1. Privatising water supply: Here’s what is the need of the hour

Privatising water supply: Here’s what is the need of the hour

A suitable model, with sufficient resilience in PPP framework and a mid-course correction strategy, is the need of the hour

Published: April 11, 2017 5:26 AM
Ironically, public water supply started in the key cities like Boston, New York, London, Paris, Buenos Aires and Seville in private hands only, but catered to only the affluent neighbourhoods. (Reuters)

Experts on municipal water supply are a divided lot these days—one group extols the virtue of state-owned supply, the other under the private sector. Neither have been able to rest their case with certitude and conviction. State-owned systems are often accused of rent-seeking behaviour by officials, old management practices, wasteful expenditure in pipe replacements and creating white elephants. In the absence of a regulator, government utilities regularly compromise on service standards, but seldom hold themselves accountable—a situation economists have termed as the “gamekeeper-poacher problem.” On the other hand, private-led distribution is criticised as monopolistic, since competition is almost impossible to introduce (an experiment in Sussex to create competition by laying several water lines has proved too costly and unmanageable). The lack of social responsibility in the private set up has often undermined the larger public interest, resulting in mass unrest—as in Cochabamba and La Paz in 2003. A recent trend of re-municipalisation, in cities such as Paris, Berlin, Buenos Aires, Bogota, Kuala Lumpur and Budapest, has given private-sector bashers a reason to put their flags out. But it is a pyrrhic victory—there is hardly any major success story of fully government-led urban water supply, except Phnom Penh, Cambodia, and Porto Allegro in Brazil. Even in these two cases, utilities were made independent, with no government interference.

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Ironically, public water supply started in the key cities like Boston, New York, London, Paris, Buenos Aires and Seville in private hands only, but catered to only the affluent neighbourhoods. The need for the universal provision of water, coupled with the economic singularity, spurred government take-over. Water treatment plants intended to serve the entire city required huge fixed cost and low marginal cost of production, while the distribution-side demanded high operating cost due to high per unit volume cost for supply to each household. Thus, water supply gradually became state-owned as the large fixed- and operating-costs and low profit margin dissuaded the private sector. Public sector water utilities emerged as natural monopolies. The emphasis was on augmentation of water resource and increasing the distribution network. No wonder, the largest dams in the world were built in this phase.

As neo-liberalism gained currency in the 1980s and Thatcherism became the general public policy doctrine, the private sector made a strong comeback. Natural monopolies gave way to asset sales in England and Wales, marketisation in Chile, corporatisation in the Netherlands and long-term outsourced contracts in France. The realisation that saving of water in the supply system is better than building new dams at a huge financial and environmental cost spurred a new movement called “market environmentalism”. It focused on conservation of supplied water through techniques such as use of recycled and gray water, metering and new tariff structures. Critics of PPP projects of Delhi must understand that the cost of projects to save water in the present system shouldn’t be compared to the current rate of production of water. Availability of additional water in Delhi is only possible at enormous financial and environmental costs, after setting up three dams—Renuka, Lakhvar Vyasi and Kishau—on the upper tributaries of Yamuna. The cost of water saved through PPP projects is minuscule as compared to water augmented through these dams. Market environmentalism was also marked by the adoption of the principle of economic equity (willingness to pay, in place of social equity/ability-to-pay, which made it an anathema for proponents of the right to water). Therefore, despite the World Bank throwing in all its might since its president, Robert McNamara, pushed for creating a distribution paradigm dominated by the private sector, the response from the developing world was lukewarm. The Bank changed its course after a scathing attack in “Buky’s report”. Even after many course corrections shaped by a set of policies called the “Washington Consensus,” urban water supply run by the private sector, globally, is less than 20%.

Water has largely remained the Achilles heel for the private sector in India. Except for two projects, one in Hubli, Dharwad, Gulbarga and Belgaum where participation of private sector was introduced in a few wards, and the other in Nagpur at the pan-city level, all other trials haven’t had any remarkable success. In the Mysore experiment, a Tata subsidiary, Jamshedpur Utilities and Services Company (JUSCO), which has a vast experience of running 24×7 supply in Jamshedpur, ran into rough weather immediately after winning the bid. After winning the contract, JUSCO found that there is a huge variance in the total length of pipeline to be repaired and the total number of existing connections given in the bid document. A bitter fight ensued for revising the cost between the municipal authorities and the company, leading to delay. Efforts in Latur, Dewas, Delhi and elsewhere met more or less the same fate. Does this mean the end of the road for the private sector water supply in India? One needs to trace its journey at the global stage.

Water supply, being a maintenance-intensive sector and seeking long-term engagement, can’t completely shut its door on the industry. A suitable model, based on the country’s reality, with sufficient resilience in PPP framework and an institutional mechanism for the mid-course correction of projects is need of the hour. The success of water projects almost entirely depends on the sensitisation and adoption of the project by all stakeholders. That’s why the sector has to continually grapple with the most daunting challenge of consensus building for its partnership projects.

Keshav Chandra
CEO, Delhi Jal Board

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