Debt, GATS and the Privatization of Water
Posted on December 12 2003 |
Mae Buenaventura, Bubut Palattao and Lidy Nacpil
Introduction
From September 10-14, 2003, more than a hundred member countries of the World Trade Organization (WTO) come together in Cancun, Mexico to launch a new round of negotiations on increasingly liberalizing global trade, including services, through the General Agreement on Trade and Services (GATS). As official WTO documents would have it, GATS is "development-friendly" and concerned with the fate of the world's poor, even as millions worldwide are deeper in debt than before and reeling from the impacts of GATS, which has progressively pried open not only the usual trade in goods, but vital service sectors of individual economies previously ignored by WTO rules.
For the economically disempowered peoples of developing countries like the Philippines, the implications of the 5th Ministerial Conference go far beyond renegotiations between governments of the GATS work programme. Behind expressed objectives of giving governments the opportunity to review the operation and functioning of the global trading system, the new round of GATS discussions conceals an insidious side of eroding what little barriers remain to trade in various services from health and education to power and water; of further encroaching into sovereign borders and compelling national governments to withdraw from public welfare commitments; of pressuring national governments to sweeten local markets to draw in private investors; of according more transnational corporations as much rights as citizens in terms of investments and the exploitation of natural resources.
All these are borne out in glaring dimensions by the Philippine experience of privatizing the power and water sectors, undertaken as compliance with loan conditionalities of multilateral financial institutions like the World Bank and the International Monetary Fund. Immediately after GATS took effect in February 1995 under the auspices of the WTO, the debt-ridden Metropolitan Waterworks and Sewerage System (MWSS) was marched in 1997 to the bidding block under the world's largest water privatization experiment in 1997. Four years later in 2001, another state giant, the financially ailing National Power Corporation (NPC) went up for sale to the private sector.
In truth, though, the WTO and GATS pursue a process of structural adjustment started among client regimes of the Bank and the IMF long before Cancun, and of which privatization counts as one of the basic prescriptions for supposedly jumpstarting economic development. Ironically, structural adjustment is now packaged as economic reforms euphemistically called "poverty reduction programs". But communities and fragile ecosystems laid waste by these schemes tell a different story of cash-strapped, deeply indebted, debt-addicted economies, bound to the servicing of huge public debts.
Consequently, with revenues from taxes no longer sufficient to finance government spending and loan obligations, there has been a restriction on expenditures, leaving little money for basic services and investments in public utilities while compelling governments to resort to more borrowings. The disastrous outcome has been a proliferation of poorly maintained, financially unviable state institutions and public utility companies unable to provide for the most basic of people's needs.
The privatization track has been taken up by the Philippine government as the logical solution to empty national coffers and bankrupt parastatals such as MWSS and NPC. A more critical reason, however, is that access to new loans dangled by the IMF, the World Bank and the Asian Development Bank is often contingent on the implementation of privatization. As leverage, these institutions use the indebtedness of South countries and a "dependence" on borrowings cultivated through more than a decade of so-called structural reform, to compel governments to carry out its privatization thrust.
Other economic "stabilisation" measures that include slashing the budget (usually at the expense of social service programs and public employees) and price liberalization or the removal of subsidies and price controls accompany privatization. The immediate explanation behind all this is evident: ensuring continued payment of debt obligations. As Michel Chossudovsky points out: "The privatization of state enterprises is invariably tied to the renegotiation of the country's external debt."
A more strategic concern of privatization is opening up new investment opportunities and markets for multinational companies and their partners among the local elites. This is already being played out in the consolidation of capital across countries and continents by transnational companies; their encroachment on sovereign borders; their assumption of heretofore government-held responsibilities; their assumption of as much rights and privileges as citizens with regards investments.
The outcomes of implementing privatization's full-cost recovery requirement have been disastrous for the Filipino people: very high fees for services and utilities that have not been matched by quality improvement; significantly diminished access to basic services for the majority of economically disprivileged communities; cutting down or elimination of service delivery in areas deemed commercially unprofitable; higher risks to health; damage to the environment; more work burdens for women in poor households who compensate for services no longer provided by government; heavier burdens on taxpayers and consumers due to new debt traps arising from 15-30 year contracts that guarantee the revenues of private foreign investors.
These problems are about to be addressed in the Cancun Ministerial with more of the very same prescriptions that spawned them in the first place. Contrary to what trade officials claim, the 5th WTO Ministerial is more than an expansion of global negotiations; it is out to wrest commitments especially from South countries, to an expansion of global trade rules for the unhampered entry of international corporations and investors in every conceivable service -- energy, environment (including water), education, health care, culture, social security, transportation services, postal delivery and a range of municipal services (construction, sewerage, garbage disposal, tourism, etc.).
