May 12, 2011
From the introduction to A Bridge Over Troubled Waters: Alternative Finacing and Delivery of Water and Wastewater Services, published by the C.D. Howe Institute:
Municipal water and wastewater utilities — the majority of which are publicly financed, publicly owned, and publicly operated — are not serving Canadians well. Many of the systems that treat and distribute drinking water perform poorly, and many of those that collect and treat wastewater are substandard. These problems are likely to worsen as infrastructure ages. More stringent regulations, which have been proposed by the federal government, will pose further difficulties for municipal utilities.
In what follows, I will show that municipalities often lack the resources to correct current failings and address future challenges. They lack the professional capacity to plan infrastructure improvements, and the capital to finance them. Increasingly, they lack the skilled labour to operate infrastructure. Worse still, they lack the political will to overcome their deficiencies. Few municipalities are willing to set water and wastewater rates that are high enough to pay for sustainable systems. And few feel real pressure to improve their performance — especially that of their wastewater treatment systems — since conflicts of interest prevent public regulators from vigorously enforcing environmental laws and regulations against public utilities.
I will argue that private water and wastewater services providers are, on the other hand, well positioned to help municipalities address the challenges they face. Many have access to large pools of capital. Many have been in the business for decades and have developed extraordinary operating expertise. Engaged through competitive contracting and governed by performance-based contracts, private providers have incentives to find efficiencies and perform well. Competition can also improve publicly run operations even if services are not eventually privatized.
Alone, private operations are not a panacea. Private service providers — constrained by limited water revenues or by the limited aspirations of their municipal partners — do not always realize their potential. Only if financing and enforcement are reformed will private operations provide the full benefits that they are capable of delivering.
To read the full Commentary, click here.
Visit the C.D. Howe Institute at: www.cdhowe.org