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Land, Energy & Water

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Implication of water Privatization in India
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The United Nations has recognized access to water as a basic human right, stating that water is a social and cultural good, not merely an economic commodity. Today, due to increasing consumption patterns water is becoming scarce and this scarcity is an emerging threat to the global population. Global consumption of water is doubling every 20 years, more than twice the rate of human population growth. At present more than one billion people on earth lack access to fresh drinking water. By the year 2025 the demand for freshwater is expected to rise to 56% above what currently available water can deliver if current trends persist (Barlow, 2003).


26th Dec 06 - Pavin Pankajan, Blog

To solve the growing water crisis, the solution that is proposed and pushed by world bodies such as the World Trade Organization (WTO) and International Monetary Fund (IMF) through international agreements such as General Agreements on trade and services (GATS) is privatization of water, which in effect leads to treatment of water by private companies through structural adjustment policies. The control of water by private companies takes away the resource from the public and puts it in private control.

A number of water supply build operate–transfer (BOT) projects have been abandoned or are causing serious problems in Vietnam, China, Malaysia and elsewhere, due to unaffordable levels of prices being built into take-or-pay contracts. Similar problems have been observed elsewhere in the world. There should be a serious reappraisal of the economics of existing water supply Bots, and a moratorium on further developments, while the lessons of this experience are explored. Otherwise long term economic liabilities may be accumulated which damage the ability of water utilities to function.

The performance of public utilities in Asia compares well with that of the privatized operations in Jakarta and Manila. This confirms other evidence, for example a comparison of public and private water operations in Latin America, which found that private operations despite all the financial and other support they have received, were no more likely to have extended services than cities without private operators. The ratings of the Asian cities call into question the continuing enthusiasm of the Asian development bank (ADB) and a number of governments for privatization in some form or other. Cities such as Osaka and Phnom Penh, run by effective public sector water operations can clearly provide lessons for other water undertakings in Asia.

Water privatization

Water privatization involves transferring of water control and/or water management services to private companies. The water management service may include collection, purification, distribution of water and waste water treatment in a community.

Traditionally this service has been provided by the local governmental infrastructure such as the municipality and local city council. The pro privatization lobby including water corporations, the World Bank and IMF has aggressively campaigned for water privatization on the grounds that, while water subsidies promote wasteful practices, commodification of water should allow market forces (supply and demand)to set the water tariff, which in turn will reduce water consumption and promote water conservation. Furthermore, it is argued that opening this sector to private providers will bring in badly needed capital for upgrading and development of infrastructure. There are several models of water privatization that are currently in vogue in different parts of the world (Citizens Network, 2003).Depending on the degree of privatization, these models can be broadly categorized into:

Service Contracts – In this model, public authority retains overall responsibility for the operation and maintenance of the system, and contracts out specific components.

service contracts last 1-3 years and include services such as meter reading, billing and maintenance. While public ownership is maintained and community accountability structures remain in place, the transparency of operation can be limited. Contracts are often not openly negotiated and regulation and oversight is usually lacking.

(Design), Build, Operate, Own and Transfer or (D)BOOT- this model of privatization is usually used for system infrastructure development such as water treatment plans that require significant finance. The private operator is required to finance, construct, operate and maintain the facility for a specific period of time (usually more than 20 years). At the end of the term the infrastructure may turned over to the municipality or the contract is renewed. This model is more prevalent in developing countries. Examples of (D)BOOT include Tiruppur Project in Tamil Nadu India and Cochabamba experience in Bolivia.

Divestiture- in this model, the government or public authority awards full ownership and responsibility of the water system including the water source to a private operator under a regulatory regime. This is also done in the form of 10-20 year renewable contracts on the entire system. The government moves operation to private hands thus improving efficiency. Competition is limited through the process of bids on the divestiture. The private sector firm is than expected to take the risks and recoup investment/profits. This model cedes tremendous power over an essential resource to corporations. Examples of divestiture include the Rasmada scheme, under which a 22-year lease over a stretch of the Shivnath River in Chattisgarh was accorded to Radius Water, Inc.

