Examination of Witnesses (Questions 160
- 179)
TUESDAY 12 DECEMBER 2006
PROFESSOR TOM
FRANKS, MS
VICKY CANN
AND MR
ANTONIO MIRANDA
Q160 Ann McKechin: Do you think the
fact you had fairly strong local government was a key element
in getting this up and running?
Mr Miranda: Absolutely.
Q161 Hugh Bayley: Why have public
water utilities proved so difficult to reform in the past? Why
have they been so inefficient and is there any reason to believe
that they can be reformed and made more efficient in the future?[2]
Mr Miranda: That is a good question.
Engineers are a very specific part of the human race. I am engineer,
by the way.
Hugh Bayley: You look quite human though!
Mr Miranda: Thank you. Anyway,
they have a very technocratic vision, meaning that usually the
engineers and the professions in general think that they have
the power to decide what is good and what is bad and this is the
most important reaction that comes from public utilities when
we talk about institutional changes. There are some experiences
from other parts. I think we mentioned that the experience from
Tamil Nadu was very good, but anyway in Brazil, and again it was
mentioned in the previous session also, there are other possibilities
which can be explored in this regard. Public utilities can learn
from each other and it is unbelievable but there is no mechanism
worldwide to promote meetings between public managers or operators.
Darren Saywell has mentioned the excellent job that IWA is doing
in this regard but there are congresses, very functional events.
There is no mechanism for promoting, for instance, a very good
example that comes from, let us say, York, UK, that is so good
that it must be spread so that everybody should know about it
and people can learn about it. There is no mechanism to promote
this kind of thing, and the bad experiences as well. Sometimes
we learn more from the bad ones than the good ones. There is no
mechanism to promote that. More than 90% of water delivery worldwide
is promoted by the public sector, so we have PPPs,[3]
which are mainly businesses, we have no problem with that, but
we have to promote meetings between public operators, not only
about technical issues like pumps and pipes, and these are very
important, but mainly about institutional reforms so that one
public manager, one technician, engineer, whatever, from one public
utility can learn from their neighbour or another country in a
very similar situation so that they can make a similar reform
and improve performance. This improvement is done in a sustainable
way. They can learn from each other and there are many experiences
in Brazil and worldwide that it really works very well, but the
resistance comes from the technocracy, let us say, from governments
that are not able to be transparent. Mainly the governments do
not want transparency and accountability, et cetera, but
again, if it comes from the grass roots, if the international
financial institutions take very special care on these kinds of
issues and change conditionalities from privatisation clauses
or things like that to clauses that oblige people to meet each
other and to have this kind of bottom-up process it is not magic,
it is not going to work within five years, but maybe we are going
to talk about a new situation which is how to improve the improvement
process instead of the situation we are in now.
Q162 Hugh Bayley: I went with a group
of parliamentarians, largely African parliamentarians although
there was also a Malaysian and an Indian and a Finn on the team,
to examine the World Bank's programmes in Ghana. We went to the
Ghana Water Company and I think we all agreed that this was a
very badly run utility in an African country which has better
standards of governance than many. One of the things that struck
us particularly was that, because of political pressures put on
a public-owned utility, public agencies did not pay for their
water. The hospital would not pay because they knew they would
not be cut off. The electricity company did not pay, and there
was an absurd monthly bank of settlements meeting where the electricity
utility would offer so many kilowatts of public capacity and water
debts would be written off. The consequence of this was that the
revenue stream of the water utility was so impaired that it was
unable to extend water supplies in a growing urban environment.
It seemed a completely dysfunctional company and it seemed to
me to be rather a good idea that the World Bank was talking not
about privatising but about bringing in outside consultants to
introduce new management systems. So what do you do about lack
of transparency and political interference when it takes place
and what is the role for outside private sector players drawing
on your experience in Brazil? Have they come in and provided useful
services or small scale supplies?
Mr Miranda: Let me share with
you more than the Brazilian experience because I have just come
from the second workshop for capacity building on water managers
in Nairobi. It was only last week. Indeed, last July it was in
Bangkok with the South Asian and Pacific region, so I can bring
the vision that I learned from these two particular workshops.
First, if privatisation means more efficiency and that the charges
are going to be collected effectively from the government agencies,
and the government is taking this decision, it is of course able
to take this decision under the public sector. If the problem
is that I as president, as minister, as governor, whatever, I
do not pay but I have taken a decision that we will need to pay,
I do not need to have the private sector to do that. This is an
internal decision, so it does not justify the introduction of
the private sector. Secondly, the private sector is more efficient.
Okay, sometimes, and sometimes the public sector can be more efficient.
Overall maybe there is research showing that there is no significant
difference pro or anti this or that. There are more or less the
same efficiency levels for one or the other. What I would like
to highlight is that first I am also part of an international
working group on multi-stakeholder dialogues on water and sanitation
regarding the private sector. There are five countries right now
doing national dialogues about the private sector—Brazil,
South Africa, Uganda, the Philippines and Indonesia, and maybe
one more. Nigeria has applied to join us two weeks ago. We are
a multi-stakeholder group, being public sector, private sector,
NGOs, workers, consumers, the whole range of the main families
of stakeholders. We are learning about following up these national
dialogues. The national dialogues replicate the same composition
as much as possible. If this decision of private sector participation
does not come from a very major part of the civil society representatives,
often multi-stakeholder representatives, it is not going to work,
because in the public sector it somehow looks easy to respond
but it is actually a very complex issue. If the public sector
is not able to reform from within we can imagine that they are
not going to be able to manage with private sector companies coming
from overseas, usually multinational, the most powerful ones.
