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COVER STORY
Why privatise water? Privatising water authorities is nothing more than the transfer of wealth to the private sector
by Anil Netto
Before you could say, �Ais kosong satu!� Parliament passed the Constitution Amendment Bill on 18 January 2005, transferring supply and management of water away from the respective states to the federal level. The move sparked criticism from Parliamentary Opposition Leader Lim Kit Siang. �It is putting the cart before the horse for Parliament to proceed with the Constitution Amendment Bill 2004 without first being requested by the State Legislative Assemblies,�� as required under the Constitution, he said. Two more Bills - The Water Industry Bill, which is shrouded in secrecy, and a Bill to establish a regulatory National Water Services Commission (SPAN) � are expected to be read in Parliament soon. Most Malaysians hardly noticed when the government reneged on its promise, which it made on 19 January 2005, to set up a Parliamentary Select Committee to solicit the views of the public. In March, the Minister responsible for water, Lim Keng Yaik, said the Select Committee process would be by-passed as the government was already familiar with the problems facing the industry. What about the problems facing the public, who have to contend with the ever-increasing cost of living? Obviously, our ordinary Ali, Ah Kow and Arumugam do not seem to figure very highly in the priorities of the ministry and the government. So it is left to the newly set up Coalition Against Water Privatisation, comprising 26 civil society groups to raise the alarm. The coalition has handed in protest memorandums to Parliament and the national human rights commission, Suhakam, arguing that the right to water is a basic human right, a common good that should not be subjected to the profit motive. But don�t hold your breath if you think that alone will halt the privatisation: Suhakam must have a huge store-room to file away all those reports and memoranda. The protest here mirrors a similar campaign in neighbouring Indonesia, where civil society groups have asked Indonesia�s Constitutional Court to review the Water Resources Act, which facilitates privatisation. They argue that the Act, passed last year as required by a World Bank loan package, compromises the Indonesian government�s ability to ensure access to water for the poor. Earlier, in December 2004, the Constitutional Court annulled the Electricity Law, which promoted deregulation and privatisation in Indonesia�s power industry, in a move that civil society groups lauded as a victory against the neo-liberal agenda of global financial institutions. The Malaysian government�s argument for privatisation is that state governments have no money to change old water pipes and that non-revenue water (un-billable water due to leakages and unpaid water bills) or NRW is high. Why privatise a profitable govt-owned entity? But Charles Santiago, coordinator of Monitoring Sustainability of Globalisation, cites the performance of the Perak water authority since 1998. Despite a high NRW of 51%, the water authority has seen its profits soar from RM11 million in 1999 to RM47 million in 2003. He notes there are new plans to privatise the water utility and raise tariffs by 40 per cent in the next three or four years. �Why privatise a profit-making government-owned entity?� asks Santiago, adding that the profits should instead by reinvested and used to replace old pipes instead of handing the organisation over to the private sector. Privatisation of water, he said, has nothing to do with efficiency. �It is the transfer of wealth from the state to the private sector or individuals,� he says, bluntly. Commenting on the privatisation in Selangor, he notes that the private sector was allowed to cherry pick the profitable parts such as the water treatment plants, which were privatised. The loss-making sector - such as the distribution network, where leakages occur and old pipes need to be replaced - remained with the government. �The government does not want to pump money to the state sector, but would rather give loans and guarantees to private firms,� he complains. He also warns that privatisation could lead to the introduction of prepaid water cards (banned in the UK in 1987) and profiteering. This could hurt the poor, who might resort to less healthy sources of water supply, which could seriously jeopardise their health. �Water should be in the hands of the state and the people,� he insists. Santiago was speaking at a World Water Day talk held at the Aliran office on 22 March 2005. Water tariffs soar The experience in cities across Asia and elsewhere is that when multinationals enter the scene or when private participation is introduced, water tariff rates invariably soar. For instance, in Manila, the government touted water privatisation as the solution to a looming water crisis. Instead of the promised lower rates, however, Maynilad Water Services, which holds Manila�s west zone concession, raised tariffs by as much as 400 per cent between 1997 and 2003 - within a period of six years! Manila Water Company, the east zone concessionaire, raised water tariffs by 700 percent in the same period. �Our private firms will do the same,� predicts Santiago. �People will suffer, especially the poor.