Divesting from private water key to World Bank anti-poverty aims

by Kelle Louaillier, Corporate Accountability International
Thursday, 14 November 2013 08:00 GMT

Anjana Lama drinks water from a stone spout in Lalitpur August 24, 2012. REUTERS/Navesh Chitrakar

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The World Bank’s dogged promotion of private sector and for-profit management of water is intensifying the very global water crisis it seeks to end, says Corporate Accountability International.

The World Bank is at a crossroads. During its most recent meetings, its governors unanimously approved President Jim Yong Kim’s new strategy to end extreme poverty by 2030. It’s an ambition that will require both innovation and learning from past failures. It will require that evidence supersede ideology. Yet, this “new” strategy fails to chart a new course when it comes to the World Bank’s approach to today’s most fundamental human challenge - the global water crisis.

The crisis is grim: today, one in four people don’t have enough clean water for drinking and other household uses. This staggering humanitarian crisis is one of the greatest barriers to achieving sustainable development and economic prosperity - a fact not lost on Kim, who recently committed to investing $700 million in women and children’s health, with a focus on water and sanitation. Still, the World Bank’s dogged promotion of private sector and for-profit management of water is intensifying the very crisis it seeks to end.

In the Philippines for example, water rates have skyrocketed as high as 850 percent in some places since the World Bank financed privatisation in 1997. With safe, clean water out of reach for the city’s lowest-income residents, Manila’s public water authority recently rolled back the astronomical rates. In response, and with little regard for the human suffering caused by the rate hikes, both private water corporations operating in Manila have taken the city to arbitration.

Manila is just one of the many examples of failed World Bank-backed water projects in the last two decades. The high failure rate of water projects (approximately one-third between 2000 and 2010) is four times the rate for comparable electric and transportation infrastructure projects.


Nevertheless, as part of his new strategy Kim continues to argue that the private sector is needed to attract capital to finance infrastructure investment. And while there is no denying governments are cash-strapped, the notion that the private sector will fill in the investment gap has been disproved time and again, even by entities that have profited richly in the past from World Bank-backed privatisation.

Veolia Environnement chief executive officer Antoine Frérot once remarked: “Many of the best performing contracts are those where a private operator assumes the operational and commercial risks, but not the major capital expenditures… the mission of an operator is to manage the infrastructure for which he is responsible, not to finance it.”

Despite such disavowals, the World Bank still promotes the idea that increased revenue under private management will be funneled back into capital improvements. In reality, private water corporations simply require higher profit margins: not only must they recover all the costs of running the service, but they must also pay for dividends to shareholders, higher interest rates and other expenses inherent in a corporate structure.


This is just one of the inherent flaws in the World Bank’s ideological promotion of the private sector. Another area of fundamental concern is posed by the private lending arm of the World Bank, the International Finance Corporation (IFC). In an open letter to Dr. Kim, Corporate Accountability International, a wide range of development experts, and individuals negatively impacted by water privatisation point out that the IFC’s “equity (ownership) stakes in water corporations generate a conflict of interest and raise serious concerns about the World Bank Group’s ability to advise governments impartially.”

The World Bank’s response to this concern has been less than convincing. It has declared its lending arm completely separate from its advisory services: the old “Chinese wall” argument, so to speak. This, even as its most recent annual report states, “in FY13 (fiscal year 2013) we achieved notable progress in providing client solutions that integrate investment and advice - we had active advisory projects with 250 investment clients.”

That the World Bank is sending mixed messages is not surprising: it’s a peculiar argument to make overall, given how much the failure of such “walls” contributed to the U.S. mortgage bubble and subsequent meltdown. And Kim’s predecessor, now at Goldman Sachs, no doubt can offer some pointers on how effective Chinese walls have been for them in managing systemic conflicts of interest.


The signers of the letter to Kim all agree that tackling the global water crisis will require participation by both the public and private sector. But, the letter states, “realization of water-related development goals requires strong public oversight and good regulation, not the delegation of key governance functions to the private sector and the bypassing of public authorities.”

There is emerging, renewed consensus that the public sector is best equipped to extend access to clean, safe water to the millions who lack it. Communities around the world are successfully bringing water back under public control. In Jakarta, for example, after years of failed World Banked-backed privatisation, the governor has taken steps for the city to remunicipalise. In doing so, Jakarta follows hot on the heels of cities like Paris, home of water giants Suez and Veolia, in closing the book on costly private control.


The reality is, the question of how water is best managed is not a theoretical exercise. The stakes are real, life and death consequences. Corporate Accountability International and its global supporters know this all too well. When our work began 36 years ago, Nestlé was aggressively marketing infant formula to mothers who lacked clean water to mix it. The cost in infant lives was catastrophic. Their deaths were preventable. Now, the health and lives of millions can similarly be spared and improved if a leader like President Kim were to pioneer a strategy that dispenses with what doesn’t work and doubles down on what does.

As the 70-plus signatories - including economists Ha-Joon Chang and Elliott Sclar - of the open letter noted, the World Bank has an opportunity to do enormous good. But to do so it must turn its “considerable influence towards better supporting and promoting publicly accountable, democratic, participatory and transparent public water systems.”

The evidence is clear. Private water is failing to bring water to those who need it most. And the World Bank need only remember what actually works is well-documented: public financing for public water.

The change will be hard. It will require that the Bank overcome the influence of Suez, Veolia and other actors that have profited richly from World Bank support at a dire human cost. But it will be the right road to follow for an institution attempting to chart a new course and leave past failings behind.

Kelle Louaillier is the executive director of Corporate Accountability International, which challenges corporate abuse.