Privatization Tidal Wave: IMF/World Bank Water Policies and the Price Paid by the Poor

by Sara Grusky

In July, the World Bank approved a new $110 million structural adjustment loan for Ghana. Before disbursing the loan, however, the Bank forced the government of Ghana to implement seven “prior actions,” including a requirement to “increase electricity and water tariffs by 96 percent and 95 percent, respectively, to cover operating costs.”

The effort to attain “full cost recovery” is a prerequisite to privatization. Private companies want to operate systems where consumers meet the expenses of running the systems and pay enough for company profits, too.

Pressured by the World Bank, the government of Ghana plans to lease the Ghana Water Company to two as yet undetermined multinational water companies to provide urban water service. The World Bank included water privatization as one of many conditions that determined the extent of Ghana’s access to the portfolio of loans in the World Bank’s Country Assistance Strategy (CAS).

In May 2001, a broad coalition of groups in Ghana responded by forming the National Coalition Against the Privatization of Water (National CAP of Water), which is committed to conducting a broad campaign to ensure that all Ghanaians have access to safe and affordable water.

Rudolf Amenga-Etego of the Integrated Social Development Centre and one of the founders of the National CAP of Water, says most people in Accra do not earn the minimum wage of less than US$1 a day, while a significant number have no regular employment. In April, the average price for a bucket of water, which used to be 400 cedis, was raised to 800 cedis (US$1 equals 7,000 cedis) to comply with the Bank’s required “prior action” for accessing the structural adjustment loan approved in July. The proposed water privatization is expected to increase water tariffs even further.

“The current water tariff rates that the government of Ghana and the World Bank think are ‘below the market rate’ are already beyond the means of most of the population in Ghana,” says Amenga-Etego. “How will the population possibly be able to absorb a so-called ‘open market’ price for water in the context of privatization? As water becomes less affordable, it is highly likely that there will be a corresponding increase in diseases stemming from reduced access to clean water.”

Cost Recovery and Privatization

The Ghanaian case is representative of an increasingly common policy recommendation of the World Bank, along with the International Monetary Fund (IMF), to increase consumer fees for water and sanitation and to force privatization of water utilities.

The Bank argues that developing country governments are too poor and too indebted to subsidize water and sanitation services. World Bank structural adjustment loans and water and sanitation loans routinely include conditions requiring increased cost recovery, full cost recovery or “economic pricing” for water services.

These requirements mean that user fees paid by water consumers must cover all water system costs, which usually include the costs of operation, maintenance and capital expenditure, and sometimes the cost of servicing past utility company debt.

Increased consumer fees for water can make safe water unaffordable for poor and vulnerable populations, however. As water becomes more costly and less accessible, women and children, who bear most of the burden of daily household chores, must travel farther and work harder to collect water — often resorting to water from polluted streams and rivers. Families are forced to make trade-offs between water, food, schooling and health care.

The World Bank and the IMF often impose increased cost recovery conditions in order to improve the economic viability of water utilities so that they will be more lucrative for private sector investors. In many countries, World Bank officials have concluded that public sector ownership of the water utilities is too costly and inefficient while the sale of water utilities and other public enterprises can provide quick resources to service developing country debt.

“Effective water resource management requires that water be treated as an economic good,” the World Bank asserts on its website, explaining that “private participation in water and wastewater utilities has generally resulted in sharp efficiency gains, improved service, and faster investment in expanding service.”

Structural adjustment loans and water and sanitation loans contain conditions requiring privatization, including service contracts, management contracts or leases with private sector “international operators.” The multinational corporate water sector is highly concentrated, including such large companies as the French companies Vivendi, Suez and Bouygues, and the Texas-based Enron. Of the five companies currently bidding for Ghana’s water system, two of them, Suez and Bouygues/Saur, have annual sales figures significantly larger than Ghana’s 1999 gross domestic product.

The Price Of Access To Water

World Bank officials argue that increased cost recovery and privatization will actually expand access to clean water and sanitation. “Where public delivery fails, the World Bank Group supports private entry,” Bank officials explain in their policy paper on urban water and sanitation. “We advise and assist countries in developing regulatory frameworks and in designing viable, clean transactions that reconcile the interests of investors and consumers, and recognize the needs of the poor.”

In many developing countries, large proportions of the population are outside the limited “grid” of the piped water system. Expansion of the infrastructure is a key need. In the meantime, neighborhoods, villages and communities are dependent on other sources for clean water such as private water tanker trucks. Buying water from tanker trucks generally costs more than paying fees for piped water, often much more. Those who cannot afford treated water must depend on streams, rivers, lakes or shallow hand-dug wells. Some households or communities develop “illegal” hook-ups to the piped water system.

The World Bank contends that, with higher payments from consumers, private companies will have an incentive, as well as the revenues, to extend pipes to those relying on water trucks or unclean sources.

