Commercialisation privatisation and globalisation

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Finally, security means more than just having the resources. It means having control of them as well (see Working Group 3 Report, this volume). The commercialisation, privatisation and globalisation of water resources began with the exploitation of water for profit, with water companies driven by the need to produce dividends for investors ahead of providing a service to customers. The World Trade Organisation long ago declared water a "commercial good" and supports foreign takeover of water services under international trade rules with specific enforcement procedures. Yet there are also fears that commercial interests and the needs of the consumer community can be at variance, even incompatible: that companies will not fund water supplies that are unprofitable, especially to the urban poor.

Since the turn of the millennium, global commercialisation has developed into international takeovers by large multinational corporations with diverse commercial interests. The latter development is perhaps the most worrying, especially for developing countries as they can lose control of their national resources. Tanzania famously terminated the contract of the British company Biwater in 2005 to regain control, just 2 years into its 10-year lifespan, after marked increases in tariffs and lack of progress in extending the water supply system. In Bolivia, after riots and deaths, the government finally ousted the US-Dutch-owned company Bechtel in 2000 for failing to fulfil its contract to provide affordable mains water supply to the poor areas of Cochabamba, which they claimed to have done. Other states have not been so pro-active. This is not surprising as the economic power of some of these companies can exceed that of a small state. Legal actions have proliferated and can be very expensive. Both Biwater and Bechtel subsequently sued the national governments. Conversely, the giant French companies, Vivendi and Suez, have been charged with corruption in Argentina and Indonesia. Indeed, corruption is another creeping disease that is affecting water security throughout the world, from the maintenance of infrastructure to the awarding of contracts. There have been numerous allegations of corrupt diversion of foreign aid in many African countries.

Dr. Peter Gleick, President of the Pacific Institute, has stated: "Our assessment shows that rigorous, independent reviews of water privatization efforts are necessary to protect the public. Water is far too important to human health and the health of our natural world to be placed entirely in the private sector". In its 'Water Action Plan", the 2003 G8 summit in Evian gave its support for a compromise solution, public-private partnerships (PPPs), to utilise private sources of funds and commercial management expertise, whilst theoretically retaining governmental control. The big question is "can such partnerships work?". Given that the effectiveness of PPPs has already been questioned in the UK, for example in unsuccessful arrangements in London's transport system, the prospects for success in developing countries must be open to serious doubt. The grave danger is that the private sector takes any profits, but the public purse shoulders any losses and the job is not even satisfactorily completed.

The whole question of funding for water resources projects needs fundamental re-evaluation to ensure water security. This ranges from the long-held policies of the World Bank and IMF to encourage privatisation and PPPs through to the recent highly-leveraged forays of private equity into water companies.

Following the collapse of the easy credit market in the summer of 2007, a major new source of globalisation came forward with a switch to "sovereign wealth funds" (SWFs) to finance company takeovers. SWFs are state-owned investment companies, which have the power and stability of state finances behind them enabling them to outbid most competition. It is estimated that the global value of SWFs currently stands at $2,500 billion and could rise to $12,000 billion by 2016. Many SWFs are run by oil-producing countries, but the China Investment Corporation (CIC) is also a major player. SWFs have been criticised for lack of transparency in their operations. Serious concerns have been expressed over the potential for hidden political agendas. Political commentators have linked China's reluctance to support UN criticism of the Sudanese government's role in the Darfur crisis to the level of Chinese investment in Sudan, particularly in the oil industry. Takeovers by SWFs and state-controlled companies could add an element of foreign control that is even more difficult to shake off than the profit-oriented private companies.

International calls for greater transparency in the accounts of SWFs may be beginning to be heard, but the banking crisis and global depression that developed in 2008 out of the credit crunch may yet give more power to the seemingly sounder examples of SWFs compared with western banks.

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