Another bad idea which we need to act on

Published March 18th, 2010

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Insight from Christopher Gasson, GWI publisher

I discovered this week that there is a far more urgent aspect of the UN High Commission For Human Rights’ consultation period on the human right to water than whether or not private companies should be excluded from water supply (see my analysis from 11 March). More worrying is the possibility that the UNHCHR will create an obligation on utilities to supply a basic amount of free water to low-income groups, regardless of the financeability of this obligation.

In my view, such an obligation would bring investment in extending water services to low-income groups to a screeching halt. Fortunately, it is not too late to sway the debate. Daniel Spalthoff of the UNHCHR told me this week that “contributions regarding the obligations of utilities with respect to the human right to water and sanitation would fall under the consultation process on the issue of private sector participation in water and sanitation service delivery.” Comments must be emailed to iewater@ohchr.org by 26 March (see http://www2.ohchr.org/english/issues/water/iexpert/index.htm for details).

My comments to the UNHCHR are as follows:

  1. The UN should not be in the business of creating human rights with significant funding obligations attached to them. This is a particularly problematic proposition in the water industry because the body which commits to the human right is generally the central government, but the body which has to provide the service is generally local government. There is a real danger of governments signing up to the human right to water, without committing to the additional finance required by local government to deliver that right.
  2. We have made great progress over the past decade on the Millennium Development Goal of reducing the number of people without access to an improved water source (the figure now stands at 87%). There has been less progress on increasing the number of people with a piped domestic water supply (the figure now stands at around 50%). The definition of access to an “improved water source” is fairly undemanding – a well within 1km of the home is enough to meet the criterion. With an average population density of 20,000 people per square kilometre in a typical informal settlement, you can spend $5,000 drilling a well and installing a pump, and immediately you have an improved water source for the 62,831 people living within a 1km radius. The cost of a domestic piped potable water system serving the same number of people is upwards of $5 million. The greatest challenge the water sector faces over the next decade is developing the mechanisms to enable that $5 million to be financed. If the majority of the 62,831 people in the neighbourhood qualify for free basic water, then no utility will put in the money without outside assistance.
  3. It is unrealistic to expect aid transfers and central government tax revenues to finance the kind of investment that is required in the water sector. The amounts involved are too great for aid agencies, and the tax base of most developing countries is usually too small to make a serious contribution to water utility finance. The OECD (see Managing Water For All, 2009) and most other organisations involved in water provision now accept that the burden of financing water infrastructure has to be tariffs. Indeed, the most dynamic utilities in the world today – such as Phnom Penh’s PPWSA, Manila Water, and Senegal’s SONEDE/SDE – all rely on tariff income as the basis of extending water services to the poor. The obligation to provide free basic water would undermine the business model of some of the utilities which have been most effective at extending piped water services to the poor.
  4. The obligation to provide free water to low-income groups exists in South Africa. It works reasonably well in high-income areas such as Johannesburg and Cape Town, because there are enough businesses and wealthy households to cross-subsidise the service to the poor. It works less well in low-income urban areas. In those areas, the obligation to supply free water to indigents has come at the expense of investment to extend services. The human right to water should not be implemented in such a way that it impedes the expansion of piped water services to low-income communities.
  5. Food, like water, is a basic necessity of human life, but no one is telling food suppliers to provide basic free food to the poor. As Adam Smith said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner.” Water might be a natural monopoly and enjoy low variable costs and high fixed costs, but it is still subject to the laws of economics. If a service provider is obliged to provide a service at a loss, that service provider is likely to find ways of avoiding that loss, regardless of whether it is publicly or privately owned. An unfunded obligation to provide free basic water is essentially a regressive tax on utilities which choose to extend services to low-income neighbourhoods.
  6. In my view, the obligation on utilities in respect of the human right to water is that they should “offer such concessions to low-income customers as can reasonably be financed within the context of the continued expansion of piped water services for all”. This recognises that there are access issues for low-income groups without forcing a solution on a utility which may be inappropriate. In the urban context, the alternative to piped utility water supplies is often private vendors selling water of dubious quality at extortionate prices from tankers. It would be a travesty if this group of suppliers were to be the main beneficiaries of the human right to water.