APPENDIX 7
Memorandum submitted by Integrated Social
Development Centre (ISODEC), Ghana and Southern Links
PRIVATISATION OF GHANA'S WATER
BACKGROUND
1.1 In most countries in the Global North,
there is a water tap in every home and people take for granted
that water will flow when they turn the tap. This is not the case
in the Global South. More than 1 billion people lack access to
clean and affordable water and 2.4 billion people lack access
to proper sanitation services. In Ghana, 78 per cent of the urban
poor lack access to piped water and poor sanitation contributes
to 70 per cent of diseases in Ghana. Affordability of water is
also a serious problem. The Ghana Water Company Ltd (GWC Ltd)
has failed to deliver an efficient, reliable and affordable urban
water system. This situation has propelled the Government of Ghana
(GOG) toward a privatisation, or what it refers to as Private
Sector Participation (PSP) approach to reforming the public utility.
1.2 Yet the privatisation of water has caused
serious social unrest in a number of countries recently, including
Bolivia, South Africa and Argentina. In Ghana, there is a major
controversy over the World Bank-backed plan to privatise, through
long-lease arrangements, the country's urban water supply. This
plan, once opposed by the New Patriotic Party (NPP) during its
period in opposition is now enthusiastically promoted by it, in
power.
1.3 The British Department for International
Development (DFID), an important and long-standing contributor
to urban water supply in Ghana, has delayed a grant of $10 million
promised long ago for major engineering works to expand and rehabilitate
the water infrastructure in Kumasi, Ghana's second largest city.
This delay is the result of the conditioning of the aid upon progress
made in the privatisation process. DFID's motive is driven by
the desire to ensure that the aid "does not go down the drain"
through poor management and wastage. The adoption of basket funding
and budgetary funding approaches by DFID as opposed to project
funding also constrains DFID from targeting specific projects
not seen as part of a sector-wide strategy.
THE PRIVATISATION
PLAN.
2.1 The proposed Private Sector Participation
(PSP) would lease the urban water system of Ghana, involving 74
systems to two private water companies. The 74 systems have been
divided into Business Unit A (BUA) and Business Unit B (BUB).
The private company leasing each business unit will be responsible
for operation and management but not extension of the systems.
The Ghana Water Company Ltd. (GWCL) will by and large be responsible
for securing the financing and executing the needed extensions
to, and rehabilitation of, the water systems. The pre-qualified
bidders are all major transnational corporations including Vivendi
and Bi-water.
2.2 An international fact finding mission
of experts (IFFM) visited Ghana during May 2002 and met with a
broad cross-section of stakeholders, including representatives
of the Ghana government and water industry, the IMF and the World
Bank and DFID, and civil society organisations. The delegation
also visited low-income communities in Accra to talk to residents
and learned of the daily difficulties many people face in gaining
access to clean and affordable water.
2.3 The report of the IFFM concludes that,
"The PSP proposal, as it stands, is unlikely to improve access
to clean and affordable water and sanitation services". (See
the full report of the IFFM at www.southernlinks.org) This is
attributable to the following elements of the proposal;
— The PSP proposal separates water
from sanitation services and therefore does not address much-needed
improvements in sanitation necessary to improve health.
— The PSP does not provide a specific
plan for protecting low-income consumers, neither does it adequately
address the situation faced by 78 per cent of the urban poor who
are outside of the piped water system. This population depends
on private water tankers and pay rates far in excess of those
who rely on water from the piped system. Regulation of these trucks
could help alleviate price gouging immediately. The regulatory
body, the Public Utilities Regulatory Committee (PURC) could establish
a pricing schedule for water tanker trucks, with small adjustments
permitted to reflect varying costs of servicing different communities.
There is no evidence that such a plan is under consideration.
— The PSP does not address serious
public health concerns, as there is no apparent mechanism to monitor
changes in water-borne diseases as a control measure to assess
the impact of water sector reforms. The PSP proposal could be
strengthened by the inclusion in the contract of performance targets
relating to poverty and public health; for example targets related
to improvements in rates of water-borne diseases or targets related
to serving low income communities.
— The PSP does not address the situation
faced by marginalised and vulnerable groups such as the very poor
and women who tend to have less access to water for their personal
needs when the resource is lacking. The IFFM found that limited
access to water has a dramatic impact on women's health, in particular
on pregnant women and family carers. Women also tend to walk long
distances to find cheaper water and use unsafe water from hand-dug
wells.
— The legislative framework that shapes
the regulatory mandate of the Public Utilities Regulatory Commission
is very weak, both in relation to consumer protection and in relation
to general oversight of the utilities. The PURC says that it operates
under a philosophy of self-auditing by regulated utilities, on
the theory that the utilities are in the best position to provide
information about their water quality and operations. However,
self-audits are extremely controversial and, internationally,
have been shown not to protect consumers.
— The PURC supports the implementation
of full cost recovery and automatic tariff adjustment mechanisms,
conditions for the completion of the IMF's fifth review of Ghana's
Poverty Reduction and Growth Facility loan. The IMF considers
this necessary to "safeguard macroeconomic stability."
