Water Privatization: Villainy or Necessity?

This post was originally published on the Ashoka Changemakers blog and is republished with kind permission.

By: John Converse Townsend

The 2008 James Bond film Quantum of Solace introduced a different kind of villain to popular audiences: Dominic Greene, the ruthless capitalist with a sinister scheme to take control of Bolivia’s water supply and, under private contract, provide that precious resource to the public—at double the rate.

Greene is an invention of Hollywood, but the new economy of water privatization is a legitimate issue with real risks and complexities. Nearly one billion people lack access to safe potable water.

Bolivia—the real-life version—serves as a prime example. In 1999, the Bolivian government privatized the water system of its third-largest city, Cochabamba, under pressure from the World Bank, which declared it would not renew a $25 million economic assistance loan unless major structural adjustments were made to the country’s water services.

The government conceded the city’s water supply to a multinational consortium, Aguas del Tunari, which hiked rates almost immediately. Some Cochabamba residents saw increases as high as 100 percent, as Aguas del Tunari looked to finance a new dam project and pay the debt accumulated by SEMAPA, the state agency that had been managing the city’s water works.

Things got heated, and the outrage ultimately boiled over into protests that shut down the city. It wasn’t until after both military intervention and the declaration of martial law failed to restore order that the Bolivian government cancelled the private contract. Unfortunately, that wasn’t the end of citizen revolts about water privatization.

“The people of Bolivia did not choose to privatize their public water systems,” Jim Schulz, executive director of The Democracy Center in Cochabamba, in The Nation. “That choice was forced on them, as it has been in many poor nations around the world, when the World Bank made privatization an explicit condition of aid in the mid-1990s. Poor countries such as Bolivia, which rely heavily on foreign assistance for survival, are not in much of a position to say no to such pressures.

“The promise of private investment has turned out to rely on market-rate pricing that the poor cannot afford.”

Of course, the sensitivity around water privatization isn’t unique to Bolivia. Protests, at times violent, have occurred around the world, from South Africa to the Philippines. As expected, sudden shifts in the cost of services disproportionately affect those at the bottom of the pyramid.

And while increasing prices for services like electricity aren’t necessarily causes for rebellion, getting priced out of water has far graver consequences; it’s a situation that will become more familiar as water becomes valued as an economic good instead of a social one.

“Water has been a public resource under public domain for more than 2,000 years,” said James Olson, an attorney who specializes in water rights. “Ceding it to private entities feels both morally wrong and dangerous.

“Markets don’t care about the environment and they don’t care about human rights. They care about profit.”

Olson is right; privatizing water is a scary thought. Cutting off the water supply to those not quite rich enough to afford it seems inhumane, especially if you accept that water services—private or public—must be able to meet the needs of all citizens, including those that are underprivileged and underserved.

If the risks can be managed, the contracts monitored, and the environment protected properly, could privatization work? Tough question. But there might be a different way—one where equity and efficiency aren’t mutually exclusive.

Water.org, the international nonprofit co-founded in 2009 by Gary White and Matt Damon (the one you’re probably familiar with), is committed to providing safe drinking water and sanitation to people in developing countries. Among the most effective ways of accomplishing this goal is through its WaterCredit initiative.

WaterCredit—a former Changemakers finalist in the Tapping Local Innovation: Unclogging the Water and Sanitation Crisis competition—is a project that has provided more than 50,000 microloans to Indian citizens, and benefited hundreds of thousands more, for water and sanitation improvement projects like the installation of new water taps or working toilets.

Just a few days ago, Water.org announced an $8 million grant from PepsiCo Foundation that will be used to scale-up WaterCredit, which now has its sights set on offering microloans to nearly one million people by 2016.

"PepsiCo, in what I believe captures the spirit of their own visionary culture, was willing to place an early bet on us and the WaterCredit model,” said CEO Gary White. “That bet has resulted in incredible impact to date. Their support has been instrumental to not only Water.org, but to the sector at-large in demonstrating a potentially game-changing approach to overcoming the global water crisis as we know it."

With a 97 percent repayment rate over the last four years, WaterCredit has been a game-changer in a country whose microcredit industry collapsed from defaults just last year. Is it a perfect adaptation of water privatization? Surely it isn’t, but the flaws of microlending are outweighed by the benefit of WaterCredit in India—where 130 million people are without clean water and the poor (who rarely see the benefits of infrastructure improvements) pay 12 times what the rich do for a single liter of water.

Until recently, the privatization of humanity’s most valuable resource was a Third World problem. Now the idea and the economics (promising the end of corruption and the installation of new infrastructure) behind it are spreading to more developed countries like China, Russia, Canada, and even the United States.

As water becomes privatized more frequently, its price is likely to rise, meaning that fewer people will be able to afford it—unless viable solutions to the global water crisis continue to surface. Privatization doesn’t have to be a bad thing, especially since it’s becoming clear that, if a program is designed well, people are willing and able to pay for water services.

"Dominic Greene is a great guy," said Mathieu Amalric, who played the villain in the Bond film, in a phone interview before the premiere. “He has a big concern for environmental issues. ... He doesn't understand why Bond is looking for him!"

If the privatization and commodification of water can be pursued with transparency and regulatory oversight, access to water services may actually improve, particularly in rural areas. And perhaps there won’t be a need for a “Double O” intervention.

[Image credit: Oxfam International, Flickr]