This, even as the existing GATS already spells out the gradual removal of national barriers to international trade and commercial competition in the services sector; and even as WTO members are already constrained by rules that tie their hands vis-à-vis trade-in-services, from labor laws to consumer/environmental protection.
GATS, which necessarily leads to privatization as part of its drive to open the services sector to private corporate investment, now comes as the latest instrument for strengthening and facilitating vintage structural reform. But alarmingly, it is poised to cut a wider swathe of destruction than before that seeks the irreversible ceding of peoples and communities, their land and water resources to new monopoly corporate giants under the sponsorship of North governments, international financial institutions, banks and other creditors.
The Philippine experience of water privatization
Apart from being a loan conditionality of several international financial institutions, the idea of privatizing Metro Manila's water distribution utility in August 1997 was sold with glorious promises of improved and expanded water and sanitation services and easing up the debt burden that MWSS had become. MWSS had incurred debts totaling US$800 million yet failed to translate these into efficient and adequate services for the residents of its coverage area-- Metro Manila, Rizal Province and some parts of Cavite and Bulacan in the Central Luzon region. On one hand, privatization gave government a way of raising revenues from which to source expenditures, primarily for servicing a national debt amounting to US$82.347 billion in 1997 ; on another, it offered release from providing a public service that it could no longer adequately provide or afford to sustain. Five years later, what government and its IFI sponsors celebrated as the world's first large-scale water privatization has turned out to be one of the world's largest scams -- a clear testimony to the failure of privatization.
The Philippines had already gone through a decade of selling publicly owned and controlled corporations by the time the administration of Fidel Ramos bent to the pressure of creditors and decided to face an impending water crisis with the participation of the private sector. With debt payments as a priority public expenditure over more basic services, government had failed to invest in an efficient and adequate water supply and distribution system. Ten million Filipinos in the country were suffering from the lack of access to safe drinking water because critical infrastructure was absent to support the needs of a fast-growing population.
MWSS was only able to maintain water supply at an average of 16 hours a day to 67 percent of its 11 million coverage population; sewerage service only covered 8 percent. Worse, MWSS had a non-revenue water (NRW) level of 58 percent caused by pilferage and leakage from badly maintained pipes. Out of the 3,000 million liters of water that MWSS received daily from Angat Dam, a major reservoir in the Central Luzon region, only 42 percent translated into actual revenues for the national water agency.
Significantly, the events leading to MWSS' privatization were in keeping with a major 1990s trend: "…[the] major increase in the involvement of foreign private sector multinationals in the water systems of developing countries - a market which they had previously left largely untouched. The increase was often due to pressure exerted on developing countries by international financial institutions such as the World Bank and IMF, both in direct conditionality attached to the provision of their loans…."
In June 1995, President Ramos secured emergency powers from Congress with the passage of the National Water Crisis Act that sought to "adopt urgent and effective measures" including the reorganization of the MWSS and the Local Water Utility Administration which involved the "the privatization of any or all segments of these agencies, operations or facilities if necessary to make them more effective and innovative to address the looming water crisis". Before the year ended, the government had contracted the International Finance Corporation (IFC) - the private investment arm of the World Bank - to design a privatization strategy for MWSS.
As proposed by the IFC, the privatization of the MWSS through a concession-type model was implemented. This setup covered water treatment, distribution, tariff collection, facility improvement and overall management. The only adjustment was the division of the original MWSS concession into East and West Zones, supposedly to foster yardstick competition and prevent consumers from being hostaged by a single concessionaire should it threaten to withdraw from the project.
On August 1, 1997, the operations and management of MWSS passed on to two private concessionaires who won in the bidding. The MWSS water rate then was pegged at P8.78 per cubic meter of water. Manila Water Services bid the lowest at P2.32/cu.m and had the option of picking its preferred zone-the East. Manila Water is a conglomeration of the Ayala Corporation (a local firm owned by an elite Filipino family), Bechtel (US), Mitsubishi (Japan) and United Utilities (UK). Having a much smaller coverage area and population than the West Zone, Manila Water inherited only 10 percent of old MWSS's debts.
The West Zone concession area on the other hand fell at a bid of P4.96/cu.m to Maynilad Water Services, a partnership of Benpres Holdings of the Lopez clan and Suez Lyonnaise des Eaux of France. (Ondeo, the fully owned Suez subsidiary now partners with Maynilad.) As concessionaire to the larger part of the MWSS distribution utility, Maynilad agreed to pay concession fees that would cover servicing 90 percent of MWSS's debts.
It seemed, at least initially, that government was on the brink of a windfall. Aside from shouldering debt payments for MWSS's old loans, the private concessionaires also promised uninterrupted water supply to connected consumers by year 2000; virtually universal water supply by 2006; increased water pressure; $7.5 billion in new investments; and, US$4 billion in income tax revenues over the course of the 25-year concession agreement.
