Privatization Tidal Wave
IMF/WorId Bank Water Policies
and the Price Paid by the Poor
Multinational Monitor, September 2001
In July, the World Bank approved a new $110 million structural
adjustment loan for Ghana. Before disbursing the loan, however,
the Bank forced the government of Ghana to implement seven "prior
actions," including a requirement to "increase electricity
and water tariffs by 96 percent and 95 percent, respectively,
to cover operating costs. "
The effort to attain "full cost recovery" is a prerequisite
to privatization. Private companies want to operate systems where
consumers meet the expenses of running the systems and pay enough
for company profits, too.
Pressured by the World Bank, the government of Ghana plans
to lease the Ghana Water Company to two as yet undetermined multinational
water companies to provide urban water service. The World Bank
included water privatization as one of many conditions that determined
the extent of Ghana's access to the portfolio of loans in the
World Bank's Country Assistance Strategy (CAS).
In May 2001, a broad coalition of groups in Ghana responded
by forming the National Coalition Against the Privatization of
Water (National CAP of Water), which is committed to conducting
a broad campaign to ensure that all Ghanaians have access to safe
and affordable water.
Rudolf Amenga-Etego of the Integrated Social Development Centre
and one of the founders of the National CAP of Water, says most
people in Accra do not earn the minimum wage of less than US $1
a day, while a significant number have no regular employment.
In April, the average price for a bucket of water, which used
to be 400 cedis, was raised to 800 cedis (US $1 equals 7,000 cedis)
to comply with the Bank's required "prior action" for
accessing the structural adjustment loan approved in July. The
proposed water privatization is expected to increase water tariffs
"The current water tariff rates that the government of
Ghana and the World Bank think are 'below the market rate' are
already beyond the means of most of the population in Ghana,"
says Amenga-Etego. "How will the population possibly be able
to absorb a so-called 'open market' price for water in the context
of privatization? As water becomes less affordable, it is highly
likely that there will be a corresponding increase in diseases
stemming from reduced access to clean water."
COST RECOVERY AND PRIVATIZATION
The Ghanaian case is representative of an increasingly common
policy recommendation of the World Bank, along with the International
Monetary Fund (IMF), to increase consumer fees for water and sanitation
and to force privatization of water utilities.
The Bank argues that developing country governments are too
poor and too indebted to subsidize water and sanitation services.
World Bank structural adjustment loans and water and sanitation
loans routinely include conditions requiring increased cost recovery,
full cost recovery or "economic pricing" for water services.
These requirements 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.
Increased consumer fees for water can make safe water unaffordable
for poor and vulnerable populations, however. As water becomes
more costly and less accessible, women and children, who bear
most of the burden of daily household chores, must travel farther
and work harder to collect water-often resorting to water from
polluted streams and rivers. Families are forced to make trade-offs
between water, food, schooling and health care.
The World Bank and the IMF often impose increased cost recovery
conditions in order to improve the economic viability of water
utilities so that they will be more lucrative for private sector
investors. In many countries, World Bank officials have concluded
that public sector ownership of the water utilities is too costly
and inefficient while the sale of water utilities and other public
enterprises can provide quick resources to service developing
"Effective water resource management requires that water
be treated as an economic good," the World Bank asserts on
its website, explaining that "private participation in water
and wastewater utilities has generally resulted in sharp efficiency
gains, improved service, and faster investment in expanding service."
Structural adjustment loans and water and sanitation loans
contain conditions requiring privatization, including service
contracts, management contracts or leases with private sector
"international operators." The multinational corporate
water sector is highly concentrated, including such large companies
as the French companies Vivendi, Suez and Bouygues, and the Texas-based
Enron. Of the five companies currently bidding for Ghana's water
system, two of them, Suez and Bouygues/Saur, have annual sales
figures significantly larger than Ghana's 1999 gross domestic
THE PRICE OF ACCESS TO WATER
World Bank officials argue that increased cost recovery and
privatization will actually expand access to clean water and sanitation.
"Where public delivery fails, the World Bank Group supports
private entry," Bank officials explain in their policy paper
on urban water and sanitation. "We advise and assist countries
in developing regulatory frameworks and in designing viable, clean
transactions that reconcile the interests of investors and consumers,
and recognize the needs of the poor."
In many developing countries, large proportions of the population
are outside the limited "grid" of the piped water system.
Expansion of the infrastructure is a key need. In the meantime,
neighborhoods, villages and communities are dependent on other
sources for clean water such as private water tanker trucks. Buying
water from tanker trucks generally costs more than paying fees
for piped water, often much more. Those who cannot afford treated
water must depend on streams, rivers, lakes or shallow hand-dug
wells. Some households or communities develop "illegal"
hook-ups to the piped water system.
The World Bank contends 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.
