September 2001 - VOLUME 22 - NUMBER 9
B e a r i n g t h e B u r d e n of I M F a n d W o r l d B a n k P o l i c i e s
Privatization Tidal Wave
By Sara Grusky
IMF/World Bank Water Policies
and the Price Paid by the Poor
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,
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 Ghanas access
to the portfolio of loans in the World Banks Country Assistance
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 Banks 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 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
Ghanas water system, two of them, Suez and Bouygues/Saur, have annual
sales figures significantly larger than Ghanas 1999 gross domestic
The Price Of Access To Water
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 Banks 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
But privatization critics say the Banks calculus is flawed on numerous
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 universitys
water. People travel from all parts of Accra to the university to fetch
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 peoples
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 AESs 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 Banks 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
The Water Privatization Push
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
Banks 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
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 countys 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 IMFs Executive Board, some of the loan conditions
are made public in Letters of Intent posted on the IMFs
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
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 citys 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 Banks 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
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 IMFs 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
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
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.