Each concessionaire was granted exclusive distribution rights in its respective zone/franchise area in their provision full waterworks service to Metro Manila residents. Provisions for upward price adjustments were to follow a process as stated in the contract. It was also agreed that the financial model submitted by each concessionaire would form the basis for future price adjustments, subject to rebasing every five years. Each concessionaire agreed to absorb any risk associated with errors in their respective financial model assumptions.
As soon as the tariff rates being offered by the winning bidders were made public, there was general euphoria as rates fell by as much as 73.6 percent in the East Zone and 43.3 percent in the West Zone. The concessionaires also declared that there would be no significant increases at least in the first 10 years of privatization, and that rates would only inch up with inflation.
Rates Increases
A mere two years into the MWSS privatization undertaking, Maynilad and Manila Water began a series of rate increases that would reach its first peak in 2002 through a rate-rebasing process. In all, Manila Water had to have eight increases (bringing its current water tariff to P14.47/cu.m.) to save itself from a possible financial setback had its dive bid of P2.32/cu.m. in 1997 been maintained. Maynilad, for its part, would eventually register a 400 percent growth in its rates from P4.96/cu.m. to P19.51/cu.m.
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The bulk of the changes in water rates stems from amendments to the contract that were introduced in 2001. In 2000, Maynilad had demanded the government of then President Joseph Ejercito Estrada to institute a mechanism called the Automatic Currency Exchange Rate Adjustment (Auto-CERA), which has no basis at all in the concession agreement. The Auto-CERA would have enabled the private concessionaires to pass on foreign exchange losses to consumers each time the peso-dollar exchange rate fluctuated, without having to seek approval from the MWSS.
Behind the ensuing political crisis that saw Estrada charged with impeachable offenses and finally replaced by Gloria Macapagal Arroyo, Maynilad continued to lobby hard for the Auto-CERA. Arroyo, who perhaps had no choice but to reject the barefaced attempts of Maynilad to twist the contract to its liking, did so in February 2001. In response, Maynilad unilaterally stopped paying concession fees, a decision it defiantly follows to this day. (Concession fees are comprised of payments for old MWSS loans and funding for the operations of the MWSS Corporate Office and the Regulatory Office; as of end-March 2003, Maynilad owed the government P5 billion or around US$91 million.)
Maynilad later decided to try another route, this time assuring government that it would move within the bounds of the contract. And so it petitioned the MWSS for an "accelerated" Extraordinary Price Adjustment (AEPA) that would allow recovery of 1997-2000 foreign exchange losses in only 18 months instead of 22 years (or the remaining life of the contract at the time). A veiled threat of a water brownout accompanied this proposal.
Despite strong objections from consumers and civil society groups, the Arroyo government, in the end, bailed out the Lopezes by allowing amendments to the concession agreement, which consequently enabled Maynilad to seize both the Auto-CERA and the accelerated EPA. Water rates quickly shot up to 15.46/cu.m. The Auto-CERA, later renamed as the Foreign Currency Differential Adjustment (FCDA), ensured that consumers would be charged P4.07/cu.m. to support the recovery of Maynilad's current forex losses arising from its payment of dollar-denominated MWSS's loans as well as its own loans.
Part of the amendment (that in effect also provided legal basis to the bailout) made it mandatory to hold a rate rebasing process on the fifth year (2002, being the first interval), where previously there had been an option to conduct this on the 5th or 10th year. The rate rebasing process allows concessionaires to set a new base rate of water based on past accounts and future costs, using parameters such as inflation, foreign exchange rates, population growth, etc., adjusted to reflect changes over the preceding five-year period. While these factors will assuredly go up and pull water rates along, there is no such assurance that rate increases arising from the rate rebasing process - which is supposedly for expansion and improvement of service - will redound to the benefit of people.
As a result of the last rate rebasing exercise, Maynilad pressed for a P34 rate but the Regulatory Office only approved P26. This rate was later reduced to P24.27, due to pressure coming from irate water consumers, with the balance to be applied in the next couple of years. (Maynilad, however, has not implemented the new rates because of possible legal difficulties vis-à-vis the notice of termination it issued to MWSS last December 9, 2002.)
Manila Water on the other hand, continued to work, albeit quietly, for its own rate increase, by having its ADR or Appropriate Discount Rate (the real weighted average cost of capital after taxes) amended to 18 percent. The Regulatory Office opposed this initially since the financial model submitted by Manila Water during the bidding indicated only a 5.2 percent ADR. Costly arbitration procedures had to ensue to settle the matter, after which Manila Water was deemed entitled to a 9.3 percent ADR. The decision was appealed by the RO to the Courts and a Temporary Restraining Order was obtained. A few months later though, the Regulatory Office curiously moved for the dropping of the case, prompting civil society groups to question its integrity and independence.