� It is not necessarily true that publicly managed water utilities are inherently inefficient. Cities like Osaka, Phnom Penh and Penang, where water is publicly managed, have outperformed Manila and Jakarta, cities with massive privatisation arrangements, in several key performance areas. Osaka, for instance, has NRW of 7 per cent, an outstanding performance; Phnom Penh records 26 per cent, and Penang a commendable 18 per cent. By comparison, Jakarta has NRW of 51 per cent and Manila 62 per cent. The British-based Public Services International Research Unit (PSIRU), which analyses the privatisation and restructuring of public services around the world, revealed in a recent study that the greater city of Colombo in Sri Lanka, where water is publicly managed, has a water leakage level of only 23 per cent compared to a leakage level of 35 per cent for the area of London covered by Thames Water plc, a huge multinational involved in water privatisation projects in developing nations. Pressure to privatise So where is the pressure to privatise coming from? Privatisation schemes are being pushed with vigour by international financial institutions such as the World Bank and the Asian Development Bank and lobby groups such as the Global Water Partnership (GWP) and the World Water Council. In addition, the European Union has come up with initiatives in the World Trade Organisation to prise open national water services to the big foreign players. The GWP is a pro-business think-tank set up by the World Bank (whose own record on water privatisation has been dismal), the United Nations Development Program (UNDP) and the Swedish International Development Agency (Sida) in 1996. The GWP, whose secretariat is in Stockholm, promotes Integrated Water Resource Management principles and public-private partnerships - euphemisms for neo-liberal privatisation. It wants water to be regarded as an economic good. In Malaysia�s case, part of the impetus for water privatisation appears to be coming from the national chapter of the GWP, the Malaysian Water Partnership (MyWP). MyWP consists of 67 institutional members, including government agencies, the private sector, and other interested �stakeholders�. PBA shows the way Santiago prefers to tout the example of the Penang Water Authority (PBAPP) as an example of successful public-public partnership. PBAPP�s track record has left others envious. Its supply coverage is 100 per cent in urban areas and 99 per cent in rural areas. What�s more, its NRW (wastage/leakage) level is 18 per cent - half the national average of 39 percent � enabling it to offer among the lowest water tariffs in Malaysia. In contrast, Johor and Selangor - states where water supply is privatised � have among the highest water tariffs in the country. PBAPP has reaped healthy annual profits, which have funded maintenance work. Just over a thousand PBAPP employers are responsible for 50 reservoirs, 30 water towers, 10 treatment plants, six dams and 3,400 km of pipeline. Annual profits before tax for the years 2001-2003 have ranged between RM50 million to RM62 million. But Penang Water Watch president Dr Chan Ngai Weng argues that PBAPP is already a privatised entity, that privatisation is already here and it is something we have to deal with. So is PBAPP really a privatised entity? The Penang government owns a controlling 55 per cent (plus a special share) in PBAPP�s holding company (PBAHB), state-related agencies 20 per cent, with the remainder held by the public through listed shares. PBAHB was listed on Bursa Malaysia, the Kuala Lumpur Stock Exchange, in 2002. With the state owning a total of 75 percent of the capital in PBAHB plus a special share, it is obvious, that the PBAPP is still very much a state-owned entity, albeit dressed up as a listed company. What�s more, instead of a concession, there is a licensing agreement, whereby PBAPP pays lease charges and an annual charge to the state. R Sivarajah, Aliran�s honorary auditor and former senior technical assistant with 33 years� experience in the Penang Water Corporation (PBAPP), admits that the PBA workers had actually fought for �privatisation�. But, as Santiago points out, the �privatisation� they fought for came up after talk emerged that PBA could be totally privatised to third parties or subjected to a �management buyout.� In addition, the workers at that time were being pressured and burdened with additional workload as staff who resigned or retired were not replaced. Those who remained with the organisation had to shoulder the additional workload, even though the PBA did not have excessive staff. So, many workers saw the �corporatisation/privatisation� and listing exercise (under which the state would still retain majority control) as the best alternative to protect the workers� rights and welfare � given the more uncertain alternatives proposed. Even before it was �corporatised�, Sivarajah notes that the PBA itself had been self-sustaining. But contrary to Santiago�s assertion, Sivarajah argues that �privatisation addresses the issue of efficiency.� The idea of having a national regulatory commission, he says, does not mean that all states will have the same water tariffs. �Regulators will not automatically approve new rates.� PBA under the spotlight For Chan, privatisation is not the problem, but �the problem lies in how it is privatised.� Is there transparency and are there open tenders, he asks. The privatisation process in Malaysia, he notes, has not been very transparent. Successful privatisation should provide for adequate capital expenditure, set benchmarks (PBA benchmarks could be used for other states), and allow the regulatory commission to be independent, says Siva. He points out that the heads of privatised entities should be people of integrity and experience and that political considerations should not come into play. Even an efficient organisation like the PBAPP has not been spared allegations of irregularities. �A classic example was where the No. 2 man with an excellent track record, proven capabilities and more than 25 years� experience was bypassed and an outsider was put in as the new general manager of the PBA,� he said. Siva said the new general manager had no experience managing a water utility, having headed a different government department previously. �The new man within a few months of his appointment approved the waiver of costs for the diversion of mains for a private developer amounting to hundreds of thousands of ringgit based on the recommendation of the then senior engineer,� he alleges. At that time, Siva was PBA�s senior technical assistant and staff union president. �I exposed the matter at the general meeting of my union in the presence of the honourable chief minister of Penang and the local media,� he reveals. �Subsequently, I reported the matter to the ACA. So far, nothing has come of my report.