Water privatization has been recommended by the Indian Government’s national water policy (National Water, 2002) to address the issue of water scarcity. In its article 13 titled, “Private sector participation” the policy says that “private sector participation should be encouraged in planning, development and management of water resources projects for diverse uses, wherever feasible”. This has placed water privatization at the forefront of developmental policies implemented by several state governments (Ghotge, 2002).while the policy is silent on the kinds of privatization models that will be adopted as can be seen from the case studies below, most of the privatization that has been done in India follows the (D)BOOT model. The national water policy also encourages interlinking of rivers to improve water availability in water scarce areas (interlinking, 2005).the proposed river linking scheme has water privatization at its heart of funding, which will further isolate the water source and responsible water management from local communities. Many sate governments and, neighboring nations sharing river waters with India and experts have questioned the merits of such a scheme on numerous grounds including lack of feasibility and impact studies on the project, ecological disasters from river diversion schemes around the world, as well as adverse environmental impact due to submergence soil salinity and water logging (Dasgupta , 2003), (acharya, 2003), (sharma, 2003)

Selected case studies of water privatization:

Tiruppur, Tamil Nadu : The New Tiruppur Area Development Corporation Ltd.
(NTADCL) was set up by the state government in 1995 to execute an Rs 13 billion (EUR 281 million copy) water supply project , with financial support from USAID and the World Bank , NTADCL, issued a 30 year BOOT contract for the project to a consortium including Mahindra and Mahindra , United International, North West Water, Larsen and Tubro and Bechtel, which would transfer water over a 55 km long pipeline from the river Bhavani and supply 185 million liters of water per day to nearly 1,000 textile units and more than 1.6 million residents in Tiruppur and its surrounding area (Tiruppur water, 2005). According to the project document,United Utilities and NTADCL will run the joint venture at a “fixed operation and maintenance fee” that will be recovered entirely from Tiruppur municipality. However , in an effort to woo further corporate capital investment in a state , the Tamil Nadu government has guranteed profitability to the investors in the project by creating a hedge fund to pay the interest and operative expenses of the project in the event of water shortage in the Bhavani river, with no stipulation on amount of water withdrawal from the river for this project (Ninan, 2003)(Constraints to development, 1999).

Shivnath River, Chattisgarh : The Chattisgarh State Industries Development Corporation (CSIDC) , which is in the charge of industrial development in the state , commissioned the project to meet the demand on water in the Borai Industrial area situated on the Banks of the shivnath a non perennial river. As part of the project, a 23.6 km stretch of river was ceded to Radius Water through a 22 year renewable contract, under which the company had absolute monopoly over the stretch of river water.

In return, Radius Water would provide water to the CSIDC from the Shivnath during the lean 6 months>.The company built an integrated water supply system to control the water flow automatically depending on the level of the Shivnath and set the water tariff at substantially lower rates than that charged by the neighboring states of Madhya Pradesh and Maharashtra (sharma, 2002). The project was initially hailed as a success by the government. However , the catch was that the the agreement assured Radius Water of payment for a minimum of four million liters of water per day by the state government, regardless of the amount of water used irrespective of whether the CSIDC recovers this amount from the industries.20 The CSIDC lost Rs 12.9 million between December 2000 and June 2002. 21 Furthermore , Radius Water’s monopolistic deal with CSIDC and the water resources department covered ground water as well in an 18 km radius covering the Borai industrial area. The company promptly prohibited fishing in the stretch of the river and also changed local farmers for access to water from tubewell. Ultimately , bowing to pressure from several NGO s and adverse media reports, the government had to scrap the deal (Dhar, 2003).

Degremont, New Delhi : Degremont a subsidiary of the French water giants suez has been awarded a Rs 2 billion contract under a 10 year BOT agreement with the Delhi Jal BOARD (DJB) for a drinking water treatment plant in Sonia Vihar near New delhi. The water treatment plant is expected to yield 635 million liters of drinking water a day while Degremont is getting the raw water for free through pipelines from the Upper Ganga canal of the Tehri dam project. (near Murad nagar, Uttar Pradesh)the amount it will get as a fee for treating the water will be much in excess of what the DJB will charge the consumers when selling the water . The DJB is also providing Degremont with land electricity and treatment cost.At the same time Degremont has been kept free from transmission losses and revenue collection and has also been assured the purchase of treated water and productivity incentives once the plant begins operations (Kaur, 2003). The Sonia Vihar plant has been plagued by controversies since its inception. The leader of the opposition party and some ruling party members have leveled allegations of corruption and irregularities in the allotment of contract to Degremont (Mehdudia, 2000). A Delhi based NGO – Research Foundation for Science, Technology – has accused the Delhi Jal Board of wasteful practices(Shiva, 2002). The Delhi Jal Board, which does not rule out an increase in the water prices for the residents of New Delhi., (Degremont Water Plant, 2002) has not made public any of the project documents.

