House of Commons - International Development

Select Committee on International Development Written Evidence

Letter to the Chairman of the Committee from Vicky Cann, Campaign Policy Officer, the World Development Movement

I wanted to take the opportunity to respond to the oral evidence session on water and sanitation on Tuesday 5 December, when DFID appeared.

I was surprised to hear DFID officials appear to dismiss the importance and impact of conditionality, especially as practised by the international financial institutions (IFIs) like the World Bank, on water policies within developing countries.

In our first submission to you we went into this issue in some detail (paragraphs 74-76). In particular, we made the points that:

— Policy conditions (including water privatisation) attached to debt relief, aid and cheap loans by IFIs continue to be a real barrier for developing countries that wish to exercise real autonomy in economic decision-making.

— Despite the progress that has been made in DFID's own approach to conditionality, DFID continues to use bilateral aid to fund the water privatisation processes that stem from the conditions imposed by IFIs.

Perhaps I could expand on this?

POVERTY REDUCTION STRATEGY PAPERS

Last year, WDM analysed the 50 Poverty Reduction Strategy Papers (PRSPs) signed-off by the IMF and World Bank and made publicly available by the end of August 2005. Whilst nominally "country-owned", poor countries must complete a PRSP to receive debt relief through the Heavily Indebted Poor Country Initiative (HIPC). The analysis looked at a variety of policy prescriptions that have been imposed on poor countries by the IFIs in recent decades, including water privatisation. WDM found that 90% of the PRSPs included privatisation and 62% specifically included water privatisation or greater private sector involvement in water supply services.[130]

DFID argues that if a policy is included in a PRSP it is legitimate to use conditionality to ensure the policy is implemented. However, it is hard to argue that PRSPs have full country-ownership; PRSPs are normally heavily influenced by the Bank and Fund, and these conditions will end up undermining domestic political processes that might end up changing or even reversing the policy.

PUBLIC-PRIVATE INFRASTRUCTURE ADVISORY FACILITY

WDM has also recently completed a study of the Public-Private Infrastructure Advisory Facility (PPIAF). This facility operates within the World Bank and funds consultancy advice to poor countries on reform to water and sanitation sectors. It will only fund advice (as indeed its name suggests) to help develop public-private partnerships or privatisation. It was created by DFID and the World Bank in 1999 and DFID remains PPIAF's largest fund, contributing on average 54% of its annual funding (a total contribution of $58 million from 1999-2005).

Our research showed that in 17 countries where PPIAF has worked, there is evidence of the imposition of water privatisation conditions by the IFIs. In a number of countries, the World Bank has followed up a PPIAF consultancy project on water with further inducements to privatise, in the shape of large loans or grants.[131]

In 2000 in Paraguay, PPIAF paid US$75,000, with an additional US$15,000 from the World Bank, to fund a consultant to develop options for a concession contract for the main Paraguayan water utility. In June 2002, the concession plans were voted against by the Paraguayan Senate. But despite this and opposition to the plans by government ministers, the World Bank made it clear that privatisation would be required in order to receive their support. In 2004, 5,000 people protested through Asuncion against a revived privatisation law, and the senate once again voted against it.[132] In May 2006, Paraguay agreed a new stand-by arrangement with the IMF which included a condition to introduce a management contract, another form of water privatisation.

SIERRA LEONE

DFID has recently awarded a contract for £2.6 million to PricewaterhouseCoopers Africa to advise the Sierra Leonean National Commission for Privatisation on their programme for 24 state-owned enterprises including the water company in Freetown. There has been a history of conditions attached to the international assistance offered to Sierra Leone in recent years.

In 1999, when the Sierra Leonean civil war was still underway and British troops were fighting on the ground, the IMF argued that Sierra Leone needed to privatise its fragile utility sector.[133] In 2001, the IMF made the restructuring and privatisation of public enterprises a condition of its aid package[134] and in 2002, the privatisation programme was a condition of Sierra Leone joining the HIPC debt relief process.[135]

The Freetown water company has been specifically included in the list of public enterprises to be privatised since 2002. In 2005 the World Bank and IMF approved Sierra Leone's PRSP and the proposed privatisation of 24 enterprises. Although the PRSP does not list the 24 enterprises slated for privatisation, separate documentation confirms that the water company is one of them.[136]

More recently, the World Bank's Country Assistance Strategy (CAS) for Sierra Leone says of its own $35 million project there: "The recently approved Power and Water Project . . . will pursue power and water sector reforms aimed at increasing private sector involvement through investment and public-private partnerships, particularly through instituting a performance-oriented management contract for... the Freetown public water company".[137]

WDM believes that the privatisation programme in Sierra Leone is essentially donor-driven, and that it has been the subject of little consultation in-country, up to this point. DFID is now backing up this conditionality by funding consultants to help deliver this programme.

KENYA

The PRSP signed off by the World Bank and IMF in April 2004 states that there will be "private sector participation in water".[138] This PRSP subsequently formed the basis of World Bank and IMF conditionality in Kenya.

The World Bank's May 2004 CAS for Kenya states: "The government commits to maintaining a stable macroeconomic framework, to strengthening public expenditure management, to reforming the financial sector, and to encouraging private sector participation in the provision of transportation, water, energy, and telecommunications services."[139]

The same CAS says that the amount of funding for water and sanitation is conditional on institutional and policy reform in the water sectors in Nairobi and Mombasa. A trigger for a Bank high case lending scenario is: "Appropriate and institutional regulatory framework for key infrastructure services established (regulatory frameworks conducive to private sector participation in water, energy, transport and telecoms)."[140]

BRAZIL

Even a country of the size of Brazil is not immune to the pressures levelled by IFIs to follow particular economic policies eg water privatisation. Antonio Miranda who will appear before the committee next week can speak from first hand experience of the pressure that developing countries can come under from IFIs like the World Bank to accept privatisation conditions when negotiating proposed loans.

I hope this is helpful; I would be happy to provide further information as appropriate.

Vicky Cann

Campaign Policy Officer

December 2006

130 WDM. (2006). Out of Time. World Development Movement. London. September 2006. Back

131 WDM. (2006). Down the Drain. World Development Movement. London. November 2006. Back

132 Joynes, K (2004). Paraguayan Government Concedes to Anti-Privatisation Protestors. World Markets Analysis. 20 August 2004. Back

133 IMF. (1999). Memorandum of economic and financial policies of the Government of Sierra Leone. International Monetary Fund. Washington DC. 25 November 1999. Back

134 IMF. (2001). IMF approves in principle US$169 million three-year PRGF arrangement for Sierra Leone. International Monetary Fund. Washington DC. 20 September 2001. Back

135 IMF and IDA. (2002). Sierra Leone: Enhanced HIPC Initiative Decision Point Document. International Monetary Fund and International Development Association. Washington DC. 15 February 2002. Back

136 Government of Sierra Leone. 2005. Poverty Reduction Strategy Paper. Freetown. Government of Sierra Leone. 2005. Back

137 World Bank. Country Assistance Strategy for Sierra Leone 2006-09. World Bank. Washington. Back