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Resisting Reform? Water Profits and Democracy - Introduction

Richard Whittell and Kshitihij Urs
Originally published: 
Resisting Reform? Water Profits and Democracy, January 2009

The financial website ‘Profit-Watch’ had this advice for investors in early 2007:

"Investing in water, oil, metals and other commodities is HUGE right now [their capitals]. And it’s easy to see why every investor worth their salt is clamouring for a piece of the action ...[their ellipses]

India’s economy is set to grow 9.2% this year... China has grown by more than 10% for the past four years in succession ... These economies need ever greater quantities of water for industry; and huge amounts of clean drinking water for their growing, more affluent populations...

Investing in water has made some speculators very rich indeed... but with demand for this and other natural resources seemingly heading for the stratosphere, how are you placed? Are you going to sit on the sidelines and watch as other investors make a packet?

Or do you want a piece of the biggest bull run of the 21st century? Our FREE report – a must for any investor looking to gain exposure to this fast-growing asset class – reveals why this mega-trend HAS to continue to rise – and how you could position yourself to make money from it THIS YEAR..."

What is the ‘action’ that these salty investors are clamouring for? The growing need for water will make the companies that sell it more profitable as they will be able to charge more for it (demand is growing and there is no alternative to drinking water if you want to stay alive).

But what are the consequences if water continues to grow as an asset class, especially the people who can’t afford to buy it at a high enough price to satisfy the ‘packets’ of these water investors? During a week long march in Bangalore held in July 2006 to protest the government's plan to contract out the management of the city's water supply to a private company, a group of women demonstrators described how they had to leave their empty containers weighed down by stones the night before they needed water, to be sure they and their families would get the water when it eventually spluttered from the malfunctioning, irregular standpipe:

"The day before at six o’clock we come and put our pots out [next to the public tap]. It’s so difficult to get water now. It only comes once a week. But water is our right. Water supply is the government’s responsibility – what will a company give? We are all poor, we can’t pay for water. We can struggle with the government but we can’t struggle with a company."

Can the universal need for water to live and some people’s desire to profit from its sale be reconciled? Can the 1.1 billion people around the world currently without a secure supply[3] gain decent access to it if they have to buy it from companies in whose potential for profit so much faith is being placed by investors around the world? If water is treated as a commodity to be bought and sold will people get a better water supply? And if the need to drink cannot be reconciled with the desire to profit, which one should lose out?

A wide range of people, all united by either a belief in free market economics or a financial stake in the water business (or both) are telling people around the world that the answer to the first three questions is yes. Nobody will lose out, everybody will get water and some people will make money. In Bangalore these arguments have been made under the banner of ‘reform’. But where this reasoning has been put into practice around the world many people have lost out: they have either been ignored or their access to water has become worse and unaffordably expensive.

In this book we will look at the attempts that have been made to 'reform' Bangalore's water supply; situate them in their global and national context and in that of the city's broader development. We will look at how privatisation and commodification – the conceptualisation of water as a commodity to be bought and sold rather than distributed firstly as a right - have entered government policy, who has put them there, and how they have been opposed. We will ourselves argue against them: we will argue that involving private companies is no way to run an equitable water supply and that treating water primarily as a commodity is a dangerous principle for any water service, public or private, to be based upon.

The most controversial of the water ‘reforms’ is privatisation. Many countries, regions and cities around the world have privatised their hitherto public water supply under the basic argument that the public provider has failed and people will benefit if efficient private companies are allowed to manage and sell water for profit.

Too many governments around the world have failed in supplying water to people. The Indian constitution declares access to drinking water to be a fundamental right but millions of people lack safe access to it. In the areas surrounding Bangalore area there is no public system of water supply. The issue is not whether there is a problem. It is how best to reform the water supply. There are many examples of equitable, efficient and effective public water supplies around the world, from Norway to Bolivia, but still privatisation is the policy favoured by policy makers around the world.

Every reform needs examples more than advocates and companies have signally failed to live up to the promises made by them and on their behalf. However intuitively appealing it may sound to some, things have not transpired in quite the ways promised and there is much disaffection with both the theory and practice of it. Privatisation has led to price hikes, disconnections, ill health and social unrest. There have been many high profile cases of popular resistance causing companies to leave lucrative contracts, although given the companies’ determination not to go without a fight and recourse to sympathetic international courts any liberation has usually proved short-lived or very expensive.

