vonWeizsackeretal_3_2005

vonWeizsackeretal_3_2005 - WATER 21 agreed, in 2003, on...

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Unformatted text preview: WATER 21 agreed, in 2003, on some financial incentives (such as higher prices for new connections) equivalent to a price increase of just over 10 per cent. Water tariffs themSelvcs remained unchanged since the start of the pn'vatization. In conclusion, four lessons can be learned from the La Paz case so far: 1 Private water supply can meet both equity goals and efficiency goals iF the incentives for the investor are set intelligently and From the very beginning, including the tender. Even small details of regulations and contractual provisions influence the outcomes of private-sector participation. They must be considered and phrased Far more carefully than has often been the case elsewhere: with predictably disastrous results. 3 If sufficient attention is paid to these details (if necessary, by taking external advice as in La l’az), even small stales or cities can involve large private corporations in a water-supply programme designed to improve the situation of the poor, 4: If privatization is conducted this vvay1 far better results can be achieved than by an inefficient public utilities company. Ix) However, La Paz, just as much as Cochabamba, is not the symbol for water privatization. Nor is it the best model for Water supply Bolivia, in particular, demonstrates how important it is to think on a case-by—case basis. In Cochabamba, the state’s initial failure was compounded by a poorly thought- out privatization programme; in Santa Cruz, Bolivia‘s third largest city, a public supplier is achieving good results because it is a highly transparent co- operative organization which has deveioped strong community links over the last 25 years; while in La Paz, an inefficient public company did not get the job done and was outperformed by the biggest multinational corporation of the world’s highly contested water industry (Nickson, 1998; OED, 2002) A ‘WATERL’EAU’ IN GRENOBLE, FRANCEI fl/Iartin Staime For the French, Grenoble is Widely known as the ‘Waterl’eau’ of the privatization of water services. ‘Waterl’eau’ is a play on words that parallels Napoleon’s first great defeat at the Battle of Waterloo with Grenoble’s water service privatization. Corruption and over-pricing led to a wide range of national Commissions and legal processes that signify, in some sense, a defeat for the French method of privatization. The principal actors in this story include local politicians, a group of civic associations, as well as the local Ecology party and Suez,2 the second largest water services company worldwide. In general, French municipalities have always been responsible for water services themselves. Today, half of them accomplish this through a municipally owned enterprise formally separated from the city council (in French: Rift-B). . g _ - w . ‘xfi‘m’lxufli'b. 22 NATL‘RAI.- KES‘lletl-ES AND RELA'l'i-Zl) lNI)lJ!\TRll:-$ m Contract IODGESE, 1939—1995) Joint-venture (SEE, 1955—1959) Enlry - Illegal recovery of entry tees which - City council forage eiirninated entry fees fees had to be paid to the city council by CUGESF through charging users Tarifi - Inflation indexing on wrong basis I Adjustment to consumption levels 1 'lormula - Retroactive invoicing Inflating bills price increases if consumption steady Sub» - Privrleged access to sub, - Water supply and sanitation contract— contracting [discrimination subcontracted to SBEAllDO‘i‘u Suezlf “‘9 against other bidders decreasrng remuneration oi SEG versus increasing remuneration of SGEA 0 SGEA subcontract services to Suez lag legal services. accounting, customer services. technical assrstance, vehicles, lT. management at SGEA] Creative - inflated costs of debt service - City council share liability for damages account- - Transfer of receipts to Sue: alter caused by COGESE "19 11 years oi contract - City council assume €511 million of - City council to finance works CDGESE losses without recovering costs - City council forego dividends in favour of Sue: 0 Secrecy of documents - Effective veto for Sue: over decisions. despite minority shares Legal powers Figure 4 Techniques for overcharging used by Suez. Sourcemdautedirorn Hall and Lobina (2001, p17]. The other half, rcprcscnting about 80 pct cent of the population, delegates SCI’VICC prov151on to privatc water companies. Grenoble, a city in south—castcrn France, had. a population in 2003 of about 150,000.3 For a century, the city council managed efficient water services, providing good quality water at low prices to consumers. Financially sound, despite its low prices, the service was profitable and regularly contributed to the municipal bu dgct. In 1983, however, Alain Carignon, then mayor of the city of Grenoble, initiated