However, there are serious concerns that this may undermine the
role of the PURC as an independent regulatory body. Many consumer
protections provided in other countries appear absent from the
PURC rate-setting and other processes.
— The IFFM found that the great majority
of Ghana's citizens were unaware of the basic components of the
PSP and had not been consulted. The Water Sector Restructuring
Secretariat has developed a "public awareness" campaign
funded by DFID to "educate and inform the public on the benefits
of the PSP to ensure that civil society adequately understands
and appreciates the need for the programme. But this public relations
approach cannot compensate for the lack of proper consultation.
— Neither the Public Utilities Workers
Union nor the Trade Union Congress of Ghana was consulted during
the course of the entire study of the restructuring of the water
sector, conducted from 1994-95 by a Government commissioned consultant.
No representatives from the Public Utilities Union or the Trade
Union Congress of Ghana participated in the pivotal Ghana Water
Sector Restructuring Workshop, 6-8 February, 1995. Which debated,
endorsed and launched the PSP process.
— The PSP proposal calls for retrenchment
of about 50 per cent the current Ghana Water Company workforce
of 4,300. Whilst it is evident that there is a substantial need
for maintenance, rehabilitation and expansion of the current water
system in Ghana, no persuasive evidence was offered to the IFFM
to support the conclusion that reducing the current staff by half
will result in efficiencies. Previous outsourcing of specific
functional areas in the water sector in Ghana has met with mixed
results, including performance problems from incompetent private
sector contractors.
— The selection process of private
contractors under the PSP is based on a technical audit, and subsequent
selection of the lowest bidder. While the government obviously
needs to protect its fiscal interests, allocating the lease solely
on the bid price may be problematic. On one hand, this may result
in selecting a bidder that shaves labour costs, negatively impacting
workers' wages, benefits, and working conditions, purchases cheaper
inputs requiring greater maintenance down the road, and relies
on inexperienced junior staff, creating customer service problems.
On the other hand, the lowest bidder process may create a situation
whereby the successful winner of the bid returns to the public
trough for increases in fees to cover unanticipated operational
costs.
— The PSP proposal will bring US$140
million from the private sector but the estimated cost of rehabilitating
and expanding the urban water infrastructure is approximately
US$1.3 billion. There are serious concerns about the appropriateness
of a HIPC country incurring additional external debt for rehabilitation
of the water system when the majority of the revenues will accrue
to foreign private companies. The rates of return required by
the private sector companies, as well as other key financial information
on the PSP was not available in the public domain.
— There are serious biases in the investment
prioritisation scheme proposed in the WS Atkins report. It proposes
ranking systems, where the economic criteria overrule health and
poverty concerns. This may prioritise investment in wealthier
areas where there is already significant infrastructure and where
relatively small capital investment will yield substantial revenue
gain. Extensions or new connections, particularly to low-income
communities are likely to lose out in this prioritisation system.
— The eight PSP options reviewed in
1994 did not include any public sector options or significant
involvement of Ghanaian private sector participation. There is
concern that the PSP proposal will marginalize local talent and
capacity, at best, and possibly result in a reduction of the future
engineering, managerial, and technical capacity of the Ghanaian
workforce to manage water service delivery.
2.4 Position of the Government of Ghana:
President Kufuor's Peoples National Party was opposed
to the PSP proposal in opposition but changed its position when
it came to power in 2000. This dramatic U turn and subsequent
failure to initiate a proper consultation with Ghanaian civil
society is partly the result of pressure from international donors
to privatise Ghana's water system.
2.5 Loan conditions from both multilateral
and bilateral creditors have focused on increased cost recovery
and privatisation to the possible detriment of important poverty
reduction and health outcomes. These include the following water
sector reform conditions in IMF and World Bank loans to Ghana:
(a) Pipeline loan, World Bank, Ghana Water
Sector Restructuring Project: This $100 million loan provides
for the renovation and rehabilitation of the urban water infrastructure
in Ghana. The loan was originally scheduled for Board approval
in 2000, but has now been re-scheduled for September 2003. World
Bank officials have stated that the loan will not be approved
until the Government of Ghana (GOG) concludes contract negotiations
with a private sector company.
(b) February 2002, International Monetary
Fund, Poverty Reduction and Growth Facility Loan, fifth tranche:
This loan includes conditions requiring the "early implementation
of the Public Utilities Regulatory Commission's plan for full
cost recovery in the public utilities, with automatic tariff adjustment
formula for electricity and water."
(c) July 2001, World Bank, Third Economic
Reform Support Operation Credit for Ghana: This loan includes
a wide range of prior actions. These are actions that the Government
of Ghana must complete prior to the approval of the World Bank
loan. Prior actions include "increasing electricity and water
tariffs by 96 per cent and 95 per cent, respectively, to cover
operating costs, effective May 2001."