Manila Water's rate increases appear deceptively incremental because its dive bid or the base rate is small; percentage-wise, the increases granted by the Regulatory Office to Manila Water are almost the same as Maynilad's.
MWSS vs. Maynilad: Early termination dispute
In February 2003, in response to Maynilad's notice of early contract termination, the MWSS counterfiled a notice terminating Maynilad's concession agreement due to the water company's failure to comply with certain provisions of its contract including non-payment of concession fees amounting to P5 billion.
According to the Concession Agreement, if Maynilad is proven to be at fault for its early contract termination, it would be repaid only 75 percent of the value of current assets and 75 percent of the depreciated value of all fixed assets installed in the concession area. This would mean that the government would only pay Maynilad P4 billion. However, since Maynilad has an outstanding obligation to the MWSS amounting to P5 billion pesos in concession fees, it would even have to shell out P1 billion to settle its debts with the Philippine government.
Deeper in debt from unpaid concession fees
Maynilad's $120-million performance bond (which serves as a guarantee to secure the concessionaire's performance of its obligations) has become a focal point in the dispute between the MWSS and Maynilad which is now being arbitrated by an International Appeals Panel.
Maynilad has not been paying concession fees for two years now, again defaulting on the final March 2003 deadline set by the MWSS after several extensions and grace periods. The concession fees are supposed to fund the operations of the residual MWSS and the Regulatory Office and to pay for the $800 million old MWSS loans inherited by Maynilad when it was awarded the West Zone concession contract. Without Maynilad's concession fees, now amounting to P5 billion, MWSS would have no other recourse but to incur more loans to pay for the obligations that Maynilad was supposed to pay for. Already, US$120 million dollars of Maynilad's inherited loans that remain in government's name, matured in August 2003.
As early as April 2003, the International Appeals Panel issued a provisional order stopping MWSS from drawing on Maynilad's performance bond. This order was relative to Maynilad's renewal of the bond, which was to expire on July 31, 2003. The Panel gave the west zone concessionaire up to June 15 to renew its bond with an additional $30 million. Maynilad's failure to do so would mean that the provisional order would be "ípso facto lifted". Maynilad, however, was not able to post the bond on time, whereupon MWSS initiated the drawing by sending a Letter of Intent to the banks holding the bond. Without any explanation, the Appeals Panel reneged on a previous directive, and issued a new order advising MWSS not to draw on Maynilad's bond until the Panel has issued its decision on the early contract termination dispute.
Impacts of the MWSS Privatization
Water connections and delivery of water service
Many urban poor and even lower middle income families do not have piped water service for either of two reasons: a) their area has not yet been reached by water service distribution system because the private concessionaires have not gone into service expansion programs; and b) if their area is covered by the water distribution system, they cannot pay for the P5,000 connection fee.
Meanwhile, a number of those who have piped-water service continue to experience water service interruptions. Families interviewed in Quezon City, Pasig City, Malabon and Rizal, especially women in the household, reported having to stay up late every night because their water supply comes at 11 or 12 midnight only to stop two to three hours later.
Areas without regular supply have to resort to buying water from private vendors charging higher water rates. Some families who cannot afford to pay excessive water charges opt to find unsafe water sources such as improperly maintained deep wells. Burdens immediately multiply for women who lengthen working hours to source water, in addition to caring for children who easily fall prey to common diseases simply because they miss out on basic water and sanitation requirements
One community in Caloocan has obtained a piped-water connection from Maynilad but the company has not yet installed their individual household water meters. Worse, water pressure is very low; water supply is irregular; and water from the tap smells bad. Yet, Maynilad insists on collecting a fixed monthly rate from the households. Meanwhile, Maynilad remains deaf to the urban poor's repeated complaints.
Three years ago, 800 families from Dagat-dagatan, Navotas paid P200 each as initial payment for water connection. Up to now, Maynilad has not lain a single pipe for this community.
In 2000, the MWSS conducted a survey or residents in 100 communities in Metro Manila and found out that 55 percent of the respondents thought there had been no change in the water service while only 30 percent noticed an improvement.
Maynilad's overcharging
Maynilad still implements forex loss recovery mechanisms today which is far beyond the collection period of October 2001 to December 31, 2002. The P4.21/cu.m. AEPA charges -- one of the three concessions that the Arroyo government granted Maynilad in 2001 -- was intended and should have already covered Maynilad's 1997-2000 forex losses.
