Privatization went wrong from start

Eric McGuinness
Hamilton Spectator
November 12, 2002

Privatize water and sewer systems, but not the way Hamilton is doing it.

That’s environmentalist Elizabeth Brubaker‘s message to Canadian governments.

She believes private companies can deliver cheaper, safer drinking water and cleaner lakes, rivers and oceans, but only if government act as tough regulators, set strict performance standards, ensure the process is open to public scrutiny and – most importantly – rely on competitive bidding to get the best prices and ideas.

In a book just published by the University of Toronto’s Centre for Public Management, Brubaker says Hamilton’s eight-year-old experiment in privatizing sewer and water services – the largest so far in Canada – went wrong from the start when the then-regional council chose the inexperienced Philip Utilities Management Corp. (PUMC) without calling tenders.

She finds the deal has produced some savings and investment but “has not yet solved many of the severe problems plaguing the city’s systems.”

Brubaker is executive director of Environment Probe, a division of Energy Probe Research Foundation, which says it “champions market mechanisms and sound democratic processes to protect consumers and the environment.”

It’s significant that the book, Liquid Assets: Privatizing and Regulating Canada’s Water Utilities, comes after Walkerton’s public water supply poisoned 2,300 people and killed seven in May 2000, and after another public system sickened 8,000 people in North Battleford, Sask., 11 months later.

Those cases boslter the author’s argument that municipal water systems have too often been underfunded, poorly operated and ineffectively regulated.

Brubaker maintains privatization has been “an enormous success” in England and Wales and holds great promise for Canada. She says private enterprise has brought investment capital for infrastructure and greater management expertise.

It’s also encouraged innovation, promoted efficiency and curbed the conflicts of interest that prevent governments from strictly enforcing the laws and regulations that apply to systems they run.

Brubaker tells of Hamilton contracting out operation of its water and sewage treatment plants to PUMC in 1995 and transferring the 10-year agreement first to an Enron subsidiary and more recently to American Water Services.

Noting that sewage pollution of Hamilton Harbour has disgraced the city for decades, she faults the former Hamilton-Wentworth region for previously mismanaging the sewage treatment system and misspending millions of dollars.

The most notable example was the Sludgegate scandal in the 1980s when $13 million was wasted on a sludge-drying system that never worked.

In 2000-2001, when she examined the privatized system, Brubaker found environmental benefits “somewhat elusive,” with sewage pollution still a problem, and noted that “for years, the region itself did not know if, or by how much, savings exceeded” the modest 3 per cent minimum stipulated by the contract.

Nevertheless, she writes, “municipal staff generally – and many would say inexplicably – defend the system’s environmental performance” and the Ontario Environment Ministry cracked down only after “relentless pressure” from the International Union of Operating Engineers.

She complains that parts of the contract remain secret and says, “There is a lot of defending going on that shouldn’t be. That’s one reason why public access to information is so important. Someone has to keep watch on government. Citizens have to be the backup. If government doesn’t act, we will.”

Brubaker says when the present contract expires in two years, the city should seek competitive bids, strengthen incentives for a contractor to perform effectively, make the company responsible for capital improvements, and then enforce the terms.

“It is essential that Hamilton understand that it has an obligation to enforce its contract – that its priority must be protecting the public interest rather than making excuses for or otherwise cooperating with a poorly performing contractor.”

She says city staffers should be prohibited from going to work for any city contractors and municipal election candidates should be prohibited from taking campaign money from those contractors.

Councillors, she says, “have the opportunity to move toward a competitive, efficient, effective and accountable system. The first time, they got several important elements wrong. Perhaps next time, wiser from experience, they will get them right.”

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