Water services flowing back into public hands

With privatization failing to deliver, more and more public authorities the world over are reclaiming control of water supply and sanitation services.

by Emanuele Lobina, Satoko Kishimoto and Olivier Petitjean

Cities, regions and countries worldwide are increasingly choosing to close the book on water privatization and to “remunicipalize” services by taking back public control over water and sanitation management. In many cases, this is a response to the false promises of private operators and their failure to put the needs of communities before profit.

A new report, “Here to Stay: Water Remunicipalisation as a Global Trend”, published by Public Services International Research Unit (University of Greenwich), Transnational Institute and Multinational Observatory looks at the growing remunicipalization of water supply and sanitation services as an emerging global trend and presents the most complete overview of cases so far. In the last 15 years there have been at least 180 cases of water remunicipaliza-tion in 35 countries, in both the global North and South, including high-profile cases in Europe, the Americas, Asia and Africa. Major cities that have remunicipalized include Accra (Ghana), Berlin (Germany), Budapest (Hungary), Buenos Aires (Argentina), Kuala Lumpur (Malaysia), La Paz (Bolivia), Maputo (Mozambique) and Paris (France). By contrast, in this same period there have been very few cases of privatization in the world’s large cities: for example Nagpur (India), which has seen great opposition and criticism, and Jeddah (Saudi Arabia).

Despite more than three decades of relentless promotion of privatization and public-private partnerships (PPPs) by international financial institutions and national governments, it now appears that water remunicipalization is a policy option that is here to stay. Direct experience with common problems of private water management – from lack of infrastructure investments to tariff hikes to environmental hazards – has persuaded communities and policymakers that the public sector is better placed to provide quality services to citizens and promote the human right to water.

Remunicipalization refers to the return of previously privatized water supply and sanitation services to local authorities or to public control more broadly speaking. This typically occurs after the termination of private contracts by local governments or their non-renewal, but the process is not always (or only) on a municipal scale. Regional and national authorities have considerable influence over services funding and policy, and in some cases act directly as water operators, so the process unfolds within this broader context.

Whatever its form and scale, remunicipalization is generally a collective reaction against the unsustainability of water privatization and PPPs. Because of the unpopularity of privatization, private water companies have used their marketing propaganda to encourage people to believe that concessions, lease contracts and other PPPs are quite distinct from privatization; they are not. In fact, all these terms refer to the transfer of services management control to the private sector. Policymakers must be aware of the high costs and risks of water privatization, and as such they have a lot to learn from the experiences of public authorities which have chosen remunicipalization and are working to develop democratically accountable and effective public water operations.

The key findings of the “Here to Stay” report are as follows:

1. Water remunicipalization is an emerging global trend

As of October 2014, the global list of known water remunicipalizations that occurred from 2000 to 2014 features 180 cases. As the mapping of this process is still in its early days, we expect many more cases to come to light as work progresses. This strong remunicipali-zation trend is observable both in the global North and in the global South: 136 cases were found in high-income countries – where local authorities benefit from greater administrative resources and are less subject to the lending conditionality of multilateral banks – whereas 44 cases were from low- and middle-income countries.

In the global North, the list of cities that have remunicipalized their water services includes capitals such as Paris (France) and Berlin (Germany) and major US cities such as Atlanta and Indianapolis. Beyond the symbolically powerful cases of cities like Paris, many smaller municipalities are opting for public control as well: for example, in France alone more than 50 municipalities have terminated their private management contracts or decided not to renew them. In the global South, remunicipalization also involves former flagships of water privatization, including Buenos Aires (Argentina), La Paz (Bolivia), Johannesburg (South Africa), Dar es Salaam (Tanzania) and Kuala Lumpur (Malaysia). In Jakarta (Indonesia), there is also a strong ongoing campaign to remunicipalize the city’s water services.

2. Remunicipalization is accelerating dramatically

The number of cases in high-income countries shows a marked acceleration: 81 took place between 2010-14, while only 41 had occurred between 2005-09. Thus the pace of remunicipalization has doubled over the last five years. This trend is even stronger in some countries such as France: eight cases between 2005-09 compared to 33 cases since 2010. The high-profile 2010 remunicipalization in Paris in particular has influenced many other municipalities in and outside France such as Spain.

3. Reasons to remunicipalize are universal

As illustrated by the cases discussed in the report, the factors leading to water remunicipalization are similar worldwide. The false promises of water privatization that have led to remunicipalization include: poor performance of private companies (e.g., in Dar es Salaam, Accra, Maputo), under-investment (e.g., Berlin, Buenos Aires), disputes over operational costs and price increases (e.g., Almaty, Maputo, Indianapolis), soaring water bills (e.g., Berlin, Kuala Lumpur), difficulties in monitoring private operators (e.g., Atlanta), lack of financial transparency (e.g., Grenoble, Paris, Berlin), workforce cuts and poor service quality (e.g., Atlanta, Indianapolis).