Maynilad also continues to include in its water tariffs the full cost of the FCDA equivalent to P4.07/cu.m. when it has not been paying concession fees since 2001. The FCDA was meant to save the concessionaire from current forex losses arising from its payment of dollar-denominated MWSS loans as well as Maynilad's loans. Since Maynilad has defaulted on its payment obligations to MWSS and its foreign debt amounts only to $125.5 million as compared to old MWSS loans of $800 million, it should have been collecting from consumers only a small fraction of the FCDA.
All considered, Maynilad has already earned an additional P4 billion (US$ 73 million at US$1:P55) from the continued imposition of the AEPA and FCDA. Maynilad's monthly collection from these two mechanisms is estimated at P403 million (US$7.3 million).
The Regulatory Office has long ordered Maynilad to stop charging the consumers with AEPA and FCDA. The water company, however, refuses to heed the RO's directive on the grounds that it has not yet implemented the new tariff increase (P24.27/cu. m.) granted by MWSS and that taking out the AEPA and FCDA from consumers' water bills would result in Maynilad's financial incapacity to continue providing water service to West Zone residents. The issue has been thrown to the Appeals Panel which is yet to convene on this case.
On efficiency
In addition to rising water rates, the inability of Maynilad to reduce leakage further debunks the myth foisted by proponents of the MWSS privatization that the private sector can run it more efficiently than government. The claim that the supposed efficiency of the private sector will render significant water losses a thing of the past, is yet to materialize. In fact, the business losses that Maynilad wants the public to bear can be significantly sourced to its very failure to deal with high water losses, on top of its inability to efficiently collect water tariffs.
It aimed to bring down the NRW to 30 percent by 2001 from 58 percent in 1997, but this has only ballooned to almost 66 percent today with big corporations like Unilever and Coca-Cola, hotels, shopping malls, golf courses, condominiums and rich residential subdivisions as the biggest pilferers. The East Zone concessionaire, Manila Water, managed to bring its NRW down to 48.28 percent by year 2001. However, this figure is way off achieving the 16 percent target that consumers already paid for.
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More debts arising from privatization
Government’s economic returns from the MWSS privatization has proven brief, even illusory, for it is now covering for Maynilad's refusal to pay concession fees. These fees are supposed to cover debt service payments on existing debts of MWSS that Maynilad had inherited under the privatized arrangement.
Government is yet to take decisive action against Maynilad's arrogant refusal to pay concession fees despite the Regulatory Office's tariff rate approvals. It must be remembered that the privatization of MWSS did not result in the transfer of ownership of the pipes and other assets of MWSS to the private sector. For that matter, while the concessionaires would pay the outstanding debts of MWSS to the World Bank's International Bank for Reconstruction and Development and the ADB, these remain debts of the Philippine government as far as creditors are concerned.
Last May 2002, MWSS acquired loans worth $100 million from Deutsche Bank to pay for Maynilad's unpaid concession fees, otherwise government would be in default with its creditors which include the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation. The Department of Finance even endorsed a sovereign guarantee cover for MWSS loan borrowings.
Up to now, Maynilad has not paid its concession fees, and people are again being made to take the fall. To avoid defaulting on loans maturing in August 2003, the Board of Trustees of the MWSS Corporate Office has issued a Board Resolution stating its intent to incur additional loans amounting to US $200 million.
The General Agreement on Trade and Services
Ten days before the Philippine delegation headed by Trade Minister Mar Roxas sets foot at the Cancun Ministerial, the government of Gloria Macapagal-Arroyo announced that the country will oppose the opening of the service market to foreigners as well as the further liberalization of its investments policies. This affords little consolation to Philippine civil society organizations concerned over what commitments would be conceded to the WTO, and probably with good reason. The Philippines' water sector is one of 22 countries targeted by the European Community (EC) for liberalization at the ministerial conference. What does GATS forebode for a people whose government has capitulated many times in the past to privatization bearers like the ADB and the World Bank with the MWSS privatization in 1997 and the privatization of NPC in 2001?
Unless the Arroyo administration is engaged in the same double-speak that cloaks the WTO legal texts, its trade emissaries might do well to remember the results of the UNCTAD survey of developing country trade representatives: "…[T]he lack of transparency of the ongoing request/offer process within the GATS,…hinders their capacity to evaluate the requests submitted to them by developed country trading partners and the formulation of their own requests and offers, which is a particularly complex task."
Through the WTO, G8 governments and corporations continue to bully the rest of the world into adopting failed measures like privatization in their interest to create markets, such as in services, where previously there was none. The 5th WTO Ministerial Conference represents this newest assault on people's rights and resources as it tables the results of two-year negotiations on GATS, and seeks comprehensive settlement on a host of EC "requests" submitted in July 2002 to liberalize targeted service sectors.
One part of GATS covers basic obligations of all member countries on"services supplied from the territory of one part to the territory of another; services supplied in the territory of one party to the consumers of another (for example, tourism); services provided through the presence of service providing entities of one party in the territory of another (for example, banking); and services provided by nationals of one party n the territory of any other (for example, construction projects or consultancies).
