and treatment facilities over a fixed number of years (these range from 3 to 60 years), to outsourcing of specific activities. After England and Wales sold outright all assets to the private sector in 1989, no other country has followed this model. More than a decade after this privatisation in England and Wales, there is currently no agreement as to its actual impacts on the consumers and quality of services provided. The assessments available at present range from highly favourable to deplorable.

In contrast to outright sale of assets, the use of management contracts to the private sector for specific period of years has proliferated during the past 5-7 years. Here again no universal judgement can be made. Some concessions have been very successful, but equally others have been dismal failures. Results have some times vary within a single country (for example, in Morocco, Casablanca could be considered to be a success but not Rabat), and sometimes even in the same metropolitan area (half of Manila works, but the other half did not).

There could also be a time dimension to the effectiveness of the private sector involvement. Thus, Buenos Aires was a good example of private sector involvement, until the economic meltdown in Argentina changed all the boundary conditions. Recently, the concessionaire had to write off nearly $500 million of its investments in that city.

Thus, there is no single model of private sector participation which could be appropriate to all cases even in one country, let alone for the entire world, and also over time.

3. After rapid expansion of awards of concessions to manage water supply and wastewater systems to the private sector in recent years, the rate of award of new similar arrangements has slowed down very significantly in recent years. For example, in 2002, only 20 new concessions of any consequence was awarded to the private sector, representing US$2.8 billion. It was probably even less for 2003. Near terms prospects for new concessions do not look encouraging. In fact, in 2004, there are fewer serious international private sector companies willing to invest in the developing world compared to even 2-3 years ago. Even these companies are highly leveraged, and are restricting new capital investments. Net private sector investments are showing a decreasing trend.

4 . Competitive pressure from the multinational water companies has improved the performances of the public sector companies in many developed as well as developing countries. This is an impact that the water professionals have mostly missed. It is likely that the performances of many public sector companies are likely to improve very significantly in the foreseeable future, certainly at a much higher rate than has been the norm for the past 20 years. Without the threat of the private sector competition, the performances of the public sector companies would not have improved in such a remarkable fashion over such a short period of time.

5. Performances of public and private sector companies cannot be generalised. By most criteria, the best water utility in the world continues to be Singapore, a public sector endeavour. Equally, probably the worst utility in the world belongs to the public sector. Even within the private sector companies, their performances have varied very significantly, ranging from excellent to very dismal. The performances of individual multinational water companies have varied from one city to another, and also could vary over time even in the same city. Thus, the performances of the public sector are not necessarily uniformly bad, and the achievements of all the private sector companies are not necessarily uniformly good. Each case must be judged on its merits and constraints, and over a specific period of time. Both the high priests of the private sector who claim that the private sector will solve all the problems, and the diehard social activists who claim that the private sector has no role to play in water supply and wastewater management are both wrong. The truth lies somewhere in between.

There are now many myths associated with both public sector and private sector performances, as a result of which the debate on this issue has become highly emotional and polarised. There is too much focus on the final architecture, but not enough on the basic foundations, or how best the needs of the people can be met cost-effectively and within a limited timeframe.

The Centre organised a special session at the Third World Water Forum in Osaka, in March 2003, where leading authorities from different parts of the world from public and private sectors, academia, development bank and non-governmental organisations were invited to discuss the current experiences and future potentials for public-private partnership in the water sector.

Analyses carried out by the Centre on public-private partnership in the Middle East and North Africa has been published as the June 2003 Special Issue of the International Journal of Water Resources Development.

Assessment of North and South American experiences were published as a book entitled: Precio del Agua y Participación Publico-Privada by Porrua Editorial of Mexico City. For more information visit our Publications Section.

Routledge will publish another books in April 2005, entitled: Water Pricing and Public Private Partnership in the Americas. While the titles of these two Spanish and English books are somewhat similar, the materials contained are totally different.



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