� He says that the Anti-Corruption Agency may have carried out some investigations but he has still not yet heard from the agency after five years. Conserve that water! Chan meanwhile laments that the government and the public have neglected conservation. Instead, the emphasis has been on building dams and treatment plants. Penangites are the most wasteful, each consuming 400 litres daily (the PBA puts it at 260 litres daily), he notes. In contrast, Singaporeans have a per capita consumption of only 140 litres daily. And our NRW level in Malaysia at 39 per cent is way too high. In some states, it is as high as 60 per cent. �If we plug 20 per cent of that, we would be able to fill 67 Teluk Bahang dams,� says Chan. Malaysia, he observes, is rich in water resources with 20,000 cubic metres of water available per person annually. (Countries with 1,000 to 1,700 cubic metres per person per year are said to be water-stressed.) �And yet, we still have water problems.� Expenditure on water as a component of household income in Malaysia is small and hence, people do not regard water as a precious resource that has to be conserved, points out Chan. To counter this, he proposes staggered water tariffs under which the first 20 cubic metres would be supplied free or at minimal rates, so as not to burden the poor. Urging Malaysians to conserve water and to instal water-saving gadgets at home such as half- and full-flush toilet systems, Chan says, �Even if we save 20 per cent each, we would save (the equivalent of) 24 Teluk Bahang dams every year.� Other ways to conserve water would be through recycling and going vegetarian, as greens use up only 20 per cent of water compared to animals. Workers' movement concerned The country�s labour movement, meanwhile, has a key role to play in speaking out against privatisation. The newly elected president of the Malaysian Trades Union Congress, Syed Shahir Syed Mohamud, regards this as an important issue for the national labour centre. �If water, electricity etc bills are hiked, the workers will have to bear the burden.� �We are taking the issue of privatisation seriously,� he says, �and we will go to the grassroots to take serious initiatives to create awareness among workers. We will try our utmost to expose this water privatisation to the grassroots.� He calls on anti-privatisation activists to use the language of the workers and not jargon when reaching out. �Those who are aware must think about how they can raise the awareness of those in the grassroots.� �We want to tell the government, please consult us; this issue will affect us.� Recalling the history of privatisation, Syed Shahir says the government saw that there was only weak resistance to privatisation. It thus felt emboldened to allow tariff hikes without fear of strong opposition. �Their power is absolute. We still have the mentality of allowing all this to happen,� he laments. �One day, they might even privatise the air!� �Water is a sacred gift from God for those of us with religious beliefs,� he adds. �It cannot become the property of those seeking profits or those seeking to enrich one group over the other.� Some have argued that privatisation will lead to efficiency. To rebut this, Syed Shahir cites the delays in the privatised postal delivery system. �There is simply no need for the people of this country to pay more for water,� he said. �We are a country blessed with so many resources and yet we have to pay so much for essentials - all due to the mismanagement of such resources.� Malaysians, he says, simply cannot allow a few to be rich at the expense of the majority; they should ask who would really benefit from water privatisation. �Are they cronies of anyone who is holding high office?� Syed Shahir points out that the burden of privatisation on workers would be great: �It would further reduce their disposable income levels. Many workers would also be pushed to the fringes of poverty.� Is there an alternative to privatisation? Sure, if we care to look: think of public-public partnerships like the PBA. And learn from public-popular partnerships like the case of Porto Alegre, Brazil. Water services in Porto Alegre were private until 1904, when the city took it over. In the participatory budget process the city people get together in meetings throughout the year and decide where the investments of the Municipal Department of Water and Sanitary Sewage are going to be made. Between 1989 and 1996, the number of households with access to water services rose from 80 percent to 98 percent, while the percentage of population served by the municipal sewage system rose from 46 percent to 85 percent. How�s that for real democracy and public participation in decision making. Water is such as fundamental human right and governments have a responsibility to protect this right. Society too must defend this right and mount every possible challenge to stop privatisation. Please support our work by buying a copy of our print publication, Aliran Monthly, from your nearest news-stand. Better still take out a subscription now. 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Why privatise a profit-making government-owned entity?