Arguments against Water Privatisation

1) Price hikes are unaffordable for poor: Water privatisation has invariably led to price hikes in almost all the regions in the world where water has been privatized. This is because there are considerable costs involved in upgrading water harnessing, purification and distribution systems. For such expensive projects, water companies borrow private money, which is subjected to high interest rates from financiers and state taxation. The companies recover their costs and expenses by charging the consumer. Not only is the capital cost divided among all the consumers but also the interest, taxes and overheads on the capital. Thus, the consumer is forced to bear the burden of higher payments on the company loans. In contrast, tax-free public financing results In the low costs for such projects in the community owned or state controlled water systems. It has been argued that privatization will lead to reduced consumption and promote conservation. However, while market forces will determine the water tariff and make it costlier in scarce areas, it is doubtful if this can actually reduce consumption. The price hikes following privatization have almost always made water unaffordable to the poor. However the rate increase does not make a dent on agriculture and industries where the price hikes are affordable.

In developing countries such as India, the water price hike is also an indirect consequences of the conditions imposed on the government by the World Bank and IMF in return for structural adjustment loans. The privatization of public services such as water and electricity is often a sine qua non for such loans. Furthermore, full cost recovery is demanded by the World Bank and IMF as a prerequisite to privatization. For instance, during the severe flooding in Orissa in 2001, the World Bank demanded an increase in the water tariffs as a cost recovery measure on the use of water (Press Release, 2001). Rates for water irrigation have since doubled or even tripled. Increased consumer fees for water can make safe water unaffordable for the impoverished and vulnerable populations. Families are often forced to make trade-offs between water, food, schooling and health care.

These cost recovery conditions 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.

Magnesium in the Plachimada district in Kerala, which has lead to health problems among the villagers in the area (Jyaraman, 2002). In Walkerton, Canada, seven people died and several became ill as a result of E-coli contamination in the drinking water. The private company, A&L Laboratories, contracted to test the drinking water knew of the contamination but regulations intended to encourage privatization ensured that company was not required to alert the government (Top Reason, 2005). In India, the bottled water industries and Cola industry have been shown to have high pesticide levels in their products (CSE India’s, 2005).

The World Bank justifies cost recovery requirements by contending 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. However,there is little evidence of the multinational water companies' commitment to expanding services, especially to poor communities where the ability to pay the increased fees is limited. This is because the poor communities offer little or no margins to the wate corporations. Instead, the multinationals, which have only recently started their major moves into developing countries, have quickly racked up very poor social and environmental records (Jayaraman, 2002)

2) Unsustainable water mining: Many potential risks emerge once a resource ass fundamentals to life as water is privatised.One of the foremost reason to oppose water privatisation is the threat of the unsustainable water mining by the water corporations in an effort to maximise profits. These corporations,which are answerable only to their shareholders, have a declared agenda to make profit. Once water becomes a marketable commodity and a corporation is given a sole rights to a body of water, then it is within corporations' rights to mine as much water as it deems fit. Furthermore in an effort to maximise profits, if the corporationmines an environmentally unsustainable amount of water and deplete the water body at a rate faster than it is replenished, then the government officialsand the affected population can do very little to legally prevent the coororations from doing so.

The fact that this is real and tangible threat is appreant from the increasing threat of the community complaints against indiscriminate mining of groundwater by Coca-Cola in the Khammam district of Andhra Pradesh, Athur village near Chennai and Plachimada in Kerala (Jayaraman, 2002). Residents from the villages in the Palghat district inKerala surrounding Cokes greenfield soft-drink bottling factory in Plachimada say that Cokes indiscriminate water mining has dried up many wells and contaminated the rest. Coca Cola's bottling plant was set up in 1999 in the middle of fertile agricultural land, with proximity to a number of number of reservoirs and irrigation canals. Cokes mining of more than 1 millions litres of ground water of ground water per day has parched the lands of some 2000 people within 1.2 miles of the factory. The company's usage of agricultural land for non agricultural purposes has also been questioned by local residents. Due to the indiscriminate mining, the grond water has become contaminated with the excessive calcium and magnesium from the dissolution of limestone that is associated with the groundwater deposit. Nearly 100 people have reported recurrig the stomaches aches, which they relate to the brackish and milky white water that they are being forced to drink. Public protest over the issue has only met with violent arrest by the police of local villagers (including women and children) involved in the peaceful picketing of the cokes factory.

