AKU-ISMC Assistant Professor Jeff Tan and Dr Kate Bayliss (School of Oriental and African Studies, SOAS) presented a paper, Water Governance: Beyond Tame Solutions for ‘Wicked’ Problems, at a conference on water governance held in London on 10 March.
The conference, organised by London International Development Centre (LIDC) and the Water for Africa Research Project at SOAS, looked at the failure to provide safe drinking water to nearly 900 million people worldwide. It brought together water experts from India to Africa, to look at issues ranging from irrigation to privatisation with the aim of helping create a broader and more holistic approach to water governance based on combining the strengths of a range of perspectives from different disciplines, including health, law, sociology, economics and political science.
At the conference, academics called for deeper collaboration between the natural and social sciences as they highlighted the complexity of managing water for irrigation and domestic use. Speakers used examples from Africa, Pakistan and Malaysia; they warned against relying on technical solutions and spoke of successful stakeholder participation initiatives. There was an emerging consensus that both Water Resource Management and Water Supply and Sanitation are problematic – being both technically uncertain and likely to generate multiple possible solutions. Papers covered a range of topics including the use of irrigation water for domestic consumption, the lack of water provision in slums and the pitfalls of privatising water supplies.
In their paper, Privatisation and Water Governance: What Went Wrong and Where to Next?, Tan and Bayliss looked at the how privatisation was expected to improve efficiency and finance investment in water and sanitation. The track record of privatisation in developing countries, however, has been poor. Of all forms of infrastructure, water and sanitation services have attracted the least amount of private sector funding in the developing world, and even less in the poorest countries. Water attracted only 4 percent of all private investment in infrastructure in 1990–2007, with private commitments to invest in water in Sub-Saharan Africa amounting to US$266 million (or 0.47 per cent) of total private commitments in developing countries.
Furthermore, empirical evidence suggests that there is no marked difference in the efficiency of water services between the private and the public sector. Bayliss noted that in Sub-Saharan Africa, utilities that were doing well before being privatised continued to do well, while those that were doing badly continued to do badly. She argued that there was no statistical evidence of privatisation resulting in improved performance of a utility company that would previously be failing to perform.
The presenters then offered an explanation of what went wrong, looking at the fundamental mismatch between privatisation theory and the characteristics of the water sector. The benefits of privatisation are premised on incentives to improve efficiency and hence profits which can then be invested to improve coverage and service. However, water is a natural monopoly which means that the private owner can earn profits through monopoly pricing rather than cost reductions through efficiency improvements. It is also a merit good which means that the provision of water cannot be to the exclusion of certain segments of the population thereby precluding cost-covering tariffs.
Finally, water is characterised by very high capital costs and long gestation periods which means that it is very expensive and risky to investors. These inherent problems have reduced the profitability of water privatisation, restricting privatisation to more profitable segments and wealthier regions, and necessitating capital and operational subsidies to attract private capital. However, subsidies potentially dilute private incentives to improve efficiency, especially in the absence of adequate regulatory capacities in most developing countries.
Tan provided a case study of Malaysia to illustrate these problems. Privatisation was characterised by ‘cherry picking’ where private sector participation (PSP) focused on water treatment (leaving the unprofitable water distribution to the state governments) and on richer regions in Malaysia, with the private sector withdrawing from poor (loss-making) states. As a result overall investment in the water sector has been low and as a whole it registered an operating deficit of US$66m in 2003, with half the states in the country operating at a loss. Moreover, PSP in Malaysia was characterised by poor efficiency with very high water losses (i.e. non-revenue water) as a result of the failure to reduce leakage and pilferage, and water pollution form untreated sewage.
Tan concluded by emphasising the continued importance of public provision of water given the failure of PSP to finance investments and improve efficiency. However, the larger problem remains; How to finance water sanitation services when the state has no funds and it is of no interest to the private sector?
Coordinator, Planning & Academic Development
Institute for the Study of Muslim Civilisations