PRIVATISATION AND COMMERCIALISATION ON WATER SERVICES IN INDIA
Posted on December 12 2003 |
Paper prepared for the
Asia/Pacific Conference on the Privatisation of Water and Power Services
Bangkok 8-12 Dec.2003
Shripad Dharmadhikary,
Manthan Adhyayan Kendra, India
In this paper, we have very briefly outlined the process of privatisation, corporatisation and commercialisation of the water sector that is taking place in India. This is only an outline of the processes and the players.
Background
Since 1991, large-scale changes have been initiated in India’s economy with the liberalization, privatisation and globalisation of almost every aspect of the economy. While this process began in 1991 itself in sectors like power, in the water sector it is just beginning. Ten years after the blind and hasty liberalization and privatisation, the power sector is in a mess. The reforms have been a disaster, with severe power shortages and rocketing electricity tariffs, locking the country into expensive contracts for years to come. All this has now been acknowledged even at the official level. Instead of learning from the process, an almost exactly similar process of liberalization, privatisation and globalisation is being undertaken in the water sector.
Modes of Privatisation
In India, privatisation in water sector is taking place through two modes. The first mode is outright privatisation of water resources through either BOT projects or management contracts. This mode is being used for industrial water supply and urban water supply projects. The second mode, which is more insidious and will have a far-reaching impact, is through the water sector reforms.
The water sector reforms are following the same line as the power sector reforms in the country, and indeed, are similar to the water sector reforms all over the world. These policies, pushed by the World Bank and ADB, have the underlying thrust of converting the whole sector into a market. The usual menu of full cost recovery, elimination of subsidies, public-private partnerships, allocation of water to highest value use through market mechanism - are all present, as always being justified in the name of the poor. (e.g. “subsidies hurt the poor most” )
Direct Privatisation
This is taking place in several states in specific projects. Some of the projects already working are the Sheonath river project for industrial water supply in the state of Chatissgadh and the Delhi Degremont project. The Tiruppur project in the state of Tamil Nadu, a combined industrial and domestic water supply project is being projected as an example of the ideal Public-Private Partnership project. It is under construction at present. Apart from this, there are several other projects in the pipeline.
The companies involved in these projects are a mixture of Indian and multi-national companies. Suez, Vivendi, Bechtel, Thames Water are all active in the country.
Case of Sheonath Project
Sheonath project is meant for supplying water to the industrial estate of Borai, near Durg city in the state of Chatisgadh. In this project, a section of the Sheonath river has been handed over to Radius Water Limited, a company floated by a local person Kailash Soni. In 2001, he was given a "concession" to build a dam across the river, and has the full rights to the 23.6 km reservoir and the water collected behind it.
Though it is a small project relatively speaking, it has all the elements of a privatised project, and has quickly become an important symbol for the campaign against water privatisation in the country.
As with such projects, the state owned Chatissgadh State Industrial Development Corporation has signed a “take-or-pay” contract, under which full payment of 4 MLD is guaranteed to the company even if the off-take of water is below this. Since the industrial estate has very few industries right now and there is little likelihood of more industries coming in soon, the CSIDC has been shelling out huge money to Radius Water for nothing in return. The irony is that the availability of water at the Radius anicut has been guaranteed by the state government by way of assured releases from an upstream dam. As if this was not enough, the money to build the project has been advanced by the CSIDC to Radius. The rationale of privatisation was that the public agency did not have money to build the project!
Since the dam has come up, the villagers who used to fish in the river, who used the river ghats for bathing, who took water from the river for growing vegetables and small crops and depended on the river for other needs have no longer any rights to the same. It now depends entirely on the discretion of Soni. And he has used this to prevent villagers from access to the river. One of the important occupations affected is the sand mining from the riverbed which the villagers used to carry out in their small boats. Now the high water level and denial of access makes it impossible. Local people have lost their livelihood and access in the stretch of 23 kms upstream. Meanwhile, 16 villages have been affected downstream as the company has stored the water.
Local resentment rapidly turned into opposition and a number of people's organisations, unions, leftist groups, study and research groups etc have joined the protest and the issue has been highlighted across the country.
In April this year (2003), stung by the growing criticism, the State Government announced a cabinet decision to terminate the project. But this has not happened yet.
The project and the popular action around it has highlighted the dangers of privatisation all over the country and people are now aware that if a “small” project can lead to so much impact, then large scale privatisation will play havoc.
Case of a Sector Reform Project
The sector reforms are being mainly pushed through the World Bank loans to various states for the Water Sector Restructuring (WSR) projects. (In India, water is a state subject and the state governments have the main role to play as far as policy and projects and programs go). There have been WSR projects in several states and the state of Madhya Pradesh is the one where the project is to be sanctioned in Dec. 2003. It is also one which is the most advanced in terms of commercialisation of the sector . According to the WB Project Information Document (PID):
“The proposed MP Water Sector Restructuring Program is a significant evolution from the Bank's other interventions in the irrigation sector ……”
The direction of the loan and the reforms can be gauged by the following quotes from the PID.
The PID identifies some of the main issues in the water sector as:
“Lack of an appropriate legal, regulatory and administrative framework for a financially sustainable water sector.
“Lack of effective user participation and private sector involvement leading to poor services, heavy subsidies and lack of accountability.
“These…..have resulted in poor system performance, low cost recovery, a fiscally constrained Irrigation Department that is unable to finance adequate maintenance, effective operations and services, or needed system rehabilitation, remodelling or investment.”
Then it says:
“State Water Tariff Regulatory Commission (SWaTReC)), would be established to review and monitor water sector costs and revenues, and to rationalize and set bulk water user fees to enable the sector institutions to be financially self-sustaining.”
