Water Privatization - Report Example

NAME : XXXXXXXXXX TUTOR : XXXXXXXXXX TITLE : XXXXXXXXXXX COURSE : XXXXXXXXXX INSTITUTION : XXXXXXXXXX @2009 Water Privatization Introduction There have been high rates of population and economic growth, changing eating habits and environmental values and increased recreational activities throughout the world since 1970. This has led to increase in water demand. It is expected that these forces are likely to increase in the future, where as, water supply is likely to be inadequate because of the forecasted impacts of global warming and the limited likelihood for development of new water supply infrastructures due to the unsustainable economy and environmental and political restraints. Water scarcity is therefore expected to increase especially in arid and semi-arid areas. If this problem is not solved urgently, it will have great impacts on the environmental, social and economic sectors especially in most developing and undeveloped countries where water is a major factor in poverty reduction and health improvement. As a result, most countries are considering changing the management of their water supply systems. One way that most countries are trying to tackle this issue, is through privatization of water supply management systems. Water privatization basically means involvement of private sector in water supply and resources management (Bel and Warner 2006). However, there have been various controversies surrounding this issue of water privatization, with some advocating for it and other strongly opposing it. However, the decision as to whether to employ private or public water management systems can only be determined by use of absolute efficiency advantage, that is, does the system lead to increase in water supply, employment opportunities, environmental conservation, decrease in water prices and improvement in water quality. This paper is therefore going to find out determine whether water privatization can led to absolute efficiency advantage by looking into the above mentioned indicators and thereafter, determine whether the idea of water privatization is preferable (Hefetz and Warmer 2004: 180). Arguments in Favor of Water privatization Most supporters of water privatization, World Bank, private companies, bilateral aid agencies and several governments, are for the idea that privatization of water supply will lead to increase in efficiency, better water quality and access of water to the poor. Most governments and aid agencies have cited the problem of low efficiency and low levels of recovery of public utilities as the contributing factors in their failure to provide equitable water supply. They strongly feel that such problems can be effectively solved through water privatization. They believe that private companies will be in a position to reduce prices, enhance performance and increase cost recovery through improved efficiency and enhanced administration. This will lead to system upgrading and expansion, a vital requirement for a country in which majority of its citizens do not have access to safe and enough water supplies (La Porta and Lopez-de-Silanes 1999:1210). The World Bank argues that water supply has increased with privatization of water leading to reductions in poverty and inequality (Leipziger 2004). This is evident from the increased rates of private’s water supply concession contracts all over the world. Countries which has been most affected include Atlanta, Manila, Jakarta, Buenos Aire and La Paz. Other sectors have also benefited greatly from water privatization (Frydman et al. 1999). There has been increase in investment and productivity; improvement in health indicators and most importantly is that most poor people have gained access to water supply. For example, in Latin America, water privatization was linked to 8% reduction in child mortality. This impact was most notable among poorer communities, where there was massive increase in water supply (Galiani et al. 2005). In Bolivia Cambodia, studies show that most households are served by private utilities rather than public utilities and they appear satisfied with the piped water than clients of public utilities. The private sector provide quality, regular piped water and water interruptions are few if any. This can be attributed to the high qualified personnel team employed by private sector, which is well paid. There are therefore in a position to maintain their facilities regularly and to execute quality control measures carefully. Private sectors provide better incentives to their operators, thus, they are able to satisfy their client and maintain then as compared to the public sector. It is also important to note that it is the private sector which has contributed to introduction of advanced technology in water management (Renzetti and Dupot 2003.). Public sector operators do not have stronger incentives to respond adequately to the demands needs of its citizens as does the private sector operators. This is simply because the private sector properly manages all commercial risks involved in the water supply in order to reduce costs and hence, increases net profit. They also concentrate on providing their clients with those services which they need most and are willing to pay for. On the other hand, public sector workers do not rely wholly on the revenue they make from their customers for their payment and therefore are reluctant when it comes to service delivery (TNI 2005). Argument against Water privatization Privatization should not be used as a policy for improving access and health as it tend to favor the wealthy class and it is profit oriented and therefore, cannot address the issue of equity and social justice. Due to the high connection fees charged by most private companies, most lower-income households have disconnected their networks from private utilities to the public utilities. For example, in United States, there has been an increase in the number of households in which water supply has been disconnected. Critiques of water privatization have even argued that the improvement in water quality is not due to increased competition in the private sector, but due to improved regulation mechanisms, which have set high clean water standards (Shleifer 1998). Privatization of water has led to increase in water prices in most developed and developing countries. A good example is Cochabamba in Bolivia where water privatization has led to 200% increase in water prices, leading to excessive public protests. Moreover, Europe and Untied States have not recorded any significant cost saving associated linked to water privatization (Renzetti and Dupont 2003). In England and Wales, Water privatization resulted to 50% increase in prices in the first four years. In the next 5 years, it led to 46% increase in real terms, where as, it is expected that water prices will rise up to 18% in 2009. Most households have been unable to pay for such water services and therefore, there has been a sharp increase in the number of households indebted to water companies. High water prices have led to increase in the present worldwide disparity of access to water. Most countries which experience water problems are poor and thereby, increasing water prices denies them access to a most basic commodity. This will lead to the creation of a two-tiered world, one which can manage to pay for it water and other which cannot. This will have significant impact on health. For example, in England, increased water prices has impelled people to decide not to wash their hands after visiting a toilet, not to flush their toilets frequently, not to wash their food before cooking or even to wash fresh fruits before eating and not to bathe regularly. Increased water prices combined with privatization