Another major section contains specific national commitments to be implemented over a continuing process of liberalization in the services area. "A basic most-favoured nation (m.f.n.) obligation states that each party "'shall accord immediately and unconditionally to services and service providers of any other Party, treatment no less favourable that that it accords to like services and service providers of any other country.'"
A third worrisome concern are provisions on market access and national treatment, which unlike the general obligations, would be "…commitments made in national schedules." Thus, where market access is the issue, each of the parties "'shall accord services and service providers of other Parties treatment no less favourable than that provided for under the terms, limitations and conditions agreed and specified in its schedule." The direction is towards ultimately doing away with various limitations (e.g., the number of service providers). "Equally, restrictions on the kind of legal entity or joint venture through which a service is provided or any foreign capital limitations relating to maximum levels of foreign participation are to be progressively eliminated."
Apparently, it has not been enough for corporate globalization that the poorest countries are already fettered to promoting the free market and trade liberalization by way of the loan conditionalities imposed by international financial institutions. It has not been adequate that when GATS came into force in 1995, it already stood out as one of the most comprehensive pacts of the supra-national WTO, with a coverage so broad that "'it reads like a catalogue of occupations and human needs.'"
Not until the 2002 leakage of information on the EC's "requests", though, was it fully spelled out just how extensive GATS plans to encroach on people and communities of 109 countries, particularly targeting 84 states which have been classified as the poorest or least developed. Between the lines of the legal text and the much-touted "development-friendly architecture" of GATS, is the reality that redounds to a "corporate takeover of global services" broadly ranging from accounting, construction and postal services to vital sectors such as health, water and even the very genetic-makeup of life itself.
An enabling feature of this bright prospect for big transnational corporations is the GATS negotiation process itself, which outweighs whatever gains the poorest and developing countries can squeeze out of Article XIX. Part of this "development-friendly" claim takes off from this GATS provision that, on paper, allows individual developing country members "…appropriate flexibility…for opening fewer sectors, liberalizing fewer types of transactions, progressively extending market access in line with their development situation…" As well, in making access to their markets available to foreign service suppliers, access conditions should aim to achieve increased participation of developing countries (Article IV).
Much of the decision-making process, however, takes place in the gray areas where secrecy and unequal power relations ultimately tilt the balance in favor of the designs of North governments and big business. Writes John Hilary: "The 'progressive liberalization of trade in services which GATS requires is achieved through successive rounds of market access negotiations, in which WTO member countries engage in secret discussions…to open up new sectors to competition from foreign service providers…..While developing countries formally retain the right to choose which services they will offer up to GATS, they come under intense pressure in these negotiations to meet the demands of more powerful WTO members. The fact that the negotiations are held on a bilateral basis, and in secret, sets the weakest countries against the strongest on a wholly unequal footing…."
Significantly, the Philippine government has kept silent about the EC requests concerning water, even with the bitter lessons from the country's own water privatization experience that have become all too apparent only five years into the 25-year concession contract. The EC repeatedly asserts that it will not subject the water distribution systems of member-countries to GATS, yet very cl;early, its proposal to open the new category of "environmental services" to include water collection, purification, distribution and wastewater services, in effect facilitates the inclusion of the water sector in the national schedules of GATS commitments.
An equally threatening concern is the implication that the EC, with the granting of its requests, could easily move into the control of the very sources of water. While it is technically true that requests on "environmental services" do not cover access to water resources, there is no guarantee whatsoever in GATS that market access would not lead to this eventuality. One NGO involved in water and energy advocacies rightly stressed that "it is impossible to believe that once the market access is granted, the companies will not insist on access and even control [of] water resources…[Water] collection is certain to include the water source, and will lead to establishment on control (if not ownership) [of] the water resources themselves."
Taken together with the EC's push to remove across-the-board investment regulations that apply to all sectors, the dangers of the emerging scenario for developing countries under GATS, particularly their water sources and distribution systems, become even graver. The Philippines, for instance, together with many other countries has reserved the right to require investors buying real estate to ensure 60 percent local capital; the EC will press to have laws like this eliminated. "Lifting the nationality requirements in the provision of water would run counter to the Constitution of the Philippines, the basic law of the land," wrote economist Maria Teresa Diokno-Pascual. "Full commitments by the government for market access and national treatment implies the opening up of the entire water sector throughout the country to foreign service-providers, at a time when our own experience with privatization has been found wanting."
The EC request to the Philippine under "Environmental Services" notes that the country has not undertaken commitments in environmental services and specifically proposes the commiment of "Water for human use and wastewater management" which includes water collection, purification and distribution services trough mains, except steam and hot water; and waste water services. (The document further advises member states, "…to ensure that this text is not made publicly available and is only circulated to the officials concerned.")
