Profit amidst misery: Water is not a commodity

Opinion and Editorial – The Jakarta Post January 24, 2003

Yanuar Nugroho
The bill on water resources management may be ratified at any time this year. It involves plans for total restructuring of water management — the country’s water sector will be managed according to the market mechanism and there will be wide opportunities for private sector involvement in the water-based business. Precisely, it is all about privatization of water resources.

We are in danger of facing a brutal autumn in the provision of water as essential services. Before the bill there was already the Presidential Decree No. 96/2000, stating that share-ownership for any company in this sector could make up 95 percent of their total share. Doesn’t it mean an enormous surrender of public authority under market domination?
Hiding behind the argument of imbalance between declining water supply and rising water demand, privatization is transforming scarce resources into profitable commodity. This newspaper reported that in a city like Jakarta, around 70 percent of the population has to meet their needs for water from low or deep wells and the rest from rivers.

Hence the fear that if private water corporations take control of water, an essential scarce resource, there will be loss of livelihood. The World Bank notes many lack access to safe water — but many more lack access to affordable water.

The Fortune magazine cited estimated annual revenues of the water industry — some US$400 billion — or 40 percent of the oil sector and one-third larger than the pharmaceutical sector.

There are now multinational corporations, The Big Ten, who control the water market and related industries, worth more than $150 billion. Nine of those are in Europe, which include three French transnationals — Vivendi, Suez Lyonnaise des Eaux, Bouygeus; five British based companies — United Utilities, Thames Water Plc., Severn Trent Plc., Anglian Water Plc. and the Kelda (previously: Yorkshire Plc.) group; and one German utility company RWE Aktiengesellschaft. There is also Enron, the U.S.-based multi-utilities company. Except for Severn Trent Plc., the RWE group, and Enron, all the others have investments in Asia.

Suez-Lyonnaise, which operates in about 130 countries and supplies water to some 115 million people is now investing in Indonesia, taking over PDAM in Jakarta and other cities, hand-in-hand with British Thames. Ondeo, another water corporation whose investment in various Asian cities and provides 23.5 million people with drinking water, in October 2001 won a 25-year contract for servicing and distribution of drinking water in Tangerang, Indonesia.

Thus the above bill cannot be separated from this big scenario of privatization of an essential service. It is part of a program for water resources restructuring in Indonesia, promoted by the World Bank through its Water Resources Sector Adjustment Loan (WATSAL) scheme, worth $300 million. The “Structural Adjustment Program” enforced by the International Monetary Fund is the toll-road to rapidly privatize services provision.

Through this, the government is required to implement critical policy reforms which include the most crucial aspects, i.e., public sector expenditure including cuts in subsidies, privatization of state-owned enterprises and expansion of private sector participation.

The World Bank and Asia Development Bank have provided budget support loans attached to mandated reforms — including policy reforms, social safety net, power sector, health and nutrition, water, etc — through an integrated package of adjustments. It is here that WATSAL gets its context.

To really understand service privatization, look at the fact that international trade in commercial services was worth $1.35 trillion in 1999 and keeps increasing. Service accounts for 60 percent or around $210 billion of annual foreign direct investment, which is largely connected with privatization of state entities.

Thus, with its willingness to finance Indonesian water resources restructuring program, the World Bank also upholds privatization of water resources. This, surely, also happens in other service sectors in various parts of the world.
It is an irony that water corporations, backed up by such policies imposed by international finance institutions (IFI), are making huge profits amidst water scarcity. Scarcity of resources and environmental degradation is often perceived as an investment and business opportunity by corporations.

In water resources management, the core issue lies in the fact that water is turned into a commodity. This contradicts various UN covenants and international agreements that view access to water as a fundamental human right. These covenants even stipulate state obligations to ensure that all citizens have access to water.

But the World Bank stresses that public institutions have failed in handling this business. Poor quality and low reliability of service have reduced consumers’ willingness to pay fees for the service, leading to lower operational funds and further deterioration in public service including water.

And the Bank always contrasts all this with the performance of the private sector, described as being capable of providing an efficient service as well as large financing and investment funds. Thus the Bank asserts that the private sector will have to be increasingly involved in water resources management through, concessions, management contracts and private ownership, etc.

Last but not least, the Bank is also confident that it is now the time for full-cost recovery, to smoothen “subsidy abolition” and institutionalization of water property rights or business lease rights, as written by researcher Henry Heyneardhi.
And this is precisely the most serious flaw.

First, as the bill suggests, water resources are managed, assuming that water is an economic commodity. The idea is rooted in the Dublin Principle, an outcome of the 1992 International Dublin Conference on Water and Environment which resolved that “water has an economic value in all its competing uses and should be perceived as an economic good.”

The ADB, in its 2002 policy paper on water, added the need to “underlie all efforts for rational water resources management”. The principle made sure that access to water was to be organized according to market mechanism. Yet, actually water is common property (not to be confused with “collective ownership”) instead of an individual asset. Water is thus a social object for everybody and does not belong to anybody.

Second, it seems that “full-cost recovery” is a catch-all phrase required to “get prices right” and the basis of a market-demand driven approach to the distribution of water resources. Yet such an approach to allocation of water services will never lead to adequate and equal access to water among competing ends.

Third, distribution and access to water organized around the rules of the market and profit motive ensures that only communities and individuals who can afford to pay for water services will have access to safe drinking water. Privatization is hence potentially instituting a “water divided” society, reflecting the larger rich-poor divide.

These all have shown that the market system working in the water sector has undermined the role of government as a provider of a basic human need and guarantor of basic human rights.

Solutions for provision of essential services like water are therefore political choices, not technical imperatives. And this is the arena of struggle when we dare to question the bill on water management resource. Of course, neither privatization alone nor government-led public services provision only are good — do not forget the local communities as the users from the discourse of water resource management.

With regards to other problems regarding essential services — from the disinvestment of Indosat to disputes in energy prices — these days might be the right time for us to voice our dignity as citizens. We should never let profit be generated from unfair conditions under whatever reason. The despair of people is clearly not a resource for any financial gain. (*)

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