3) Creation of water monopolies: Privatisation by definition eliminates the public control of the resources in question. Public control of water is essential not only because water is necessary for survival and human fulfillment, but also becaus eof the severe and ever worsening water crisis that the world is faced with (UN Warns, 2002).

Once the goverrnment agency hands over the water systems to a private enterprise, it becomes extremely difficult and prohibitively expensive to reverse the decision. What makes is so difficult is that global market for water is etimated to be over $500 billion globally and $2 billion in India (Jha,2002).. Fortune magazine has labelled water as the "oil of the 21st century ". With such a huge profits at stake, corporations around the world strive to ensure that water as a commodity live sin the private control. The water corporations are aided and abetted in their effort by financial institutions such as the world bank, WTO and IMF, which enforce many free trade agreements and structural adjustments programs on developing countries as a prerequisite for a " developmental" loan. A water corporation can use one of the many free trades treaties to take legal action against the government for withdrawing from the agreement to privatise water systems. Although this has not yet happened in India, yet many instances of watersuits filed by water corporations against local government that backed out of a contract in countries with a longer history of water privatisation (Top Reason,2005).

4) Water quality compromised : Corporations in search f profits can compromise on water quality in order to reduce costs. this is especially true in country such as India,where the water quality regulatory boards do not have the teeth to enforce their standards. There have been numerous instances of outbreaks of epidemics due to poor quality of water. As discussed earlier, Coca-Cola's indiscriminate mining of ground water has contaminated ground water deposits with excessive amounts of Calcium and

5) Potential Export of Bulk Water: Fully aware of the $2 Billion water market in India, private companies are in a frenzy to access fresh water sources that they can sell at huge profits. For instance, the huge market for drinking water in the perpetually water starved city of Chennai has prompted several private companies to mine the surrounding villages for groundwater. The residents of Mathur village in North Chennai sued several bottled water companies in 1995 for illegally extracting groundwater (Hall, 1999). By the time the case was taken up in 1999, more than 60 private companies supplying water by tanker trucks had sunk additional illegal wells in Mathur. Privatisation opens the door to bulk water exports as control over this scarce resource is transferred from local communities to profit minded global operations. Bulk water exports will have disastrous ecological and environmental consequences.

6) Corruption and lack of transparency: Indian government agencies are notorious for teir lack of accountability and transparency in awarding of service contracts to the private corporations. The Enron scandal - in which the Maharashtra government awarded Enron a contract for generation and supply of 695MW of electric power – has epitomized the allegations of bribes and “kickbacks” that have plagued practically every major service contracts awarded by governments in India. In many cases the government guarantees ginst any loses incurred by the water corporation by setting up hedge funds for such purposes or assuring regular payments to the corporations for fixed amounts of water regardless of actual usage (Jain, 2003). Furthermore, the potential for huge profits and long term monopoly over supply of an essential resource such as water has doubly increased the incentives for private corporations active in this sector to offer bribes in order to secure contracts. Executives of many water corporations have been convicted for bribing government official’s world wide (Hall, 1999), (Corruption, the companion, 2000).

Conclusion

Water is synonymous with life. Water corporation through world bodies such as the World Bank and IMF, are influencing national governments to push privatization and commoditization of water as ‘the chosen’ alternative to manage the growth in water consumption and the severe water scarcity. However, the growth in water consumption is highest in the agricultural and industrial areas, where the resources to buy water are readily available with rich farmers and industries. This increase in consumption will be satisfied through the market dynamics often at the cost of the poor who cannot afford the increased water tariffs.

Furthermore, due to the nature of this sector, water privatization, instead of bringing in healthy consumption, results in to monopoly sanctioned by the government agencies. Numerous case studies around the world highlighted the other ills of water privatization such as poor quality of water, unsustainable water mining and lack of transparency and accountability. From the various studies outlined here, clearly shows privatization of water is a violation of basic rights of Citizen of India and should be opposed.