“In many countries, middle-class consumers pay subsidized rates that shift the financial burden of the water they use — and often waste — to the government,” argues John Briscoe, head of the World Bank’s global water unit. “Public sector providers waste water, too, typically losing 40 to 50 percent of their volumes through leaks and theft. Costs are inflated, as utilities often employ more than twice the staff of an efficient operation. This bleeding of money leaves governments unable to expand services to urban slums, small towns, and villages. Indeed, the poorest urban dwellers, whose plight is cited as a reason to keep water in the public sector, get no service at all from subsidized utilities. Many must buy water at a high price from private tanker trucks.”

But privatization critics say the Bank’s calculus is flawed on numerous grounds.

First, higher prices for water mean the poor have to use less or go without. In Ghana, for example, price increases have already forced many poor people to cut down drastically on their use of water. People often go to public places to fetch water for free or for a token fee, and children spend a lot of time fetching water and carrying it back to their parents.

The University of Ghana, which has adopted the philosophy of “struggle alongside the people,” permits community members to use the university’s water. People travel from all parts of Accra to the university to fetch water.

Public health officials recognize that serious health risks are imposed by the lack of access to clean water, including transmission of water-borne diseases such as guinea worm, cholera and other diarrheal illnesses. The World Health Organization estimates more than 2 million deaths annually from diarrheal diseases due to lack of access to adequate water and sanitation services. “The situation will get worse with the full cost recovery policies placed on the Government of Ghana as part of the World Bank loan conditions,” says Amenga-Etego

In South Africa, water charges imposed in 1999 forced some poor people in Kwagulu-Natal to rely on polluted river supplies for their water. Public health officials trace a 2001 cholera outbreak, which has killed dozens, to the water pricing policy.

In Latin America, cholera has returned to the continent after being absent for nearly a century.

In addition, increased consumer fees for water may also hurt those who are not even part of the formal water pipe system. In many countries, private tanker truck operators buy water from the public water utility. Increased wholesale water prices trickle down to the poor.

What is often referred to as “leaks” include illegal hook-ups and other informal survival strategies used by the poor. Thus, World Bank policies to reduce “leaks” can actually reduce poor people’s access to water, since households with “illegal” hook-ups may end up having to pay for services.

Finally, there is little evidence of the multinational water companies’ commitment to expanding service, especially to poor communities where the ability to pay increased fees is limited. Instead, the multinationals, which have only recently started their major moves into developing countries, have quickly racked up very poor social and environmental records. In Indonesia, Suez and Thames Water have both been charged with tampering with water pricing. In South Africa, protesters claimed that Suez was taking excessive profits, grossly overcharging for its services, and leaving the municipality unable to pay its workers a living wage. Saur (a subsidiary of Bouygues) is alleged to have made the largest of 12 bribes that are the subject of various investigations into corruption and political pay-offs in the World Bank-funded Lesotho Highlands Water Project [see “Falling for AES’s Plan?” Multinational Monitor, June 1999]. There are many other cases.

World Bank officials and citizen groups in developing countries would probably agree on one point, however: Water sector reforms are needed. Current water management systems in many developing countries, especially centralized national water utilities, have not been able to provide safe and affordable water to the population. However, the World Bank’s proposed solution, increased consumer fees and privatization, responds more to concerns about fiscal deficits and foreign debt than to citizens’ need for safe, affordable water, say critics. Citizens’ groups like the Ghana National

Cap of Water propose alternative solutions such as decentralized community/municipal partnerships, continued government subsidies as well as innovative financing schemes, and citizen involvement and oversight in locally managed water systems.

The Water Privatization Push

Despite reason for skepticism about water privatization and increased cost-recovery schemes, the World Bank and IMF are pushing full-steam ahead for these measures.

A review of IMF loan documents in 40 countries reveals that, during 2000, IMF loan agreements with 12 borrowing countries included conditions imposing water privatization or cost recovery requirements.

In the division of labor between the IMF and the World Bank, it is the Bank that has primary responsibility for “structural” issues such as the privatization of state-owned companies. In countries where IMF loan conditions include water privatization or cost recovery requirements, there are usually corresponding World Bank loan conditions and water projects that are implementing the financial, managerial and engineering details required for “restructuring” the water sector. But IMF structural adjustment documents are more often publicly available than those from the World Bank, making it easier to search IMF documents, despite the Bank’s lead role in this area.

In general, it is African countries and the smallest, poorest and most debt-ridden countries where loan documents reveal IMF conditions on water privatization and cost recovery. Water privatization or cost recovery provisions are attached to loans to Angola, Benin, Guinea-Bissau, Honduras, Nicaragua, Niger, Panama, Rwanda, Sao Tome and Principe, Senegal, Tanzania and Yemen.