But the policy to spread water privatisation seems to be carrying on well enough and it remains the cynosure to which many governments turn, or are turned. It is no surprise that India has found itself in the water privatisation limelight, given its commitment to the liberalisation, privatisation and globalisation agenda since 1991. The only surprise may be that it has taken so long. Delhi was the first high profile case although the process appears to have been, if not terminated then at least stalled in the face of concerted citizen opposition to the whole process.

If India as a whole is enticing to the companies, Bangalore must look like manna from heaven. A well-entrenched multinational corporate lobby enriched by and perpetuating the vision of Bangalore as a ‘world class’ corporate city, a system of governance dominated by unelected and unaccountable parastatal bodies and a substantial middle class all combine to provide the backing for private involvement and the profit potential. A crumbling infrastructure unable to keep up with the rapid growth of the city and the consequent painfully inadequate water supply system serve as justification: hitherto the government has not succeeded therefore companies need to be involved. Unfortunately Bangalore is not really a ‘middle class’ city. More than 30% of the city’s population are poor and there are thought to be around 200,000 people living homeless on the streets[4]. It is difficult to envisage exactly how their needs will be served by privatisation.

All this is most evident in the eight Urban Local Bodies (ULBs) on the periphery of the central Bangalore Mahanagara Palike (Bangalore Municipal Corporation) area. As the city has expanded IT parks and apartment blocks have spread to these areas, as have the many migrant workers who come to build them and people displaced by developments in the centre of the city. The general infrastructure in these areas is meagre. Water needs are met by individual bore wells, public taps or people have to buy it from shops or water tankers.

In 2004 the Government of Karnataka proposed, and it is now implementing, the Greater Bangalore Water and Sanitation Project (GBWASP). It is designed to provide households in the ULBs with a system of piped water from the Cauvery River. Privatisation of the operations and maintenance of the water supply, in other words the management of the supply once the infrastructure has been laid, was proposed as an integral part of the project.

We are here using the term 'water privatisation' to mean the handing over of responsibility for all or part of the system of water supply to a private company. This happens to various extents, represented by different types of contracts that exist for privatised water services. As well as the aforementioned management contracts there are concession and lease contracts. Concessions give the private company a licence to run the water system. They are then responsible for all investments including building new pipes and sewers to connect hitherto unconnected households. Under lease contracts the company is responsible for running the distribution system and for making the investments necessary to repair and renew the existing assets, but the public authority remains responsible for new investment. The company is therefore not responsible for the investment in extensions to connect households who were previously unconnected. Under a management contract, such as that proposed for Bangalore, the company is responsible for managing the supply but not for making any infrastructural improvements. The amount a company has to invest when it takes on a management contract is nil. In terms of profitability this is a pretty sweet deal.

At the time of writing Bangalore’s water supply has not yet been privatised. This is because people in Bangalore, especially the poor, have not accepted the justifications made for privatisation and have argued, protested, demonstrated, marched and encouraged others to act against it. They represent the other side of the Bangalore experience, the side you will not see on CNN or read about in Thomas Friedman’s latest adventure book. They represent those not included in the Bangalore dream’s development: those living in the slums, those displaced from their homes and their jobs by the IT parks and the flyovers, the migrants who came to build the glass edifices and kitsch, over facilitated apartment blocks (‘Niagara Living – where everything falls into place’).

Water as a commodity
Privatisation is only one of the ‘reforms’ being proposed. In Bangalore, as elsewhere around the world, there has been an effort to create the right ideological climate surrounding them. The starting point here is again that the government has hitherto failed in providing enough water to enough of society. The fault of the government is argued to have been as much conceptual as practical. It is not just government under-investment that has led to a crippled supply but an old-fashioned mindset regarding water.

The ‘reformed’ way of thinking about water asserts that it should be seen as a commodity and that economic efficiency should determine its provision. Seeing water as a commodity practically means that it should be sold in quantifiable units that cost a certain amount of money. The buyers of this water pay according to how much they have consumed. This often precedes and justifies the espousal of privatisation as from this it naturally follows that private companies should be involved, although as we shall see a public provider can also run according to these principles, with correspondingly negative consequences.