a new policy in favour of private—scctor participation. in all public services. He was a prominent mcmbcr of the conservative Gaullist party and also became national deputy minister responsible fOr the cnvironmcnt. After his reelection in 1989, Carignon went ahead with the privatization of the city’s water services. In spite of strong opposition from consumcr and citizens associations, trade unions and the local Ecology party, the Grcnoblc City Council voted to award a 25-year long water supply and saturation contract to COGESE (Compaguic dc Gestion dcs Eaux du SudEst), a subsidiary of Suez. The ‘VVatcrl‘cau’ began in 1993. Under pressure from sonic civic associations and the local Ecology party, a number of corrupt public scrvicc concessions, including ‘lc systcme Carignon’, were publicly exposed by legal investigators. The investigators concluded that the privatization had occurred WAT E R 2 3 Average water priCESl€l '0- El Investments in installations (€10001 05 — 1200 * WHO I 0.7 L 300 ' I ' ‘ 7— sun 0.[i““_-' r. —400 " ' '- H ‘ ~ 7 200 05 ‘ ‘I i'ihir r 'x',__'r r‘ _: ,r "r ' 0 1090 1901 1992 1993 1994 1995 1906 1997 1098 1939 2000 200'! 200 CUGESE SEG Municipal régie {100% privatel (49% private) {100% public) Figure 5 Prices and investments from fully private totully public operation in Grenoble Privatization has led to rising prices and louver investments. Following illegal pricing and corruption under privatization, the water service was finally reemunieipalized in 2001. This welcome transition resulted in a stabilization of prices and an increase in investment. Source:tlata from Raymond Avrillier, vice-president ofthe metropolitan region of Grenoble, 0 September 2003, based on reports by the Regie des eaux d9 Grenoble. in exchange for kickbacks by Suez to fund Carignon’s electoral campaign and other gifts to all major political parties, totalling approximately €3 million. Carignon and a chief executive of Suez were subsequently convicted of accepting and paying bribes. In 1996, they were sentenced to four years and one year in prison, respectively.4 The courts also ruled that the COGESE contract had damaged the municipality and consumers. The company had used a number of techniques, including fictitious accounting and manipulated indexation, in order to inflate prices (see Figure 4). The regional audit office estimated in 1995 that the total cost of these practices to the citizens of Grenoble, over the 25-year life of the COGESE contract, was approximately €180 million.s In the wake of this scandal, council elections in 1995 saw the birth of a new local government1 including the Socialist party and the Ecology party. While the Ecologists favoured termination of the contract and a re—municipalization of water services, the majority of the coalition was deterred by the prospect of having to pay high compensation to Suez. Nevertheless, a solution had to be found, and in 1996 the Société des Eattx dc Grenoble (SEC), was created. It was 51 per cent owned by the municipality 24 NATURAL RESOURCES AND ll ELATEI) INDUSTRI 1:8 and 4-9 per cent by Suez, allowing Suez to continue to maintain veto power over all major decisions. Immediately after its creation, SEG subcontracted water services for 15 years to the Société Grenobloise de 1“Eau et de l‘Assainissement (SGEA), a 100 per cent subsidiary of Suez {Avrillien 1996, p17). While the city council agreed to share liability for any damage caused by the former COGESE, the new joint venture allowed Suez to boost its profits once again. Corruption was stopped; but the city council suffered from a lack of sufficient knowledge needed to handle the contract with Suez. For example, the contract provided that the price of water would increase if consumption fell below 12.8 million cubic metres a year. This meant an immediate price increase in a city where consumption was already falling. Furthermore, the city council lost control over the formation of subsidiaries because the SGEA itself subcontracted several services at extremely high prices to other divisions of Suez (Figure 4-. illustrates the other methods used to overcharge). However, the local Green party and some citizen associations continued the legal light. In 1996, the French Council of State deemed illegal the original. decision to delegate the water service to COGESE. Furthermore, in 1998, the Grenoble Tribunal declared the city council’s decisions concerning the new SEG/SGEA and some pricing methods void. In the end, all charges for the whole period of 19904998 had thus been invalidated. After debating various options, the city council voted in 2000 to finally re- munlcipalize Water supply under a rage (ie. a municipally owned enterprise formally separated from the council). This form was chosen as the best option to ensure the transfer of all staff who had been