(d) June 2001, International Monetary
Fund, Poverty Reduction and Growth Facility loan, forth tranche:
This loan includes a long list of structural benchmarks, including
"publication by the Public Utility Regulatory Commission
(PURC) of its strategy for achieving full cost recovery[52]
in the public utilities and implementation of automatic tariff
adjustment formulae[53]
for electricity and water."
(e) June 2000, World Bank, Country Assistance
Strategy (CAS): The World Bank's Country Assistance Strategy
(CAS) describes the loans the Bank plans to extend to the Government
of Ghana over the next two to three years. The June 29, 2000 CAS
for Ghana proposes loans ranging between $285 million and $640
million. If the Government of Ghana adequately complies with conditions
known as triggers it will be eligible for more loans (closer to
the $640 million). If the government does not comply adequately
with the triggers, it will be eligible for fewer loans (closer
to the $285 million). The triggers in Ghana's CAS require that
the Government of Ghana expand private sector participation in
infrastructure including power, urban water, rail and ports.
(f) June 2000, IMF and World Bank, Interim
Poverty Reduction Strategy Paper (IPRSP) Policy Matrix: The
Poverty Reduction Strategy Paper (PRSP) is, in theory, a borrowing
government document that provides the "policy framework"
for IMF and World Bank lending. In reality, borrowing governments
know the spectrum of policies that the lending institutions find
acceptable. However, it serves the political interests of the
IMF and the World Bank to make their own policy conditionalities
appear as if they are generated by the borrowing government. In
actual practice, the Policy Matrix attached to the IPRSP is often
written by the IMF or the World Bank, rather than the borrowing
government. The Policy Matrix for Ghana includes, under the policy
area titled "Urban Water," the following statement:
"Divest urban water systems to private sector operators:
issue invitation for bids."
(g) August 1999, Second Community Water
and Sanitation Project: One of the performance triggers for
the Second Community Water and Sanitation Project includes achieving
increased rates of cost recovery from rural communities.
Source: Information on Ghana loans
at IMF and World Bank websites, www.imf.org and www.worldbank.org
The British Department for International Development
(DFID) has delayed a loan of US $10 million for rehabilitation
of the water system in Kumasi. The loan was conditioned upon progress
in water privatisation in Ghana, and citing slow progress in this
area and a shifting of DFID priorities from direct funding of
projects, the loan was delayed.
2.6 Suggested Actions:
1. The water reform option being promoted
by the World Bank was proposed nearly a decade ago. At the time,
experience with this formula was less widespread. In view of the
inability to assess alternative reform measures or to conduct
a poverty and social impact assessment of the chosen approach,
we propose that the World Bank promote a more flexible approach
attitude towards encouraging a debate on alternatives. This is
consistent with the objectives of the PRSP concept and will contribute
strongly to our efforts to build participatory democracy in Ghana.
2. There is the need to invest adequately
to investigate and compare other reform approaches such as learning
the lessons of successful public sector reform options, public-community
partnerships, Municipality-focused reforms as well as different
approaches to private sector participation which aim at strengthening
the Ghanaian private sector to partner with government, communities
and municipalities.
3. There should be adequate investigation
of the measures required to ensure the rights of the poor to good
water and sanitation reform measures.
4. The World Bank should critically assess
the impact of its decisions made on the PSP proposal so far and
identify further measures to ensure safe and affordable water
to all Ghanaians.
5. Given the level of dependency that the
country has on World Bank loans, the Bank should be sensitive
to their obligations to facilitate domestic consensus for change
by avoiding inflexible positions that threaten to withhold life-line
resources.
NOTES
ISODEC is one of Ghana's leading NGOs committed
to the promotion of social and economic rights and social justice
for all. It began in 1984 as a support service to community based
organisations in the largest low -income settlement in Accra,
organised around the demand for public health services from the
municipal council. From the 1980's, ISODEC grew into a predominantly
rural water and sanitation promotion organisation, pioneering
the first national water strategy based on decentralized management
of water systems and socially equitable distribution of resources
within the water sector. ISODEC plays a pivotal role within the
extensive network of organisations committed to sustainable human
development through social empowerment and has built a reputation
as leading advocate for global social and economic justice.
See http://www.isodec.org.gh / Other affiliate
sites are: www.cepil.org, www.ghanaweb.com/public—agenda.
Southern Links is a research and advocacy unit,
working to eradicate world poverty and to promote sustainable
development. See http://www.southernlinks.org
Kwesi Owusu
Executive Director
Southern Links
October 2002
52 Full cost recovery is the term used by the World
Bank to mean removing public subsidies for water and increasing
consumer fees or tariffs until they cover the full costs of operation
and maintenance of the water utility. Imposing "full cost
recovery" commonly precedes privatisation in order to improve
the financial standing of the company prior to its sale. Back
53
Automatic tariff adjustment formulae require that tariffs reflect
shifts in the international exchange rate of the cedi. In other
words, consumer rates go up when the value of the cedi depreciates
in international markets. This is a common requirement of multinational
corporations who want to be shielded from the effects of shifts
in soft currency exchange rates when they invest in developing
countries. Back
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