Privatisation policies: “economically flawed” says UN study

Updated - Monday 19 November 2007

Policies promoting Private Sector Participation (PSP) in developing countries’ water supply are economically flawed, research from the United Nations Research Institute for Social Development (UNRISD) from 15 years of water and sanitation privatisation shows[1]. Experiences with PSP worldwide suggest a significant conflict between social development, public health and environmental concerns and poverty reduction, on the one hand, and the private sector’s profit motive on the other. Foreign capital is only interested in large markets with very limited risk, and overseas development assistance to water and sanitation does not go to the least developed countries. Only 13 percent of the countries in South Asia have PSP, compared to 64 per cent in East Asia and the Pacific. It is now clear that:

dominant water multinationals are not interested in low-income countries which lack commercially viable water supplies;
to reduce their risks in poorer countries, the private sector targets better-off customers in urban areas and/or seeks subsidies, soft loans and renegotiation of the contractual agreement in order to provide services to poor people;
privatisation generally raises water prices and increases inequality.

PSP has not achieved the desired results and examples of failure and difficulty in the private water sector are increasing. However, pro-privatisation groups are well-organised and are repackaging the concept as public-private partnership. The author recommeds that social policies relating to water supply (such as increasing block tariffs, fixing lifeline consumption, cross-subsidies and a ban on disconnection) should not be ignored when reforming the water sector.

[1] Prasad, N. (2006). Privatisation results : private sector participation in water services after 15 Years. Development policy review, vol. 24, no. 6 ; p. 669-692. DOI:10.1111/j.1467-7679.2006.00353.x

Related news: Privatisation: failures in Sub-Saharan Africa hamper MDG impact, Source Weekly, 10 Apr 2007

Web site: UNRISD - Social Policy, Regulation and Private Sector Involvement in Water Supply

Contact: Naren Prasad, United Nations Research Institute for Social Development (UNRISD), prasad@unrisd.org

Source: Water and sanitation privatisation: do poor people benefit?, id21, 14 Aug 2007