4. Remunicipalization is more often initiated through termination of private contracts

Most cases of remunicipalization around the world have occurred following the termination of private contracts before they were due to expire, with the exception of France where most local governments have waited until the renewal date to end water privatization. At the global level, 92 cases of remunicipalization followed contractual termination, while 69 cases were non-renewals of private contracts after expiry. This means that in the great majority of cases, private contracts proved so unsustainable that local governments opted to remunicipalize even though they knew that they may have to pay compensation. While the best way to avoid the costs of remunicipalization is not to privatize in the first place, this also suggests that terminating a private contract is feasible and often less costly than continuing with privatization in the long run.

5. Leading the remunicipalization trend are countries with long experience of private water management

It is no accident that France, the country with the longest history of water privatization and home to the leading water multinationals, presents so many cases of remunicipalization. French local authorities and citizens have experienced firsthand the “private management model” that Veolia and Suez have exported around the world. In the past few years, many French cities have decided to follow in the footsteps of Grenoble and Paris and take back control of their water services. An even larger number of contracts are coming up for renewal in the next few years and it is expected that many more French cities will remunicipalize.

6. Remunicipalization tends to improve access and quality of water services

By eliminating the profit maximization imperative of the private sector, water remunicipalization often leads to enhanced access and quality of services. The equal or greater efficiency of public water services and lower prices can be observed in cases as diverse as Paris (France), Arenys de Munt (Spain) and Almaty (Kazakhstan). In some cases the new public operators also dramatically increased investments in the water systems, such as in Grenoble (France), Buenos Aires (Argentina) and Arenys de Munt (Spain). The social benefits of water remunicipalization have been visible in Arenys de Munt (Spain), where the local government and the new public operator restructured the tariff system to guarantee access to water for low-income households. In Buenos Aires (Argentina), achieving universal access to water has become a top priority for the new public operator AySA. Since remunici-palization, AySA has extended training programmes for employees who work with poor neighbourhood residents to expand service access.

7. Remunicipalization offers opportunities to build democratic governance

Remunicipalization allows for strengthening accountability and transparency. In Paris and Grenoble (France), the new public water operators have introduced advanced forms of public participation. First, civil society representatives sit on the board of directors together with local government representatives, and have equal voting rights. This allows civil society to partake in decisions on the management of this most essential public service, and to make operations responsive to the interests of local communities. Second, citizen observatories have been established to open spaces for citizens to engage in strategic decisions on investment, technology options and tariff setting. Both cities consider that full information disclosure is a fundamental condition for accountability, transparency and participation.

8. Remunicipalization carries external risks including possible litigation

Successful remunicipalization requires careful planning and assessment of external risks, even more so for countries of the South which are under the grip of pro-private multilateral agencies. Decision-makers need to be aware that transaction costs of remunicipalization may include paying compensation to private operators for their foregone profits. When a private contract is terminated before its expiry date, private companies can sue local governments to receive payment of the full profits granted under the contract.

A private concessionaire in Arenys de Munt (Spain) fiercely obstructed the remunicipalization process by filing complaints against the city council. The US city of Indianapolis was forced to pay a $29 million fee to French multinational Veolia to terminate the 20-year contract over a decade early. Berlin residents have had to accept very high costs to buy back the shares held by two private operators. Private concessionaires sued Tucuman and Buenos Aires (Argentina) before an international arbitration tribunal to obtain compensation. The risk of having to pay hefty compensation can distort the decision-making process of local governments which are considering termination and remunicipalization (e.g., Jakarta, Indonesia; Szeged, Hungary; Arezzo, Italy). But in other cases the potential benefits are so clear that local authorities are ready to face such risks.

9. Public-public partnerships can support remunicipalization efforts

Public water operators and national or regional associations are increasingly helping each other through the remunicipalization process. In Spain, the regional public company Aguas del Huesna (Andalusia) facilitated remunicipalization for 22 municipalities. The remunicipalized water operators from Paris and Grenoble played a key role in helping other local authorities in France and elsewhere to remunicipalize and improve their water services. French local authorities and public water operators have benefited from the exchange of experience and knowledge on remunicipalization that has been facilitated by associations of local governments and public enterprises. The regional institution CONGIAC in Catalonia also played a key role in Arenys de Munt’s remunicipalization process from decision making to implementation. There are other such examples across boundaries: After failed PPP experiments, the Mozambican government entered into a not-for-profit partnership with a Dutch public water company focusing on local capacity building. Cooperation between public water companies as part of public-public partnerships is a viable alternative to costly PPPs and the most effective way to assist public water authorities in improving services.                                   

The above is extracted from the report “Here to Stay: Water Remunicipalisation as a Global Trend” (November 2014) published by Public Services International Research Unit (PSIRU), University of Greenwich; Transnational Institute (TNI); and Multinational Observatory. The full report is available on the PSIRU website www.psiru.org.

Third World Economics, Issue No. 581, 16-30 Nov 2014, pp9-10