Better and socially responsible alternatives can be found by investigating in community based participatory approaches to water management that ensures equitable and sustainable use of this precious natural resources. All over the world, alternate models such as rain water harvesting, check dam and bund building, holistic watershed management, integrate river basin management and irrigation efficiency improvement have been demonstrated as low cost successful alternative to privatization.

Source: http://ppaviwater.blogspot.com/2006/12/implication-of-water-privatization-in.html

References

(1) Acharya, K. (2003, July 14) “India’s River Linking Scheme Worries the Region’s Journlists,” Planets – Voice.org.

(2) Barlow, M. (2003), Blue Gold – The Fight to Stop the Corporate Theft of the World’s Water (p. 4). London:Earthscan.

(3) Citizens Network on Essential Services, (2003) “Democratising Local and National Governnce of Water, paper no. A2.
“http://www.servicesforall.org/html/water/democratizing_water.shtml”

(4) “Corporation, the companion of privatization”, (2000, Mar 17-22) Public Services International Briefing – World Water Forum, The Hague.
“http://www.worldspi.org/psi.nsf/WebAllMessages/”

(5) “Constraints to Developing Commercially Viable Urban Environmental Infrastructure Projects”, (1999, Nov) Indo-US FIRE (D) Project Notes, Note No. 21
“http://www.indiaurbaninfo.com/niua/ProjectNo.21.pdf”

(6) CSE India’s Report on Analysis of water quality, (2005)
“http://www.cseindia.org/html/cola-indepth/index.htm”

(7) Dasgupta, M. (2003, Jan 31) “Experts raise doubts about river linking project,” The Hindu

(8) “Degremont water plant will leave Tehri farmers high and dry: NGO,” (2002, July 15) Business Line.
“http://www.blonnet.com/bline/2002/07/15/stories/2002071501641300.htm”

(9) Dhar, A. (2003, April 12) “Chhattisgarh to cancel water supply contract” The Hindu.

(10) Ghotge, S. (2002) “India’s Water Policy – A Perspective Paper,” National
Centre for Advocacy Studies, Pune.
“http://www.ncasindia.org/perspective/waterpolicyperspective19.htm”

(11) Hall, D. (1999, July) “Privatisation, Multinationals and Corruption”, Public
Services International Research Unit, Report No. 9909-U-U-Corrup.doc, July
1999.

(12) Jayaraman, N. (2002, May 28) “No Water? Drink Coke, CorpWatch India,
“http://www.indiaresources.org/”

(13) Jain, S. (2003, Apr. 13) “A River gone private is drying up” The Sunday Express.

(14) Jha, S. (2002, Dec. 5) “India’s Water Wars,” AlterNet.
“http://www.mail-archive.com/ This e-mail address is being protected from spam bots, you need JavaScript enabled to view it /msg05776.html”

(15) Kaur, N. (2003, Aug 30-Sep 12) “Privatising Water,” Frontline, vol. 20, issue 18.

(16)Mehdudia, S. (2000, Nov 29) “Sheila Dixit Plays Slander Campaign, The Hindu.

(17)Ninan, A. (2003, April 16) “Private Water, Public Misery,” CorpWatch India.
“http://www.indiaresource.org/”

(18) “Press Release by The Social Justice Committee, (2001, Oct 9).
“http://www.s-j-c.net/9Oct2001.htm”

(19)Tirupur Water and Sewerage Project, India,” (2005) Water Technology Website,
Industry Project Reports.
“http://www.water-technology.net/projects/tirupur/specs”

(20)Sharma, A. (2002, July 14) “Water Colour of Money” The Sunday (Indian) Express.

(21)Sharma, S. (2003, Oct) “Interlinking ? No, thanks,” India-together.org.
“http://www.indiatogether.org/environment/water.htm”

(22)Shiva, V. (2002, July 13) “Water Privatisating in India,” Articles in Public
Citizen Website.
“http://www.citizen.org/cmep/Water/cmep_Water/reports/india/articles.cfm?ID=8 109”

(23)“Top 10 Reasons to Oppose Water Privatisation”, (2005) Public Citizen Website
and references there in.
“http://www.citizen.org/cmep/Water/general/whyoppose/articles.cfm?ID=7566”

(24)“UN warns of looming water crisis” (2002, Mar 22) BBC World News.
“http://news.bbc.co.uk/2/hi/1887451.stm”