will place the fate of water as a product at the hand of international trade agreements such as WTO and VAFTA. This will have water being taken as a product to be traded and will thus be subject to the same rules as any other product. As per the trade agreements, if water is privatized and placed on the open market for trade, it will only be provided to those who can afford it and not to those who require it (Shleifer 1998: 147) However, I strongly believe that in this age of acute water shortages, water preservation can be incentivized through pricing, which is only possible through privatization of water supply. When water prices are high, people will stop wasting water and develop water conservation behaviors. For example, people may start using water which they have used to rinse their clothes to mob their houses or even to flush toilets instead of throwing the water away. Water should be taken as an economic good just like any other economic good such as food, which is also essential for life. Water supply should be privatized as it will also lead to reduction in water available for use. For example in Australia, before water privatization, water was provided in abundance for free or at low prices resulting to extreme water misuse, elevated water tables and augmented soil salinity. Water was used to irrigate unproductive soils and commodities and on places where leaching had negatively affected the quality of river waters (Morgan 2005). Privatization of water supply has led to increase in unemployment as the private sector operates with few personnel as compared with the private sector. So, the first thing they embark on is reduction of staff, which leads to massive layoffs. Reduction in the size of labor force led to increase in profit, which is the main goal of private companies. Hence, most workers have seen their conditions gradually eroded through redundancies. In England and Wales for example, the workforce has fallen by 8,599 which is equivalent to 21.5% decease. In United States, Employment opportunities decreased by 21%. The fact that some private companies have tended to employ foreign experts instead of employing the local people has worsened this problem of unemployment (Trawick 2003). Water privatization has not led to increased water supply. For example, Manila and Maynilad Water Companies in Philippines have not able to supply water to their target population. Manila Water has only supplied water to 3.2 million people instead of its target of 4.3 million, whereas, the Maynilad Water has supplied water to 5.2 million people rather than 6.7 million people. This firm also failed to supply water on a daily basis to its target population. Water privatization also failed to provide people of Bagong Barrio with water. Before water privatization, people in this area used to get water on a daily basis, but with water privatization, water became available only during the night, then in the morning and eventually they did not get any water. It has been eight years since the Maynilad and manila Water Companies took over water supply management in Bagong Barrio and over 4 million people are without water supply (Donahue 1989). Water privatization has led to environmental degradation and exploitation of water which is a natural resource. The profit that private companies derive in providing water services is either used to invest in new water projects or is just pocketed instead of using it to conserve water. In order to maximize their profit, private companies embark on water consumption promotion at the expense of water or environmental conservation. Most private firms have embarked on unsustainable mining of water in their efforts to maximize profit. As a result, most water sources such as rivers and dams are being depleted at a rate which is higher than their replenishing rate. Hence, most of these water sources are drying up leading to acute water shortages all over the world. A good example is the Coca-cola firm in Khamman district of Andhra Pradesh which has engaged in indiscriminative mining of groundwater. This has led to contamination of groundwater with too much magnesium and calcium from the dissolution of limestone that is linked to ground water deposit and drying up of many wells. Most people are suffering from stomach aches as a result of the milky white and brackish water they drink (Leipziger 2004). Conclusion After analyzing the privatization of water management in the various countries, it is evident that water privatization has not led to absolute efficiency advantage. Despite the fact that there is notable improvement in water quality associated with privatization, water privatization has led to increase in water prices and low returns in private investment. It is even speculated that the improvement in water quality could be due to enhanced regulatory mechanisms set by various states. From my point of view, water management should not be privatized as this will lead to water overexploitation, unsustainable water supply, and environmental degradation and hiked water prices and hence, most poor people will not be in a position to access water services. This will result in increase in poverty and deterioration of public health. The main goal of such private firms is to make profit rather than to ensure equality or sustainability of water supply. Thereby, Privatizing water management will imply that we are concerned with making more profit rather than promoting long term sustainability. References Bel, G and M. Warner 2006 “Local privatization and Expenses: An Appraisal of Empirical Verification.” Paper presents at “Privatization and Local Government Reforms,” International Workshop, Barcelona, Spain, June. Donahue, J. 1989. The Privatization Decision; Public Ends, Private Means. New York: Basic Books, Inc. Frydman, R. Gray M. and rapaczynski A. 1999. When privatization does Works: The Impacts of Private Involvement in Community Performance in Developing Economies. Quarterly Journal of Economics 114(4): 1153-1191. Galiani, S., Gertler, P. and Schargrodsky, E. 2005. ‘Water for Life: The Effects of the Privatization of Water Services on Infant Mortality’, Journal of Political Economy. Hefetz A. and Warmer M. 2004. Privatization and its Overturn: Elucidation the Self-motivation of the Government Contracting process.” Journal of Public Management Study and Theory 14(2): 171-190. Hodge G. 2000. Privatization: An International Review of Performance. Boulder, Westview Press. La Porta R. and Lopez-de-Silanes. 1999. “The benefits of privatization: Evidence from Mexico.” Quarterly Journal of Economics 114(4): 1193-1242. Leipziger D. 2004. “The Privatization Debate: The Case of Latin America utilities.” Paper presented at the joint Study on Infrastructure development in East Asia- First Regional Workshop, Manila, Philippines. January 15-16. Morgan B 2004b Water: Frontier markets and Cosmopolitan Activism. Consultation: A Journal of Policy and Culture Issue on “The Frontier State” 27:10-24. Morgan B 2005 Community Disapproval of Water Privatization: Falsifying Multinational Nationality? In Cordonier Seggier M N and Weeramantry J. (eds) Reasonable Justice: Integration Global Economic, Ecological and social Law. The Hague: Martinus Nijhoff. Renzetti S. and Dupot D. 2003. “Ownership and Performance of Water utilities.” Greener management International 42: 9-19. Shleifer A. 1998. “State versus Private Ownership.” Journal of Economic perspectives 12: 133-150. Trawick P. 2003. Against the privatization of Water: An Indigenous Model for improving existing laws and successfully governing the Commons. World Department 31(6)977-996 TNI 2005. Regaining Public Water: Accomplishment, Disputes and Visions from all over the world. Amsterdam: Transnational Institute. Read More