"In many countries, middle-class consumers pay subsidized
rates that shift the financial burden of the water they use-and
often waste-to the government," argues John Briscoe, head
of the World Bank's global water unit. "Public sector providers
waste water, too, typically losing 40 to 50 percent of their volumes
through leaks and theft. Costs are inflated, as utilities often
employ more than twice the staff of an efficient operation. This
bleeding of money leaves governments unable to expand services
to urban slums, small towns, and villages. Indeed, the poorest
urban dwellers, whose plight is cited as a reason to keep water
in the public sector, get no service at all from subsidized utilities.
Many must buy water at a high price from private tanker trucks."
But privatization critics say the Bank's calculus is flawed
on numerous grounds.
First, higher prices for water mean the poor have to use less
or go without. In Ghana, for example, price increases have already
forced many poor people to cut down drastically on their use of
water. People often go to public places to fetch water for free
or for a token fee, and children spend a lot of time fetching
water and carrying it back to their parents.
The University of Ghana, which has adopted the philosophy
of "struggle alongside the people," permits community
members to use the university's water. People travel from all
parts of Accra to the university to fetch water.
Public health officials recognize that serious health risks
are imposed by the lack of access to clean water, including transmission
of water-borne diseases such as guinea worm, cholera and other
diarrheal illnesses. The World Health Organization estimates more
than 2 million deaths annually from diarrheal diseases due to
lack of access to adequate water and sanitation services. "The
situation will get worse with the full cost recovery policies
placed on the Government of Ghana as part of the World Bank loan
conditions," says Amenga-Etego
In South Africa, water charges imposed in 1999 forced some
poor people in Kwagulu-Natal to rely on polluted river supplies
for their water. Public health officials trace a 2001 cholera
outbreak, which has killed dozens, to the water pricing policy.
In Latin America, cholera has returned to the continent after
being absent for nearly a century.
In addition, increased consumer fees for water may also hurt
those who are not even part of the formal water pipe system. In
many countries, private tanker truck operators buy water from
the public water utility. Increased wholesale water prices trickle
down to the poor.
What is often referred to as "leaks" include illegal
hook-ups and other informal survival strategies used by the poor.
Thus, World Bank policies to reduce "leaks" can actually
reduce poor people's access to water, since households with "illegal"
hook-ups may end up having to pay for services.
Finally, there is little evidence of the multinational water
companies' commitment to expanding service, especially to poor
communities where the ability to pay increased fees is limited.
Instead, the multinationals, which have only recently started
their major moves into developing countries, have quickly racked
up very poor social and environmental records. In Indonesia, Suez
and Thames Water have both been charged with tampering with water
pricing. In South Africa, protesters claimed that Suez was taking
excessive profits, grossly overcharging for its services, and
leaving the municipality unable to pay its workers a living wage.
Saur (a subsidiary of Bouygues) is alleged to have made the largest
of 12 bribes that are the subject of various investigations into
corruption and political pay-offs in the World Bank-funded Lesotho
Highlands Water Project [see "Falling for AES's Plan?"
Multinational Monitor, June 1999]. There are many other cases.
World Bank officials and citizen groups in developing countries
would probably agree on one point, however: Water sector reforms
are needed. Current water management systems in many developing
countries, especially centralized national water utilities, have
not been able to provide safe and affordable water to the population.
However, the World Bank's proposed solution, increased consumer
fees and privatization, responds more to concerns about fiscal
deficits and foreign debt than to citizens' need for safe, affordable
water, say critics. Citizens' groups like the Ghana National
Cap of Water propose alternative solutions such as decentralized
community/municipal partnerships, continued government subsidies
as well as innovative financing schemes, and citizen involvement
and oversight in locally managed water systems.
THE WATER PRIVATIZATION PUSH
Despite reason for skepticism about water privatization and
increased cost-recovery schemes, the World Bank and IMF are pushing
full-steam ahead for these measures.
A review of IMF loan documents in 40 countries reveals that,
during 2000, IMF loan agreements with 12 borrowing countries included
conditions imposing water privatization or cost recovery requirements.
In the division of labor between the IMF and the World Bank,
it is the Bank that has primary responsibility for "structural"
issues such as the privatization of state-owned companies. In
countries where IMF loan conditions include water privatization
or cost recovery requirements, there are usually corresponding
World Bank loan conditions and water projects that are implementing
the financial, managerial and engineering details required for
"restructuring" the water sector. But IMF structural
adjustment documents are more often publicly available than those
from the World Bank, making it easier to search IMF documents,
despite the Bank's lead role in this area.
In general, it is African countries and the smallest, poorest
and most debt-ridden countries where loan documents reveal IMF
conditions on water privatization and cost recovery. Water privatization
or cost recovery provisions are attached to loans to Angola, Benin,
Guinea-Bissau, Honduras, Nicaragua, Niger, Panama, Rwanda, Sao
Tome and Principe, Senegal, Tanzania and Yemen.
The IMF has different categories of loan conditions with corresponding
degrees of leveraging power. Performance criteria are the most
influential IMF conditions in that loan disbursements (known as
tranches) can be withdrawn or allowed to proceed based on compliance
with performance criteria. The IMF water privatization conditions
are primarily structural benchmarks. Structural benchmarks influence
the overall "grade" the IMF attaches to a county's performance,
but they are not, in-and-of-themselves, conditions for withdrawing
or advancing a loan disbursement.