employed by COGESE and the SEGfSGEA. A regional raga: was created for water sanitation. This re-municipalitation has helped to reestablish a much a higher degree of transparency and has banished the culture of corruption and overcharging As Figure 5 shows, water tariffs stabilized and at the same time the mimicipality could afford higher levels of investment in histallations. Grenoble is not an isolated case. Several national commissions have identified a wide range of corruption, kickbacks and overcharging in France in the context of delegated water services. For example, the Commission for Economics of the French Parliament states that these practices have enabled the growth of some french industrial groups that are now entering world markets (Tavernier, 2001, p10). Other reports by the National Audit Office and the High Commission on Public Service point out the significant difference in prices between private and municipal water services (Taverniet, 2001, pp22ff). Consequently, further examples ofrc—municipalization followed in France: Castre, Chatellerault, Neufchateau and others. The privatization of water services saw no improvement in cost efficiency, and consumer prices went up for no apparent reason. Moreover, privatiration took place in a highly corrupt enviromnent and enabled further illegal practices by shrinking democratic control. The ‘Waterl’eau‘ of Grenoble shows that men in France local governments lack sufficient knowledge to formulate regulations for the delegation of their water services to private companies. i 'i 'a E W'ATER 25 Finally, it is worth noting that the resolution of the case of Grenoble and its successful reimunicipalization were made possible by the chective French legai 5 atom and-a tcniyear effort by civil society In addition, a return to a municipal service was legally possible and a working public model of provision was available. Such conditions do not exist in all countries where multinationals such as Suez act. It follows that this ‘Waterl‘eau’ should not be considered a strictly French phenomenon. MANILA: A SUCCESS STORY TURNED SOUR Dam: Bernhardt Until recently, the privatization of the water services of Manila, capital of the Philippines, seemed to be a success story. The World Bank, the International Monetary Fund (IMF) and government officials would refer to it favourably. Big water carporations, such as Vivendi/Veolia or Suez/Ondeo, used the example to convince more potential customers. In December 2002, however, one of the two operators in Manila, Maynilacl Water Services, was in deep financial distress and pulled out of its ZSAyear lease agreement. The regulatory commission had rejected an additional water rate increase to 27 pesos per cubic metre (approximately 49 US centsfi). Maynilad Waters claimed that the city had not met its Obligations and brought the dispute to the International Chamber of Commerce. The company then began to seek more than US$300 million in compensation from the government. However, this claim was legally rejected and Maynilad Water had to get on with the task of complying With its contract. With 12 million residents, the metropolitan area of Manila is one of the biggest and fastest growing settlements in the world. During the mid 19905, one third of the population had no access to the public water system. A public sewage system was almost nonexistent. Water losses due to leakages l‘rom badly kept pipes and iliegal withdrawal had been extremely high. Poor people especially had to rely on wells, public water stations and water vendors who often charged ten times the official tariffs. The local government officials were unable to stop the vicious circle of poor services, with subsequent insufiicient re'Venues, that led to a lack of resources for investment. Even credits from international finance institutions such as the Asian Development Bank (ADB) did not improve the situation and only helped, finally, to leave the public Metropolitan Waterworks and Sewerage System (MWSS) with a debt of US$880 million (Esguerra, 2001, pl). MWSS and, therefore, the Manila water situation in general, were Considered un-reformable. However, in 1995, the Philippine Parliament (Congress) passed the Water Crises Act that gave President Fidel Ramos the authority [0 enter into contracts with private companies? In E992, after Ramos took office, he successfully resolved the Philippines’ worst power crisis by partial privatization. Previously, nearly three years of power blackouts had ...
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This note was uploaded on 08/06/2008 for the course ESM 260 taught by Professor Lenihan during the Winter '08 term at UCSB.

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vonWeizsackeretal_3_2005 - WATER 21 agreed, in 2003, on...

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