ample, in Latin America, water privatization was linked to 8% reduction in child mortality. This impact was most notable among poorer communities, where there was massive increase in water supply (Galiani et al. 2005). In Bolivia Cambodia, studies show that most households are served by private utilities rather than public utilities and they appear satisfied with the piped water than clients of public utilities. The private sector provide quality, regular piped water and water interruptions are few if any.

This can be attributed to the high qualified personnel team employed by private sector, which is well paid. There are therefore in a position to maintain their facilities regularly and to execute quality control measures carefully. Private sectors provide better incentives to their operators, thus, they are able to satisfy their client and maintain then as compared to the public sector. It is also important to note that it is the private sector which has contributed to introduction of advanced technology in water management (Renzetti and Dupot 2003.). Public sector operators do not have stronger incentives to respond adequately to the demands needs of its citizens as does the private sector operators.

This is simply because the private sector properly manages all commercial risks involved in the water supply in order to reduce costs and hence, increases net profit. They also concentrate on providing their clients with those services which they need most and are willing to pay for. On the other hand, public sector workers do not rely wholly on the revenue they make from their customers for their payment and therefore are reluctant when it comes to service delivery (TNI 2005). Argument against Water privatization Privatization should not be used as a policy for improving access and health as it tend to favor the wealthy class and it is profit oriented and therefore, cannot address the issue of equity and social justice.

Due to the high connection fees charged by most private companies, most lower-income households have disconnected their networks from private utilities to the public utilities. For example, in United States, there has been an increase in the number of households in which water supply has been disconnected. Critiques of water privatization have even argued that the improvement in water quality is not due to increased competition in the private sector, but due to improved regulation mechanisms, which have set high clean water standards (Shleifer 1998).

Privatization of water has led to increase in water prices in most developed and developing countries. A good example is Cochabamba in Bolivia where water privatization has led to 200% increase in water prices, leading to excessive public protests. Moreover, Europe and Untied States have not recorded any significant cost saving associated linked to water privatization (Renzetti and Dupont 2003). In England and Wales, Water privatization resulted to 50% increase in prices in the first four years.

In the next 5 years, it led to 46% increase in real terms, where as, it is expected that water prices will rise up to 18% in 2009. Most households have been unable to pay for such water services and therefore, there has been a sharp increase in the number of households indebted to water companies. High water prices have led to increase in the present worldwide disparity of access to water. Most countries which experience water problems are poor and thereby, increasing water prices denies them access to a most basic commodity.

This will lead to the creation of a two-tiered world, one which can manage to pay for it water and other which cannot. This will have significant impact on health. For example, in England, increased water prices has impelled people to decide not to wash their hands after visiting a toilet, not to flush their toilets frequently, not to wash their food before cooking or even to wash fresh fruits before eating and not to bathe regularly. Increased water prices combined with privatization will place the fate of water as a product at the hand of international trade agreements such as WTO and VAFTA.

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