We need clarity if we are going to criticise these calls for efficiency. An efficient system of supply is of course a desirable goal but what is meant by efficiency and what is this efficiency for? When people assert the primacy of efficiency they are most often talking about the economic efficiency needed to maintain a water service and the imperative of ensuring all costs are covered – ‘full cost recovery’ being the vogue term.

The oft-heard mantra in debates is that water supply costs money, giving the suggestion that those who are against these ‘reforms’ are either naive or have not grasped the basic economics. Of course it costs money to supply water – planning, material and labour costs all mount up – and of course these costs have to be covered, but putting the stress on recovering costs directly from all ‘consumers’ using the service as the fundamental principle will lead to inequities in the supply, especially in a city like Bangalore where many people cannot afford to pay enough to cover what it costs the service to supply water to them. The supply will become unavoidably geared towards supplying those who can pay.

Although the full cost recovery argument is often used as justification for privatisation it is important to recognise that recovering the costs is only the baseline incentive for companies. Full cost recovery is just breaking even; companies do not just want to break-even, they want to maximise their profits. If commodification is a perilous principle for a public provider to imbibe then to let a private company into the mix becomes downright lethal. But it is the logical conclusion of this line of thinking: if you start talking about ‘reforming’ your water supply along these lines chances are you’ll end up arguing for privatisation. If water should be supplied as a commodity then you want businessmen running it, not bureaucrats.

Increasingly modifications are being made to the full cost recovery argument to make it more ‘poor-friendly’ – many pro-‘reform’ bodies now talk of subsidising the water supply to people who cannot afford to pay for example. But this is fudging the issue. Even if you introduce subsidized pricing, the main concern of an employee of a water provider who is under pressure not to show a loss at the end of the month, is going to be that people who are paying the highest prices get the water first. If the people who are paying the lowest prices do not get water, well, their money hardly shows up on the balance sheet anyway.

If this sounds like carping then run through the situation again but with the comprehensiveness of connections as the primary benchmark of success, with covering costs without recourse to subsidy a desirable, but distinctly secondary criterion. If employees of the service knew their superiors – be they politicians, other bureaucrats or the public – were concerned first and foremost with everybody getting connections they would make sure this was done. An accusation often made against critics of ‘cost-based’ arguments is that we are slavish believers in the sanctity of big government. It’s pungent muck to spread and it's easy to make it stick, but if you think about it the worst ideology to bring into a government filled with self-serving bureaucrats is one that puts cutting costs ahead of providing services to everybody.

Seen from this angle the debate is cast in a very different light and we are led to rather different conclusions such as those expressed by YJ Rajendra, a member of the campaign against water privatisation in Bangalore:

"The government cannot escape its responsibility to protect its citizens. People should receive water even if they don’t get income. People’s capacity to pay should be kept in mind."[5]

You will not hear this argument in the rooms where the water ‘reforms’ policies are being decided. If somebody did make it they would at best receive an indulgent smile. The inference is that you’re being unrealistic. Possibly, but it seems far less unrealistic than a theory that, in a world of staggering inequality and poverty, says the best way to supply water to everybody is to sell it to them as customers.

'Non-Revenue Water' and Other Redefinitions
To give an example of the dangers of basing a supply on concerns of cost even without privatisation, let’s look at the discourse surrounding leakage and the material effects that this has. Leakage caused by inadequate maintenance or construction is of course the bane of any water service. In the cost-based discourse of efficiency leakage has become ‘unaccounted for water’ or, more starkly, ‘non-revenue water’. This refers to water provided by the water supply service that cannot be ‘traced’; in other words as the provider cannot verify who has used that water it unbalances the balance sheet and appears as an efficiency loss as nobody can be charged for it.

This applies to leakage from pipes and so forth but it also applies to water that cannot be traced to an individual’s use.

However, all leakage is technically unaccounted for water, but all unaccounted for water is not necessarily leakage. Take public taps for example, standpipes in the street. Even though they are hopelessly inadequate these are the most reliable sources of water for many people living in Bangalore’s slum and urban homeless communities. But the water from these taps cannot be traced to an individual and is therefore classed as unaccounted for water, therefore leakage and therefore inefficient.

