There are certain goods so essential to life one would hope they rise above the quarter-to-quarter push for profits that define the private sector. Water is one of these. How, a local farmer asks, could a water distribution company refuse water to a low-income group unable (“unwilling”, as many companies phrase it) to pay, and carry on unabashed? Is it permitted because this behavior falls within the limits of legal business practices and is thought of as part of running a business?
           
These questions are part of the larger debate on the right to access clean water that many in the developing world are still denied. Public utilities today service 87% of people living in the US, a system that works because the decentralized local governments are accountable to consumers.¹ In countries with highly centralized, under-funded governments, foreign corporations are encouraged to take over. The main argument for water privatization, espoused by the World Bank and the IMF, is that foreign corporations are more efficient, and therefore better, at getting water to people.

The evidence on whether the private sector is more efficient is inconclusive. As an IMF study pointed out, the efficiency of corporations often depends on the relative efficiency of the public sector they work with.² A 2006 study by Warner and Bel found that since utilities are usually a monopoly, which allows for little competition, the US private sector wouldn’t boast significantly greater efficiency or savings than the public sector in water management.³

Most significantly, a World Bank Working Paper by Estache, Trujillo and Perelman discovered in 2005 that “for utilities, ownership often does not matter as much as sometimes argued. Most cross-country studies find no statistically significant difference in efficiency scores between public and private providers.” ⁴

Public Services International Research Unit has reported that to reach the Millennium Development Goals for water by 2015, the world must connect 270,000 new people to water every day. Private sector investment has made only 900 of these connections per day over the last nine years.⁵ The reality that MNCs have not been able to increase access to water at a rate that addresses the problem is a difficult pill for the World Bank to swallow.

The World Bank recently shifted to promoting regionally based corporations to avoid absentee ownership. This is a step forward, but stops short by failing to acknowledge that water is ultimately a local problem, best handled by the practical experience of local people and governments, for a number of reasons.

The primary reason is the lack of accountability. Multinational corporations with the bottom line as their primary motive consider consumers, affordability and access secondary. Water is a human right, and when corporations raise prices, they abuse that right by providing water only to those privileged enough to afford it. Constituents may vote government workers out of office if they do not provide water at a reasonable rate; not so with corporate officers.

Secondly, the impacts of climate change on our basic resources—food, water, and land—are impossible to predict with total certainty. The lack of transparency from private water distributors only adds to our doubt about the status of our natural resources. A private water company can remove as much water as it wants from a community aquifer it owns without the government’s knowledge or consent. A municipal government cannot fully provide for its constituents when it is unable to gauge local resources.

Once controlled by a private firm, it is hard for local communities to regain control of their water rights. A large corporation has no ties or responsibilities to local communities, so there are no safeguards against them selling water to the highest bidders, most likely corporations and not people.

In the US, the case of American Water illustrates this “local” mantra best. RWE, a large German conglomerate, began the process of purchasing American Water just a few days after 9/11, and was praised for having confidence in the US during a shaky time. American Water became the largest private water company in the US, operating in 29 states with 18 million customers. This summer, RWE will be filing an IPO prospectus with the SEC and expects to sell American Water by the fall of 2007.⁶  

What happened? After RWE purchased American Water, its customer service grew centralized and unable to respond to the local questions and problems customers had. Rates also increased, largely due to the debt RWE assumed by purchasing American Water at a 37% markup, which led to some ratepayer revolts. ⁷ But more fundamentally, RWE discovered that water is a long-term investment, and that any company striving to reach short-term projections will have a hard time finding the desired immediate return.

RWE was unable to find a private buyer for American Water—a testament to the waning presence of private water distributors in the US. Now going public in the fall, RWE’s customer concerns will become its shareholder concerns. Across the country today, these customers are seeking to negotiate with RWE on the possibility of buying their local water systems.

After a 74% rate increase for their water was proposed, 76% of the Felton, CA community near Santa Cruz voted to voluntarily raise taxes to pay for the right to run their own water. They offered $7.6 million, RWE refused, and the community has since filed for eminent domain (which can be a long, expensive process)⁸ . RWE has refused offers across the country, insisting that the IPO not be broken into community-based deals but sold off as a single unit. Surprising, when one considers what Harry Roels, CEO of RWE, recently confessed what he thinks about water; “It’s a very local business”⁹ .

 Small communities will continue to challenge corporations as more realize their life resources are best managed locally, and as water becomes more of a scarce resource. As global warming and drought amplify issues of resource scarcity, particularly in western US, the public-private battle over water ownership will continue.