Money down the drain: SP questions government on support for World Bank water privatisation funding

15 May 2012

Money down the drain: SP questions government on support for World Bank water privatisation funding

Prompted by a report from the campaigning NGO Corporate Accountability International which reveals the World Bank’s shocking bias in favour of the private sector, SP development spokesman Ewout Irrgang put a series of questions to the minister responsible for the government’s support for the programmes in question. Water privatisation has been proven not to help the poor, yet a quarter of all World Bank funding goes directly to corporations. In allocating its funds in this way, the Bank’s funding arm ignores even its own published standards of transparency. It also fails to respond to the failure of privatisation to address the problem of water supply in developing countries. Around a third of all private water contracts signed between 2000 and 2010 have failed or are in extreme difficulties – four times the failure rate of comparable infrastructure projects in the electricity and transport sectors. Below we publish Irrgang’s questions, and Undersecretary for Foreign Affairs Ben Knapen’s thoroughly unsatisfactory answers.

Answers from Mr Ben Knapen, Undersecretary of State for Foreign Affairs, to questions from Mr Ewout Irrgang, Member of Parliament for the SP, on water privatisation by the World Bank.

Question 1
What is your reaction to the report from the American non-governmental organisation (NGO) Corporate Accountability International Shutting the Spigot on Private Water: The case for the World Bank to divest?

Question 2
Could you indicate whether the example given, of the privatisation of water privatisation in Manila, can be considered a success? If so, why? If not, what implications does this have for your policies?

I have taken cognizance of the report. The Netherlands is, however, not involved in Manila’s water supply. I will take the example as information.

Question 3
Could you examine the criticism made in the report regarding the World Bank’s approach to ‘operational efficiency’?

On this subject I have had a constructive policy dialogue with the Bank, which I do not see reflected in the conclusion and recommendations.
In many cases it has emerged that the private sector is better equipped than the public sector to guarantee efficient and effective provision of drinking water and in doing so to contribute to financial sustainability and a country’s ability to control its own affairs. The role of an independent supervisory authority and of social organisations is extremely important in this with regard to determining a minimum tariff to cover costs and the securing of access for the poorest.
A water supply company must be able to cover its costs. I see no reason to subsidise households who are connected to the water supply network, while those who are not connected are forced to pay the full costs of their ‘alternative’ water supply.
I do not support the complete privatisation of the drinking water supply, but every country must make its own choices with regard to this. The Netherlands does this also. Countries which are interested in the Dutch model under which the ownership of the drinking water corporation remains in the hands of the state while its management is contracted out to a private undertaking are welcome to discuss this with us.

Question 4
Could you also examine the criticisms made in the report of the lack of investment and its expansion on the part of the private sector?

Investment and expansion are often the responsibility of the owner of the network, in many cases the state. Depending on the conditions of the contract, the private party may participate in this. However, because the risk of such is not in proportion to the profits, this seldom occurs.

Question 5
Could you examine the theoretical insights regarding water privatisation expressed, for example, on p.16ff. of the report? What lessons do you draw from these as regards your policies in relation to water and the development of the private sector?

Complete privatisation of drinking water provision does not have my support. Neither, then, is the policy of the Netherlands in favour of such.

Question 6
What is your reaction to the criticism in the report as it relates to the World Bank’s undesirable conflict of interest in its role as co-owner of water companies and at the same time impartial advisor and expert? Do you agree with this criticism?

The World Bank provides loans to governments and public institutions. IFC, a division of the World Bank Group, provides loans and equity to private corporations. The report refers to the World Bank when in fact in this case it concerns the World Bank Group. I can imagine that the impression has been created that in specific cases the possibility exists of too great a concentration of responsibilities belonging to different sections of the World Bank Group. At the level of the group there are, however, adequate safeguards built in to prevent conflicts of interest. I shall once again bring to the attention of the World Bank Group that it is important to counter the creation of a false impression on this point.

Question 7
Are you in agreement with the conclusion and recommendations in the report? If not, why not? If so, what do you intend to do about it?

I find the report’s conclusion and recommendations over-simplified. The private sector can fulfil an effective role in the supply of drinking water without this involving complete privatisation. This is not properly expressed in the report and in the recommendations. In my policy dialogue with the World Bank I have noticed a growing interest in the Dutch model of water companies which remain in public ownership but which are managed on a ‘not for profit, not for loss’ basis. Via evaluations in the near future a critical look will be taken at the effectiveness of programmes in the water sector in which private corporations are involved.

Question 8
Could you describe the state of affairs regarding the implementation of the Irrgang amendment containing the scrapping of the Dutch contribution of €1.2 million to the Public-Private Infrastructure Advisory Facility (PPIAF) in 2012 for the purpose of providing technical assistance in the privatisation of water supply?

Question 9
Could you also give further information regarding possible contractual obligations to 2013?

In keeping with the Irrgang amendment (Kamerstuk 33 000 V, nr. 112) [5], the Dutch contribution to the PPIAF in 2012 has been reduced by €1.2 million. The contract with the World Bank has been adjusted.
Following the adjustment of the contract the remaining contractual obligation with the PPIAF amounts in 2012 to US$286,000 and a contractual obligation exists for 2013 of US$2 million.

Question 10
Does the above-mentioned report form in your view sufficient cause to bring your support for the PPIAF definitively to an end. If not, why not?

No. Support to governments in developing countries in relation to public-private cooperation in the development of infrastructure is part of my policy. Infrastructure is a necessary condition for economic growth and the development of the private sector. The benefit to infrastructure in developing countries is enormous. Via public-private cooperation, knowledge, skill, innovative strength and capital from the private sector can be deployed to realise infrastructure. The PPIAF supplies question-directed advice to governments in developing countries in the area of public-private cooperation in different sectors, including electricity, transport, telecommunications, irrigation and water. Subjects such as improved access, pricing, as well as efficiency and quality of service form parts of the advice provided. Finally, the developing country itself specifies whether and how the private sector will be involved, in which sector this will occur and via what form of public-private cooperation. The Netherlands is one of eleven donors to the PPIAF and has been a donor since 2001.

The above-mentioned report will prompt me to stress once again, in the policy discussion between donors in the PPIAF’s Program Management Unit on the provision of advice in the drinking water sector, the importance of the focus on poverty and of universal access to water. Following the expiry of the contractual obligation with the PPIAF in 2013, and on the basis of an evaluation of the programme, it will be decided whether the Netherlands will continue to support the PPIAF after 2013.

Question 11
Does the above report represent sufficient reason for you to give no more support to policies directed at water privatisation in developing countries?

Complete privatisation of drinking water supply does not have my support. The Dutch model, or a variant thereof, of a public-private partnership under which ownership of the provision of drinking water is in public hands and the supervision and management are contracted out (via a concession and/or management contract) to a private party, is for me preferable. This model offers a good chance of financial sustainability of water provision and with that the developing country’s ability to control its own affairs. It is indeed necessary in such an approach to pay attention to the less well-off. That is why I support social organisations in their work in relation to the installation of special provisions, such as communal water points.

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