Initial moves of the Arroyo government and IFIs such as the ADB to bring in greater private sector participation and control in the management of the country's more than 400 local water districts is too telling of its inclination towards privatization. This would dovetail neatly with what GATS essentially entails in pursuing its development model of a global water industry, despite the counterclaims of WTO officials that privatization is not necessarily an outcome of GATS commitments.
In any event, foreign water companies like Suez (through Ondeo) and Bechtel, are already far too enmeshed in running Metropolitan Manila's water, while theWorld Bank has started funding the privatization of local water utilities in different parts of the country.
"Committing a service to GATS means assenting to competition in that sector in accordance with GATS discipline, and binding it for the future…," Hilary explains. "It is the sector itself which is committed to liberalisation under GATS….Indeed, the act of liberalising a service sector introduces competition by definition….irrespective of how the service might have been provided in the past…[I]n cases where the service has previously been provided by the public sector alone, the process of liberalisation will lead to a transfer of at least part of the service into the private sector."
The objectives of the Philippine national water sector policies practically echo the World Bank’s Country Assessment Strategy, which is “to undertake institutional changes that would encourage the private sector to finance and manage water supply services in water utilities in which unmet demand from consumers is significant.” The Local Governments Unit (LGU) Urban Water and Sanitation Program, of which the Project II phase is now being implemented under the World Bank’s Adaptable Program Loan Program translates this into action:
Project I: Testing and operationalizing the demand-based framework in approximately 35 LGUs
Project II (2002-2003): Scaling up to 80 more towns
Project III (from 2002 - 2005): inducing private sector banks to invest in LGU-based water supply and sewerage systems
There can hardly be any mistaking the Philippine government’s framework for providing people access to clean water and sanitation -- privatization, which the new round of GATS will inevitably accelerate. Project documents show that government has not learned from the MWSS privatization experience: “In the water districts, and areas of urban centers there has been active interest shown by the private sector in various types of outsourcing arrangements, ranging from [Build-Operate-Transfer] contracts to service contracts. A significant challenge for the Government is how best to plan and implament investments that lead to sustainable water supply and sanitation services in approximately 1,000 small towns....”
The devil is indeed in the details, and nowhere is this truer than in GATS. Will GATS really apply only to sectors which governments have offered up for liberalization as WTO and supportive governments like the United Kingdom stress? "The reassuring, legalistic language of GATS hides its true implications…The text (Article 6.4) implies that all services sector regulations can be contested across the board…Furthermore, the Agreement contains a stringent article that prevents countries from altering commitments (part of the GATS rules) once they have been set. In effect, GATS would make this agenda for the world's water resources irreversible," observes a Friends of the Earth Briefing Paper.
This lock-in feature of GATS underscores a high degree of certainty as to whether the outcomes of liberalizing trade in services (such as opening water sectors to private management) would not have negative impacts on people and the environment. This, level of certainty, according to Hilary is definitely absent, considering dismal water privatization experiences in countries like the Philippines, Guinea, Argentina, Indonesia, Bolivia and Chile.
It is not difficult to figure out the EC's heightened interest in water distribution services, a sector which was not part of the GATS original classification in 1994. European water companies dominate the business globally, with the French firms Vivendi and Suez controlling 70 percent of the market and between them, an estimated 200 million customers worldwide. (In the Philippines, the fully owned Suez subsidiary Ondeo has partnered with the wealthy and politically influential Lopez family in operating Maynilad.) Running a far third is Thames Water Plc (now under the German utilities firm RWE) with 70 million clients. Bechtel, the only non-European in the business - is tied in with the Edison, the Italian utilities group, through International Water. Other smaller companies include SAUR (French), the Anglian Water Group and United Utilities (both British) and Aguas de Barcelona (Spanish but with Suez owning 26 percent).
Under a privatized framework, targetted countries have no say on these foreign investments in the water sector. GATS - behind the rhetoric of protecting countries' "right to regulate" - promises to strengthen this even further if the EC successfully manages to arm-twist its way through.
"The rules on national treatment and market access…constitute quite specific restrictions (enforceable obligations) on how governments can regulate investment to achieve development goals…," notes a Friends of the Earth Briefing Paper. "The further development of rules on domestic regulation are also likely to constitute specific restrictions on domestic regularly are also likely to constitute specific restrictions on how governments can regulate service suppliers…" For the local elites in control of Manila's water and their foreign partners, who already enjoy the patronage of a debt-ridden government beholden to its international creditors, the business potential in the horizon of fully controlling the Philippine water sector is bright indeed.