Six thousand public taps in Bangalore have been shut since 1997.[6] The government has refused to pay for them as it wants the water board to become financially self-sufficient. That this happened in a city in which water supply had not been privatised shows the consequences of treating water as a commodity, and running a supply on cost-based principles even if it is not being supplied by companies. The users of these taps were therefore left without a water supply, forcing them to buy from water tankers or private vendors, and to take from a variety of unhygienic sources such as leaking pipelines.

Now, you may say that this is more a result of political and bureaucratic apathy for the concern of the city’s poorest citizens. This is a key factor but it becomes easier for politicians and bureaucrats to get off the hook if the consequences of their apathy have theoretical support. As we shall see the city water board’s policy is now in favour of full cost recovery and shutting off public taps, which has happened in the few slums they have been working in recently. The archetypal tight-fisted bureaucrat therefore becomes not a penny-pincher but an efficiency maximiser!

Another piece of mumbo-jumbo is the sensational revelation that the poor are willing to pay for water. As we shall see this amazing fact, uncovered by ‘ground-breaking’ research studies is often used as a justification for a cost based supply to the poor. Essentially researchers are going to slums and asking the residents about the quality of their water supply. When they reply that it’s not very good they are then asked if they would be willing to pay a bit more for a decent service. When people say yes to this the researchers are sent into paroxysms of intellectual enlightenment. They then run back and write reports saying the poor want to pay and thus utilities should provide to the poor on a full cost recovery basis (therefore charging higher prices).

This obscures the fact that it is not willingness but capacity to pay that should be the determinant; the UN argues that no more than 3% of household income should be spent on drinking water. If you ask people how much they are willing to pay for water they will probably say more than this, especially if they live in a slum and are already paying high prices to private vendors. If water cost 100% of your income you’d still have to buy it - you’d still be ‘willing to pay’ that amount - because otherwise you would die.

It is crucial to understand the dangers of a cost-based service as this, not privatisation, is recommended for poor people in Bangalore. As we shall see in the book, the Greater Bangalore Water and Sanitation Project (GBWASP) is not a project that has ever really intended to supply water to the poor. Control of the operations and maintenance of it is therefore a private company’s dream, as it will have no responsibility at all to provide water to people who can’t afford to pay. In the privatisation debacles of the last fifteen years companies have been supposed to supply to the poor, they just haven’t done it very well, presumably because providing water to people who cannot afford to pay very much for it is anathema to the principles on which they run. This has led to much bad publicity but in GBWASP they aren’t even supposed to deal with the poor.

This does not mean the poor have dodged a bullet: they are still suffering the effects of privatisation in that their unsuitability for it leaves them without a formal, comprehensive project to provide them water. Privatisation has been deemed to be the solution which must be brought in, even if it means excluding the people the companies do not want to supply to. For the most part they have simply been ignored and left without any supply. If they are lucky (using the term very loosely) they are served by projects designed on cost-based principles by a variety of international or foreign development agencies which we will look at in more detail below. A two-tier supply therefore exists. High or middle-income ‘consumers’ benefit from a formal water supply, albeit one that may cost a lot as it is run by private companies. ‘Low income consumers’ in slums, if they receive any government water supply at all, will do so on a no pay no water basis. No-income consumers therefore get nothing. The many homeless people in the city also get nothing as they are not recognised as citizens. Again, this has much to do with governmental apathy towards their needs but this is being exacerbated by privatisation and commodification.

'Multi-Stakeholder Initiatives'
So who are the ‘reformers’? In Bangalore there have been a lot of different people from a lot of different organisations pushing the various water ‘reforms’ in a lot of different ways. Apart from the multinational water companies, these have included International Financial Institutions (IFIs) such as the World Bank, sector-specific international development ‘partnerships’ such as the Water and Sanitation Programme (WSP), Northern government development agencies such as the USAid and the UK’s Department for International Development (DFID), multinational consultancy firms such as Halcrow Group, international NGOs such as WaterAid and combinations of all the above or ‘multi-stakeholder initiatives’, as they are known.

