Water Privatisation and Commercialisation

Privatisation of Water in Mumbai’s K East Ward: Many Questions, Few Answers

Tuesday 16 January 2007 by Manthan Adhyayan Kendra

Privatisation of Water in Mumbai’s K East Ward: Many Questions, Few Answers
As Mumbai prepares for elections to the Municipal Corporation, an issue of heated debate is likely to be the proposed privatisation of water services in one of Mumbai’s largest wards, the K East.

Early last year, forced by intense protests, the Delhi government dropped its plans to hand over management of water in two zones to private companies. The protests, led by Parivartan, had used the Right to Information Act to obtain key documents related to the project. These documents showed that the privatisation, pushed by the World Bank, would involve appointment of four expatriate ‘experts’ in each zone of Delhi’s 21 water zones, with every one of these experts being paid US$ 24,000 (Rs. 11 lakh) per month. This would have meant that 65% of the Delhi Jal Board’s annual operation and maintenance expenditure would have gone to pay for just these 84 experts. And in the process, water tariffs would have shot up almost 10 times.
Apparently blissfully ignorant of these developments in Delhi, the Municipal Corporation of Greater Mumbai (MCGM) has embarked upon an identical scheme, with results likely to be identical.

In January 2006, an agreement was signed with Castalia, French consulting firm based in New Zealand to develop a pilot project for privatisation of the water system in K East ward of Mumbai. This consultancy has been funded through a US$ 692,500 grant by the Private Public Infrastructure Advisory Facility (PPIAF), a multi-donor agency run by the World Bank. If this project is successfully implemented, it will be extended to the rest of the city.
In the wake of huge controversies raging in the world and in India on privatisation of water, this project raises a large number of questions.

Is it Privatisation?
Indeed, such has been the experience worldwide of water privatisation that the very word privatisation tends to spark off a reaction. Due to this, the MCGM, has been at pains to deny that this project involves any privatisation. But the reality is completely different.
The terms of reference (TOR) given to the consultant states, in “A Precise Statement of Objectives” that “MCGM envisages to award a "Water Distribution Improvement Contract" to a professional Operator to demonstrate, in a selected pilot area, that it is possible to achieve an improved water supply service....”. Indeed, the very involvement of PPIAF indicates that privatisation is involved, for the PPIAF has been set up with the express aim of “ helping developing countries improve the quality of their infrastructure through private sector involvement.” The answer to the question ’Is it privatisation’ is a loud and unambiguous ’Yes’.
The MCGM is taking recourse to a rather specious argument in this matter. It says that the project does not involve privatisation as the assets would remain under the ownership of MCGM. However, this is not a correct notion – privatisation comes in many forms, including management contracts, service contracts, concession agreements and asset sale is only one form privatisation.

The project in Delhi which had to be dropped under massive protests was in fact exactly the same kind of management contract that Castalia has been asked to develop for K East ward. Indeed, the TOR indicates that privatisation even deeper than management contract may be possible, and even sale of assets cannot be ruled out.
An interesting aside to the whole issue is that so afraid is MCGM of using the word privatisation, that even the name of the project has been changed from the formal “Development of a Pilot Private Sector Participation Model for Drinking Water Distribution in Mumbai” to the more neutral sounding “Water Distribution Improvement Project.”

Will it lead to tariff increase?
The key question associated with privatisation is whether the project would lead to tariff increase. Evidence from all over the world has shown that tariffs shoot up on privatisation. Water tariffs went up 500% in Manila, 300% in Cochabamba, 700% in Guinea on privatisation. Yet, MCGM says that there will be no tariff increase due to this project. If this is so, why doesn’t the TOR indicate this as a criteria to the consultant? Why doesn’t it specifically require the consultant to develop the project while maintaining the existing tariffs? On the contrary, the TOR mentions that this project is a part of larger reforms that include “defining a pricing strategy to recover cost”, which means elimination of all subsidies and an increase in tariffs. It also talks of reducing the distortions due to tariff structures.

All these are clear pointers that tariffs are likely to rise on project implementation.
However, the most important issue in this regards lies elsewhere. One of the main justifications given for privatisation of water systems worldwide is that public operators are highly loss-making entities and have no money for new investments, and private sector will bring in this capital. But the water system of the MCGM in general and K East in particular is making huge profits. Total water revenue in just the K East ward is 661.7 million rupees and operating cost is Rs. 65 million, so the net profit is Rs. 596.7 million or about 60 crore rupees.
The real question is – is privatisation being pushed to corner a part of this huge profit, initially of K East ward, and then of the whole MCGM water system? Otherwise, why the push for privatisation? Apart from lack of resources, the other major justification given for privatisation is that the private sector will be more efficient.

The Myth of Efficiency
However, studies and experiences all over the world show that efficiency of operation is not the monopoly of private sector - there are many examples of efficient public sector water utilities (as also inefficient ones!) while performance of private sector is not always better. The World Bank Economic Review says that studies on water utilities in Asia, “show that efficiency is not significantly different in private companies than in public ones”. A study of 18 Asian cities done for the Asian Development Bank states that “Chengdu, Jakarta, Kuala Lumpur, and Manila have Private Sector Participation (PSP) in water supply, but the main reasons for PSP (efficiency, investments, and autonomy) have not been manifested to date."

Indeed, the conditions of operation and systems to ensure transparency and accountability are far more important to ensure efficiency than privatisation.
There is there is little reason to believe then, that private operators will necessarily operate the K East water system better than the MCGM. This bolsters the suspicion that the reason for privatisation seems to be the huge profits of the ward.

Broader Questions
The K East project therefore raises a number of broader questions. Why is privatisation being selected a priori as a solution? The MCGM claims to have carried out several studies and explorations to understand the problems of the water sector in Mumbai and its possible solutions. What are the problems identified by these studies? And have they recommended privatisation as a solution? This is not clear at all, and the MCGM has not put these studies in front of the public.
This furthers suspicion that privatisation is being pushed at the behest of other agencies, for corporate profits. It is not widely known that USAID had earlier pushed for a similar privatisation of water in the cities of Sangli-Miraj in Maharashtra, but this was abandoned after strong protests led by the municipal councillors, who too had been kept in the dark! The current attempt in K East is being pushed by the World Bank. It is significant that the contract for developing a water project for K East ward of Mumbai has been signed by Castalia with the World Bank and not the MCGM. Moreover, the TOR requires that all the aspects of the project that will be developed have to be in conformity with the Bank’s procurement guidelines and that “The World Bank clearance … be sought by MCGM on key processing steps..”
This is nothing but an onslaught on autonomy and independence of the MCGM and by reflection of the citizens of Mumbai. Why is the MCGM accepting this? Thus, the questions raised by the project range from economic ones like increased tariffs, possible profiteering by multinational corporations to the more fundamental ones of people’s sovereignty.
It is important all these questions be asked, and be answered before proceeding ahead with this project. What better time to do this then when the city prepares itself for elections?


Shripad Dharmadhikary manthan_b@sancharnet.in
Shripad Dharmadhikary is coordinator of the Manthan Adhyayan Kendra.