Out of the debt trap, out of trade liberalization,
out of water privatization
In October 2002, FDC strengthened its position on water privatization by uniting on the call for the reversal of the privatized set-up, and the need for instituting major reforms in the industry. This was premised not only on the gross failures of the MWSS privatization undertaking vis-à-vis its avowed benefits for consumers and the government, but more essentially, on the conviction that a resource as critical to life as water should remain in public hands.
A strong regulatory regime
However, even with water in public hands, the need for strict regulation remains especially in the Philippines which has a weak tradition of consumer protection. No strong consumer movement has yet developed, and government simply has not had occasion to develop its regulatory capacity vis-à-vis the private sector. In the Philippines, the problem is compounded by a political set-up where the private interests of elite families are well-represented and predictably strongly defended. As past events show, government has proven itself vulnerable to pressure, allowing the elite to arrogate unto themselves the power to make decisions over sectors critical to society such as water and power.
Water as a human right vs. water as an economic good
Human beings can survive one month without food but not one week without water. For this reason, human societies in all parts of the world have valued water as life itself and have recognized in various international covenants and declarations the right to water as a fundamental human right. These commitment has been enshrined among others, in the Universal Declaration of Human Rights, the International Covenants on Economic, Social and Cultural Rights and the International Covenants on Civil and Political Rights, the Convention on the Elimination of All Forms of Discrimination Against Women, the Convention on the Rights of the Child and the Stockholm Declaration produced by the UN Conference on Human Environment.
Of late, this basic right to water has come under threat not only from increasing environmental degradation and the consequent backlash on water resources but because a handful of transnational corporations, creditor banks, governments of industrialized countries, international financial institutions, etc. are pushing privatization as a solution to this crisis. This has resulted in a shift of functions and responsibilities in water provisioning from the state to the private sector where the water industry is no longer a basic element of human life to which everyone has a right to but as another economic good that can be sold for a profit to those with the means to pay its price. Supplying water to people and companies worldwide has in fact grown to a $400-billion industry on a global scale.
The latest threat is greater still at the 5th WTO Ministerial Conference in Cancun where the further liberalization of trade is about to invade services as well. Shall millions of people's resources particularly water, be so easily reduced to economic goods and laid bare for Northern governments, transnational companies, banks and creditors, multilateral financial institutions to make profit from? The European Union has been candid enough: "The GATS is not just something that exists between Governments. It is first and foremost an instrument for the benefit of business."
WTO continues a vicious tradition of structural reform that through almost two decades of implementation deepened debt burdens worldwide and hindered genuine development for the majority of poorest countries. Now through GATS, the industrialized world again imposes even more unjust and far-reaching terms of trade that, implemented less extensively in the past, already caused economies to decline and led entire populations to greater impoverishment.
No more. It is time to say NO to GATS, NO to the WTO.
REFERENCES
Chossudovsky, Michel. The Globalisation of Poverty, Impacts of IMF and World Bank Reforms. Third World Network. Australia, 1997.
Diokno-Pascual, Maria Teresa. The Privatization of Philippine Water and GATS, speech delivered at the United Nations, New York, 20 March 2003.
Dumol, Mark, "The Manila Water Concession: A Key Government Official's Diary of the World's Largest Water Privatization," 2000.
Ellinwood, Wayne. The Great Privatization Grab, New Internationalist 355, April 2003.
FDC, "An Overview of the Philippine Water Sector," ________.
Minutes of the FDC Board of Trustees Meeting, 2003.
FDC Policy Advocacy Department, "The Fuss About Non-Revenue Water
or how private concessionaires penalize consumers for their inefficiencies," 2003.
FDC, "Privatizing MWSS: A Solution Worse than the Disease," _________.
FDC, "Three-Year Narrative on the Water Campaign (1999-2001)," 2002.
FDC, "Summary of the FDC Campaign on Water Privatization (1996-2001)," 2002.
FDC Water Campaign Team, "The unraveling of Maynilad, A Briefing Paper on the Maynilad Termination," 2002.
FDC Water Campaign Team, "Water Rates Shrugged," 2003.
FDC, "Year 2003 Plans," 2003.
Friends of the Earth. Stealing our Water. Implications of GATS for Global Water Resources, 20 November 2001.
Hilary, John. GATS and Water: the Threat of Services Negotiations at the WTO. Save the Children UK, 2003.
Legal Texts: the WTO Agreements, at the WTO official website.
Local Government Unit Water Sanitation Program.
Perez-Corral, Violeta, "MWSS: Anatomy of a Privatization Deal," 1998.
Public-Private Infrastructure Advisory Facility and the World Bank Group, Private Solutions for Infrastructure: Opportunities for the Philippines (A Country Framework Report), 2000.
Philippines-Local Government Units Urban Water and Sanitation Project
World Development Movement. Whose development agenda? An analysis of the European Union's GATS requests of developing countries, April 2003.
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