Is private water a human rights violation?

The United Nations High Commissioner for Human Rights is currently working on a proposal to introduce a human right to water, which may be worded so as to restrict private sector participation in the industry. An independent investigator, Catarina de Albuquerque, has been appointed to look into the role of the private sector in the human right to water. The deadline for submissions is 26 March. See http://www2.ohchr.org/english/issues/water/iexpert/private_sector_participation.htm for details.

Opponents of private water have long sought to find a way of putting an end to private sector participation in the water sector, and the human right to water has become one of their main hopes. Jack Moss of Aquafed explains the urgency of the situation: “It is hard to imagine the commercial consequences on any future tendering processes of an official high-level UN statement that raises issues about the compatibility of our business with human rights. Even the smallest reservation will enable opponents to create problems in the field.”

All GWI readers with an exposure to the private water side of the business are invited to email Ms de Albuquerque on iewater@ohchr.org to make the case for equal treatment of the public and private sectors. I will be making the following arguments:

1) Water is a natural monopoly so customers need some protection from predatory pricing and from inadequate service. This protection is most effectively provided through independent regulation, although it can also be provided through contracts between elected authorities and utility organisations.

2) Public ownership and operation is no protection against monopoly abuses or poor service. In Wetzlar, Germany in January 2010 the courts found the municipality guilty of exploiting its monopoly to overcharge for water. In Milwaukee in the US, more than 100 people died in 1993 as a result of cryptosporidium poisoning as a result of failures at the publicly owned and run Howard Avenue Water Purification Plant.

3) There is an inherent conflict of interest when the government both sets standards for water service and takes responsibility for delivering those standards. It results in a silent trade-off: utilities are not pressed on regulatory standards, so in turn they don’t press the government for extra investment. In the US, for example, where 95% of wastewater treatment facilities are publicly owned, a study by PIRG found that 53% of them exceeded their Clean Water Act discharge limits in 2005. These violations represented 87% of all CWA violations during the year. The remaining 13% came from industrial discharges. The dramatic reduction of CWA violations by industry since the Act was introduced in 1972 – and the continuing problems on the public sector side – show that governments are better at regulating third parties than they are at regulating themselves.

4) Some of the best performing utilities in the world – including PUB of Singapore and PPWSA of Phnom Penh – are publicly owned and operated. Similarly, some of them – including Manila Water and Sénégalaise des Eaux – are privately operated. It would be heavy-handed for the UNHCHR to intervene in favour of one approach to utility management over another.

5) As water technology becomes more complex and expensive, public utilities are looking to insulate themselves from operational and financial risks. The private finance model is now used in 48% of desalination plant procurements worldwide. It is attractive because the utility just buys what it wants: water. It does not have to buy all the complexity and risk of a desalination plant. This is beneficial for the public, and the contracts between the utility and the vendor adequately protect the utility from any issues which might pertain to the human right to water.

6) The public sector is ironically one of the largest private investors in the water sector. The Ontario Teachers’ Pension Plan has invested in Northumbrian Water in the UK, as well as Essbío, ANSM and Esval in Chile. Dutch public sector pension funds ABP and PGGM are investors in Thames Water. Other public sector pension funds have invested in water indirectly through infrastructure funds, such as those managed by Macquarie. This is because public sector pension funds need low-risk, high-yield investments in order to meet their growing liabilities, and water investments meet this requirement. The public sector pensions problem is related to the broader financial crisis now engulfing every level of government. Selling water assets to pension fund investors can help restore municipal balance sheets, while at the same time meeting the needs of their pensioners. Although investor-owned utilities require regulation, in terms of price and service, no additional obstacles should be put in the way of the privatisation of water utilities.

7) Defining private sector participation in water is difficult. Many public utilities contract out the running of particular parts of their business to private companies: this can include call centres, billing, network maintenance, treatment plant operations, testing and almost every other service between reservoir and customer. When does it represent the kind of privatisation that calls for the intervention of the UN High Commissioner for Human Rights?

8) In conclusion, I would advise the UNHCHR to ensure that both public and private water receives equal treatment in any wording on the human right to water. Specifically, any wording on the need for independent regulation should apply equally to public utilities as it does to those with some form of private sector participation. They should have the power to force public utilities to increase tariffs and to invest, just as they have the power to force private utilities not to. It would be the best guarantee of universal water utility coverage.