For the countries on the receiving end of IMF water mandates,
crucial decisions about water privatization and cost recovery
may be made by Fund officials negotiating with key government
leaders behind closed doors and without the knowledge or consent
of citizens. Neither the IMF and the World Bank nor borrowing
governments are obliged to publicly disclose information during
loan negotiations. Once a loan agreement is signed and approved
by the IMF's Executive Board, some of the loan conditions are
made public in "Letters of Intent" posted on the IMF's
website. The World Bank is currently revising its information
disclosure policies. Presently, the conditions attached to World
Bank structural adjustment loans are rarely publicly disclosed.
Eager, and sometimes desperate, government leaders will often
adopt IMF policy prescriptions in order to secure the resources
necessary to avoid an immediate financial crisis.
In March 2001, the IMF announced that it would streamline
the scope of its conditionality and withdraw from the area of
public enterprise restructuring and privatization. The IMF claims
that, in the future, water privatization will rest in the domain
of the World Bank and other multilateral development banks. This
may reduce opportunities for public input even further, as most
structural adjustment documents for World Bank loans remain secret.
But the institutional division of labor notwithstanding, the
policy mandates are unlikely to change. World Bank loan documents
show increased cost recovery requirements for water services imposed
in loans to Tanzania, Mozambique and Uganda.
FIGHTING FOR WATER AND DEMOCRACY
Struggles against the privatization of water supplies have
already erupted in a number of countries. In Bolivia in 1999,
the government responded to structural adjustment policies of
the World Bank by privatizing the water system of its third largest
city, Cochabamba. The government granted a 40-year concession
to run the debt-ridden system to a consortium led by Italian-owned
International Water Limited and U.S.-based Bechtel Enterprise
Holdings. The newly privatized water company immediately raised
prices. Although the minimum wage stood at less than $65 a month,
many of the poor had water bills of $20 or more. Water collection
also required the purchase of permits, which threatened the access
to water for the poorest citizens.
Mass local opposition in Cochabamba coalesced in the Coalition
in Defense of Water and Life, known as La Coordinadora, which
demanded the water system stay under local public control [See
"The Fight For Water and Democracy," Multinational Monitor,
June 2000]. After weeks of intense protests, in April 2000, La
Coordinadora won its demands when the government turned over control
of the city's water system, including its $35 million debt, to
the organization and cancelled the privatization contract. La
Coordinadora achieved the first major victory against the global
trend of privatizing water resources.
Ghanaians have also mounted protests against the World Bank's
water privatization push in their country. Public outcry over
alleged bribes that influenced the bidding process forced the
Ghanaian government to deny an initial contract to Enron/Azurix,
and start the bidding process all over again. National CAP of
Water observers say the bidding process continues to be closed
off from public scrutiny, however.
Information from World Bank officials suggests that the Government
of Ghana, acting under the advice of the IMF and the Bank, has
decided to lease the Ghana Water Company to two different multinationals
and has demarcated the districts that will comprise the markets
of each of the corporations into project "A" and project
"B." Project "A" has received four bids so
far while project "B" has received five bids. However,
four out of the five corporations have bid on both projects, which
means that a total of five transnational corporations have placed
bids to date. National CAP of Water has vowed to mobilize public
opposition to the privatization plans. The coalition is planning
a national march against water privatization in Accra, Ghana on
Meanwhile, allies of citizen groups such as the Coordinadora
in Bolivia and the National Cap of Water in Ghana are working
to block a continuation of the Bank and IMF's water privatization
frenzy. In the United States, groups like Results, the 50 Years
is Enough Network, Globalization Challenge Initiative and Essential
Action (a project of Essential Information, the publisher of Multinational
Monitor) are developing draft U.S. Iegislation that would obligate
U.S. representatives to the IMF and World Bank to oppose any loan
that mandates increased costs to poor consumers for clean drinking
A version of the legislation, which is modeled after similar
enacted legislation restricting user fees for primary health or
education, is expected to be introduced in Congress soon.
Turning the tide of the water privatization trend is essential,
says Rudolph Amenga-Etego of Ghana.
"Water issues are too important to be left to decisions
by government and foreign creditors like the World Bank,"
Countries must be permitted to find their own solutions and
to keep water provision and sanitation in the public sector, he
"We need to develop a national response to the contractionary
policies of the IMF and examine new options for financing our
water sector reforms in an equitable and socially responsive manner,"
"With abject poverty and the lack of employment opportunities
that characterizes Ghana and many other developing countries,
it is not in the national interest to privatize water. Water should
be regarded as a social service with government bearing the primary
responsibility for its provision."
Sara Grusky is co-director of the Globalization Challenge
Initiative, which supports citizen's groups in developing countries
struggling against undue interference from foreign donors and
creditors, particularly the IMF and World Bank.