What is immediately striking is the quantity and diversity of organisations and the different levels of society in which they act, from programme officers of an IFI advising senior bureaucrats on water supply ‘best practice’ to an international charity funding a research study to prove the poor are willing to pay for water. Our point is not that all these groups are actively and knowingly collaborating to promote a certain scheme of water privatisation – it is not a concerted effort - rather that their actions are united by a belief in a certain way of conceptualising water supply and the ways to ‘reform’ it. Of course the connections are often more than purely intellectual – as we shall see the bodies we listed also often form a financial mutual support network – but the normalisation of the ideology of water ‘reform’ within these bodies gives their actions a certain coherence.

But none of these organisations are accountable to the people of India and yet the influence and power they have within the policy-making parts of the Indian state is significant. This is particularly staggering in a country which is fast becoming a global economic power, is by no means aid-dependent and has a fairly recent history of expelling undue foreign influence (with the stress on undue rather than foreign). It is not just foreign organisations that are unaccountable: corporate leaders and corporate civil society have been very influential in those ‘reforms’ involving not just water but society in general.

However at the same time as emphasising the role of all these bodies we must be careful not to diminish that of the Karnataka state government and the Indian national government too far. They are still at the centre of all this and they are more than just the medium through which all these ‘reforms’ must pass. Before we look at what role government has played it is important to recognise that when we say state we actually mean a large variety of different interlocking institutions. One part of the state can quite easily advocate policies that will lead to the disempowerment of another – in this case the public water board – to no diminution of their political powers. The people who advocate these ‘reforms’ from within the state apparatus have mostly been the bureaucrats amenable to the ‘reform’ agenda that is supposedly shepherding Bangalore to become a ‘world class’, corporate city. These are the civil servants who know their jobs are not threatened by privatisation. Crucially they are bureaucrats who share the same ideology as employees of the development agencies and the companies.

Where are the politicians in this process? Bangalore has had three different governments since 2001 – all with ostensibly different ideologies and stances – but the ‘reform’ thrust has continued unabated. Even Deve Gowda, the so called son of the soil, the former Prime Minister of India and the father of the present Chief Minister of Karnataka H.D Kumara Swamy has been conspicuous by his silence on the issue of ‘reforms’. His son’s party – supposedly pro-farmer - is implementing them at full pace. The ‘reform’ agenda must seem like political goldust as it gives politicians the sheen of progress, the recourse to the market to wash their hands of difficult tasks such as water supply and the opportunities to gain personally within it.

Ersatz Democracy
The neutralisation of democracy that this leads to has been well disguised. Ubiquitous throughout the various ‘reforms’ in Bangalore, in India and around the world has been the stress put on citizen participation in these as a necessary authentication of their democratic legitimacy. There has been little participation in any meaningful and influential sense but the constant invocations of the language of participation and a series of ersatz participation ‘events’ have served to cloak the top down nature of the project in a legitimating and fashionable language.

This is done through two main strategies. The first has been to design tasks to keep people busy within the framework of an already designed project. People are encouraged to take part in activities peripheral to the main thrust of the project but at the same time are excluded from any input into its design. Citizens are encouraged to participate in activities such as mapping of their local ward, opinion polls and citizen ‘workshops’ on what they want from a good supply but will not be included in or even informed of crucial decisions such as that to hand over the management of the supply to a private company.

The second has been the zeal with which the GBWASP, and much of Bangalore and India’s ‘reform’ process in general, has been promoted as a historical event. These are Very Important Developments that will be remembered for turning Bangalore into a World Class City. When presented in tandem with dismay at the paucity of the city’s present infrastructure it is a heady mix that is taken in often unquestioningly by the media and it is sometimes hard not to be swept along with it.

[1] http://www.profitwatch.co.uk/Free-E-Letters/Profit-Watch/PPC/Investing/W...
[2] Ibid
[3] http://www.un.org/waterforlifedecade/factsheet.html
[4] Estimates from the survey, ‘The Urban Homeless in Bangalore’ by the ‘Bangalore NGOs forum for street and working children’.
[5] Interview with authors
[6] Genevieve Connors, ‘Watering the slums – How a utility and its Street Level Bureaucrats connected the poor in Bangalore’, Doctoral thesis, Massachusetts Institute of Technology.