Liquid Assets, Privatizing and Regulating Canada’s Water Utilities: Book Review

T. D. Ellison, CWWA Executive Director
CWWA BULLETIN Vol 17, No. 1
January 6, 2003

NB: The conversion of this document to a digital format may have introduced errors. To see the  document  in its original form, click here.

Liquid Assets, Privatizing and Regulating Canada‘s Water Utilities, by Elizabeth Brubaker, Centre for Public Management, University of Toronto.
Book Review
 
This book, released on November 6, 2002, calls for the privatization of Canadian water utilities as they have "not served Canadians well, are underfunded, badly operated, and ineffectively regulated". Brubaker, an environ-mentalist, states that "hundreds of municipal systems threaten public health and the environment." The book compiles information from studies of privatization. It was mainly from studies supporting the concept of privatization – indicating that the sale of treatment plants and distribution systems, or the contracting out of operations and maintenance has brought capital investments, expertise, innovation and efficiency to utilities not only in the UK, France and the USA, but around the world. It also argues, interestingly enough, that privatization has brought stricter regulation by curbing the conflict of interest that prevents governments which own, finance or operate systems from enforcing the laws that govern them. This is the only conclusion that might be true. As a generalization, provincial regulatory agencies    have to be cognizant of the impact of regulations on the municipal sector. This should be a part of every regulation-making process – that the benefits of conformity to a proposed standard exceed the costs of compliance.
 
Currently much is being made of the effects of privatization in the developing world – and the World Bank in particular is being challenged with an increasing number of examples where enforced privatization (tied to WBO loans to developing countries) has had a devastating effect on developing countries’ major cities. Buenos Aires, La Paz, Manila and Jarkata are just a few examples where the poor have faced huge increases in rates and been cut off because they could not pay. Millions of urban poor have been forced to drink unsafe water with huge public health consequences – a fact documented by the World Health Organization. A study of the privatization of water supply in 10 Asian countries carried out for the Asian Development Bank and published in 2000, concluded that "the jury is still out on the success of privatization". It is estimated that Suez wrote off US $700 million as a result of their unsuccessful ventures in Buenos Aires and Manila. Suez has also recently decided to sell British water distribution and treatment firm Northumbrian Water. According to a report in Le Figaro: "The company is trying to shed assets and cut debt by a third." Le Figaro also said Suez owns 97.5% of the British company, which has more than 4m residential customers and may be worth between £1.6 and £2.6 billion. The paper also stated thatthe "company had decided the regulatory environment in Britain was too constraining."
 
What are the conclusions that Brubaker might have drawn had she examined the alternate information? – that public-private partnerships work best in developed countries which can afford the high costs of private sector companies based in the developed world, that a strict regulatory environment is needed regardless of whether it is a publicly or privately operated utility, and that the negotiating partners for any public-private deal should be more or less equal in strength, and not be weakened by one party being arm-twisted to accept a deal in order to get some other benefit.
A couple of interesting websites for the counter argument are: www.icij.org/dtaweb/water/ and http://cbc.ca/news/features/water/
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