“Irrigation and drainage reform and investment program would be carried out by the restructured MP WRD together with the farmer organizations and the private sector. Rationalized tariff setting and introduction of formal water markets would be through the tariff regulator….”
“At the end of this phase of the program, …... The pricing of water would be taken out of the political domain and entrusted to an independent tariff regulator. This would minimize risks associated with inadequate water charges being imposed due to political constraints. The reform measures proposed for the irrigation and drainage sub-sector would improve the fiscal sustainability of the institutions currently operating in this sub-sector. ….. Modernization of systems, volumetric delivery and sale of water, public-private participation, ….. would promote improved water use efficiency and productivity, billing and cost recovery would result in a sustainable growth environment.”
“Experiences internationally and in India have indicated that: ……. (iv) it is necessary to have autonomous, cost-efficient, financially self-sufficient, well-managed and user-oriented irrigation and drainage entities to deliver efficient and reliable services. These entities must have an adequate revenue base, realistic tariffs, and the ability to collect and retain those tariffs for them to have sufficient revenues to be financially self-sufficient; and (v) subsidies should be transparent if provided to the user….”
Privatisation through the so-called “Public Private Partnerships” is an important feature of this loan.
This type of restructuring is going have a huge detrimental impact on the water sector, especially on the poor and on critical sectors like agriculture.
Role of Multilateral and Bilateral Agencies
Both the ADB and the World Bank are actively pushing the privatisation and commercialisation of water in the country. We have already given above how the WB is pushing these through its sector restructuring loans. The ABD and the WB are also discussing loans of another kind – the Urban Water Supply loans or Urban Infrastructure loans. For example, the ADB has a 214 m$ loan in pipeline (likely to be approved in Dec. 2003) for Urban Water Supply to the state of Madhya Pradesh. The WB is considering a similar loan for state of Gujarat for 100 m $. These loans are clearly going to push for privatisation and commercialisation of the urban water supply. There is already a BOOT project on offer for the privatisation of the water supply to Indore, the biggest city and commercial capital of state of Madhya Pradesh. The estimated cost of the project is around 100 m $.
It may be added that all these loans are being pushed forward without consultations with the major stakeholders. Another important aspect of the urban water supply projects funded by World Bank / ADB is that the projects fund the water supply but do not take any responsibility to address the impacts of the source of water for this supply – namely large dams.
Bilaterals like USAID are also active in providing funding support to water privatisation projects.
It is interesting that the World Bank, along with some of the other bi-lateral donors is also playing another very significant role in the sector privatisation and commercialisation. That role is in the creation of the “intellectual” and other support to build up the rationale and justification of privatisation through “research” and “studies”. The bilaterals have come together to launch a program called Water and Sanitation Program which is hosted by the World Bank, and the WB along with the WSP is coming out with a large number of studies. These agencies have massive resources at their command and have commissioned highly paid consultants to carry out surveys and studies. DFID is also playing a significant role in this. Even the ADB has commissioned such studies. This is a very important part of pushing the privatisation and needs to be countered effectively through civil society research.
WTO and GATS
There a strong push, especially from the EU to include water services in the General Agreement on Trade in Services (GATS) of the WTO. The “Requests” made by the EU in early 2003 to India included request for the opening up of the water supply. It should be mentioned that the implications of opening up the sector under GATS (as against an “autonomous” opening as is happening now) are far more serious. The inclusion of water services in GATS will mean that the opening up of the sector will be virtually irreversible, and will severely constrain the Government’s ability to regulate the sector in terms of public interest policies.
Role of Other Agencies
Several other agencies are also playing a part in pushing the privatisation agenda. The Corporate sector is of course one of the important ones. Most of the major players are present in India – Suez, Vivendi, Thames Water, Bechtel. They are also participating in several projects and are also involved in “promotional” activities like sponsoring seminars and training sessions.
Industry associations like Confederation of Indian Industries (CII) are also pushing for privatisation. CII has held a series of seminars and conferences in various parts of the country on “Public Private Partnerships” co-sponsored by the central Water Resource Ministry. Speaker after speaker at these conferences heaped eulogies on the PPP and pushed for private sector involvement in water.
We also have the new trend of international consulting agencies preparing water sector plans or strategies for the states. For example, the water resource plan for state of Chatissgadh has been prepared by Price WaterHouse Coopers. Not surprisingly, this has a great thrust on privatisation and commercialisation. For Madhya Pradesh, ADB commissioned international consultants HALCROW to prepare the integrated water resource strategy.
Stance of the Government
In its National Water Policy, adopted on 1 April 2002, the Government of India has already stated that private sector participation should be encouraged “wherever feasible”. The various state governments are following this line in their policies also.
Challenges
What is important is that in spite of this heavy push for privatisation and commercialisation, there is a surge of opposition and challenges to the process. Mass protests, campaigns, opposition are building up all over the country. It necessary to maintain this momentum of growing resistance, forge linkages both within the country and outside, and bring out concrete alternative options to provide genuine people-oriented ways of providing water and irrigation.
24 November 2003
Shripad Dharmadhikary,
Manthan Adhyayan Kendra,
119 Satpuda Colony,
Badwani (M.P.) 451 551
India
Ph: 91-7290-222 857 (O) 224 867 (R)
Email: manthan_b@sancharnet.in
Manthan Adhyayan Kendra (Manthan Research and Study Centre) was initiated in October 2001 with the aim to create a centre to monitor, research and analyse water and energy issues with a focus on the developments resulting from privatisation, globalisation and liberalisation of these sectors. The long-term goal is to establish a centre that can research and analyse public interest issues in water and energy sectors in an independent and rigourous manner.
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