The IMF has different categories of loan conditions with corresponding degrees of leveraging power. Performance criteria are the most influential IMF conditions in that loan disbursements (known as tranches) can be withdrawn or allowed to proceed based on compliance with performance criteria. The IMF water privatization conditions are primarily structural benchmarks. Structural benchmarks influence the overall “grade” the IMF attaches to a county’s performance, but they are not, in-and-of-themselves, conditions for withdrawing or advancing a loan disbursement.

For the countries on the receiving end of IMF water mandates, crucial decisions about water privatization and cost recovery may be made by Fund officials negotiating with key government leaders behind closed doors and without the knowledge or consent of citizens. Neither the IMF and the World Bank nor borrowing governments are obliged to publicly disclose information during loan negotiations. Once a loan agreement is signed and approved by the IMF’s Executive Board, some of the loan conditions are made public in “Letters of Intent” posted on the IMF’s website. The World Bank is currently revising its information disclosure policies. Presently, the conditions attached to World Bank structural adjustment loans are rarely publicly disclosed.

Eager, and sometimes desperate, government leaders will often adopt IMF policy prescriptions in order to secure the resources necessary to avoid an immediate financial crisis.

In March 2001, the IMF announced that it would streamline the scope of its conditionality and withdraw from the area of public enterprise restructuring and privatization. The IMF claims that, in the future, water privatization will rest in the domain of the World Bank and other multilateral development banks. This may reduce opportunities for public input even further, as most structural adjustment documents for World Bank loans remain secret.

But the institutional division of labor notwithstanding, the policy mandates are unlikely to change. World Bank loan documents show increased cost recovery requirements for water services imposed in loans to Tanzania, Mozambique and Uganda.

Fighting For Water And Democracy

Struggles against the privatization of water supplies have already erupted in a number of countries. In Bolivia in 1999, the government responded to structural adjustment policies of the World Bank by privatizing the water system of its third largest city, Cochabamba. The government granted a 40-year concession to run the debt-ridden system to a consortium led by Italian-owned International Water Limited and U.S.-based Bechtel Enterprise Holdings. The newly privatized water company immediately raised prices. Although the minimum wage stood at less than $65 a month, many of the poor had water bills of $20 or more. Water collection also required the purchase of permits, which threatened the access to water for the poorest citizens.

Mass local opposition in Cochabamba coalesced in the Coalition in Defense of Water and Life, known as La Coordinadora, which demanded the water system stay under local public control [See “The Fight For Water and Democracy,” Multinational Monitor, June 2000]. After weeks of intense protests, in April 2000, La Coordinadora won its demands when the government turned over control of the city’s water system, including its $35 million debt, to the organization and cancelled the privatization contract. La Coordinadora achieved the first major victory against the global trend of privatizing water resources.

Ghanaians have also mounted protests against the World Bank’s water privatization push in their country. Public outcry over alleged bribes that influenced the bidding process forced the Ghanaian government to deny an initial contract to Enron/Azurix, and start the bidding process all over again. National CAP of Water observers say the bidding process continues to be closed off from public scrutiny, however.

Information from World Bank officials suggests that the Government of Ghana, acting under the advice of the IMF and the Bank, has decided to lease the Ghana Water Company to two different multinationals and has demarcated the districts that will comprise the markets of each of the corporations into project “A” and project “B.” Project “A” has received four bids so far while project “B” has received five bids. However, four out of the five corporations have bid on both projects, which means that a total of five transnational corporations have placed bids to date. National CAP of Water has vowed to mobilize public opposition to the privatization plans. The coalition is planning a national march against water privatization in Accra, Ghana on November 10.

Meanwhile, allies of citizen groups such as the Coordinadora in Bolivia and the National Cap of Water in Ghana are working to block a continuation of the Bank and IMF’s water privatization frenzy. In the United States, groups like Results, the 50 Years is Enough Network, Globalization Challenge Initiative and Essential Action (a project of Essential Information, the publisher of Multinational Monitor) are developing draft U.S. legislation that would obligate U.S. representatives to the IMF and World Bank to oppose any loan that mandates increased costs to poor consumers for clean drinking water.

A version of the legislation, which is modeled after similar enacted legislation restricting user fees for primary health or education, is expected to be introduced in Congress soon.

Turning the tide of the water privatization trend is essential, says Rudolph Amenga-Etego of Ghana.

“Water issues are too important to be left to decisions by government and foreign creditors like the World Bank,” says Amenga-Etego.

Countries must be permitted to find their own solutions and to keep water provision and sanitation in the public sector, he says.

“We need to develop a national response to the contractionary policies of the IMF and examine new options for financing our water sector reforms inan equitable and socially responsive manner,” Amenga-Etego says.

“With abject poverty and the lack of employment opportunities that characterizes Ghana and many other developing countries, it is not in the national interest to privatize water. Water should be regarded as a social service with government bearing the primary responsibility for its provision.”

Sara Grusky is co-director of the Globalization Challenge Initiative, which supports citizen's groups in developing countries struggling against undue interference from foreign donors and creditors, particularly the IMF and World Bank.