Multinational exploitation of water resources

There are lessons to be learned from the struggles of less developed countries, most of them positive, others salutary warnings to what may happen when markets are left unchecked.

When the issue of water tax, or water privatisation, comes up here we could do worse than learn the lessons of disastrous experiences in countries like South Africa, Colombia, Tanzania or even England, for that matter.

The story of water privatisation is the story of how one of the world's poorest countries, Tanzania — struggling with debts of €5.4 billion and an annual budget of only €1.09 billion — denounced the activities of British water corporation Biwater. The government is now facing an international suit after deciding to cancel a contract with the multinational to supply water and sanitation services.

Privatisation of water resources is now a compulsory requirement for countries who want to access international debt relief.

Britain and the World Trade Organisation decided that Tanzania had to privatise its water resources. The interest of the British Government was such that they spent £273,000 of the aid budget of the Department for International Development (DFID) to pay British consultancy firm Adam Smith International to produce pro-privatisation propaganda — including a pop video and song — to "persuade" Tanzania's citizens that this was the best show in town.

Water privatisation across the world has led to rises in water prices. For example, in 1997 Thames Water and French company Suez took over the privatised water service of Jakarta in Indonesia. Prices have increased by an average of 82% since then.

However, if persuasion was not enough, the British managed to make privatisation a condition of Tanzania receiving debt relief from the World Bank. So, in August 2003 the Government of Tanzania awarded the contract to run the water supply to the capital, Dar es Salaam (population 3.5 million), to City Water, a joint venture of Biwater International, a British corporation, Germany's Gauff Ingenieure and a local investor, Superdoll Trailer Manufacturers Limited.

However, two years into the initial ten-year contract, after making less than half the required investment and failing to improve services in the commercial capital, Dar es Salaam, the Tanzanian government decided to end its dealings with the corporation, as it considered Biwater has broken the terms of the agreement.

Announcing the decision to cancel the contract on Friday 13 May, Tanzanian Water Minister Edward Lowassa said: "The water supply services in Dar es Salaam and in the neighbouring places have deteriorated rather than improved since this firm took over some two years ago. The revocation was made following persistent complaints by city residents over the incompetence of the firm."

According to the Government of Tanzania, City Water (the joint venture company involving Biwater) should have invested €6.75 million during the first two years, but so far only €3.26 million had been invested.

The decision of the Tanzanian government was welcomed by the World Development Movement (WDM), which called on the British government to stop supporting water privatisation in developing countries and also called for an end to the use of aid to coerce poor countries to obey the dictats of corporations and rich countries.

"This is yet another example of water privatisation failing to deliver clean water to poor communities. Rich country governments and the IMF and World Bank must abandon their support for these disastrous policies. It is a scandal that the UK aid budget, money that should go to reduce poverty, was used to push water privatisation in Tanzania", said WDM Head of Policy, Peter Hardstaff. "Biwater's involvement in the Dar es Salaam contract is covered by the UK Export Credit Guarantee Department, so the UK taxpayer could end up footing the bill for the UK's disastrous policy of promoting water privatisation in developing countries."

Over one billion people lack access to clean water and 2.4 billion don't have basic sanitation. Britain is signed up to the United Nations' pledge to halve the proportion of people in developing countries without access to safe drinking water by 2015, but clearly wants to do it while benefiting British companies that may not offer the best deal to developing countries.

Biwater was created in 1989 to cash in on Margaret Thatcher's controversial privatisation of Britain's regional water authorities. The privatisation plan — which led to extreme rate increases, massive cut-offs, and a public health crisis, while Biwater and other privateers reaped profit margins four to five times more than the industry norm — created corporate fiefdoms. These private monopolies were guaranteed the ability to raise rates without recourse, and from the huge government subsidies they received, to garner large profits despite poor performance.

Since then, Biwater has applied the same profits-first, service-maybe philosophy to the water sectors in 27 other countries around the world, where sweetheart deals with governments and international lending institutions limited the corporation's liability.

In Dar es Salaam, Biwater felt no remorse in saddling the Tanzanian people with $145 million of debt, while investing only $6.5 million in standpipes and meters, two controversial technologies used to collect money.

However, before Tanzania, other countries suffered bad experiences in their dealings with Biwater. Four years into a 30-year concession contract in Nelspruit, South Africa, Biwater has been unable to raise sufficient capital (which was the original rationale for privatisation), has tripled rates and now refuses to expand access because it cannot guarantee cost-recovery and corporate profits.

To cover up its failings, Biwater often resorts to threatening those who publish accounts critical of its operations with legal proceedings. There is a Biwater pattern: Write contracts to which they have no intention of complying. Saddle poor governments with infrastructure investment in order to limit their own risk. Gorge profits by raising rates within the monopoly and not re-investing them into infrastructure. Threaten critics and squelch dissent. If it still does not result in corporate profits, take the money and run.

WDM has warned Biwater not to attempt to pursue the Government of Tanzania through international courts: "The people of Tanzania must not be punished for being the victims of a failed policy which they did not ask for in the first place. We will oppose any attempt by Biwater to sue the Tanzanian Government," said Hardstaff.