If they are not ready to reform their own institutions how are
they going to be ready to deal with powerful institutions? This
is a question that must be asked by each one of the countries
and must be responded to by themselves with the civil society
participation. I have heard from many private sector representatives
that they do not go to any country any more without clear support
from civil society; otherwise they will lose money. Contracts
will terminate.
Q163 Chairman: What we have heard
consistently is that the private sector is kind of walking away
from the water industry, and indeed one of our sister committees,
the Trade and Industry Select Committee, is looking at UK investments
in Brazil and has specifically been told that a number of UK water
companies have effectively withdrawn from Brazil. First of all,
are you aware of this, and is it for the reasons you have just
stated, or was it perhaps because of your success in persuading
the World Bank that that was not necessarily the right condition
to impose? Are you aware of this issue?
Mr Miranda: Yes. It was not only
Brazil but in many countries in Latin America and also other continents
there were problems with private sector participation but I would
not say that the private sector does not have a role to play on
water and sanitation. In Brazil, for instance, let me take Porto
Alegre again, 60% of the budget goes to the private sector, meaning
the suppliers of chemicals, energy suppliers and works and designs.
There is a high level of outsourcing, so the private sector does
have a very important role to play.
Q164 Hugh Bayley: Can you say the
percentage again? 60%?
Mr Miranda: 60% of the budget.
Q165 Chairman: But that is the procurement
money?
Mr Miranda: Yes, goes to the private
sector, that is right. I believe that this is a response in great
part to the failure of the private sector in terms of operations,
of delivering in Brazil because of this top-down problem.
Q166 Chairman: I was going to say,
did they walk or were they pushed? Have they walked away because
it is just not of interest to them?
Mr Miranda: For the British companies,
yes, it was exactly like this, but for the French companies, no.
They had very strong difficulties and actually they were pushed
away.
Q167 Joan Ruddock: I want to raise
something quite separate, if this conversation is finished, and
I fear I may not be here as the session finishes and so this would
be a question better asked at the end but I will ask it now. Brazil
was involved with the follow-up from the Gleneagles dialogue about
climate change and I just wonder to what extent Brazil is beginning
to focus on climate change in relation to water.
Mr Miranda: I am afraid that we
are just beginning. I would like very much to say another sentence
but this is the truth: we are just beginning to talk about water
in the context of climate change.
Q168 Joan Ruddock: Because one of
the things that is for certain is that we face all the difficulties
that we are hearing about in these evidence sessions but any of
the difficulties that are there in terms of the actual supply
and extraction of water, et cetera, in many places are
going to be adversely affected by climate change and yet there
is very little consideration of climate change.
Mr Miranda: There is an explanation
for but not a justification of that. It is because the major part
of the Brazilian problems of water scarcity is due to governance,
not of the water scarcity in the real sense. We have different
regions in Brazil. Of course, we have drier ones, but even these
drier regions have enough water.
Q169 Joan Ruddock: At the present
time.
Mr Miranda: At the present time,
that is right. That is the reason why I am saying that we are
just starting a discussion because otherwise in the future we
are going to have serious problems. Some people say that climate
change will be of benefit in the end from the Brazilian perspective.
Q170 Joan Ruddock: There might be
more.
Mr Miranda: Anyway, we should
discuss it but we are just starting.
Q171 Hugh Bayley: Vicky, I want to
talk about private versus public. WDM has a very strong reputation,
I would say, for ideological support for the public sector and
being dismissive of the private sector. I wonder if we are missing
the point. The vast majority of water provision, as we have heard,
is public sector provision, but I have seen good NGO provision,
I have seen good municipal provision in developing countries,
I have seen good small-scale private enterprises, women saying,
"We are not prepared to walk. We are going to raise the capital
to drill a borehole and then sell the water to our neighbours".
We know that vastly more investment is needed in water and sanitation
if the MDGs are going to be met. Why should we not welcome investment
from whichever source it comes?
Ms Cann: Thank you for your question.
We are not opposed to the private sector, just to be absolutely
clear about our position. Our position is that we have looked
at the evidence, so again I would not characterise our position
as ideological; it is evidence based. We have looked at the arguments
and we have looked at the practice on the ground, and when we
have looked at that from around the world we have not seen that
water privatisation, ie, when you hand over control and management
to private companies, has delivered significant new connections
to the poorest communities in developing countries. One of the
critical problems that we have seen with water privatisation over
the past 15 years is exactly the point that you mention, which
is this issue of investment. We produced a report earlier on in
the year which looked at the claims made on behalf of water privatisation
and its advocates in the area of investment and then looked at
the reality of that, and there are a number of reasons why the
promises of private sector investment have not lived up to the
reality. I can run through some of those arguments very quickly
now. One of the biggest results of what we have seen from privatisation
has been cherry-picking on a global scale. I entirely agree with
you, that investment is absolutely fundamental to reaching the
MDGs and in terms of connecting communities to piped water supply,
and indeed to sanitation, but what we have seen is that sub-Saharan
Africa, which is home to 25% of those requiring access to clean
water and sanitation, have received less than 1% of private sector
promises of investment in the area of water. That is 25% versus
1%. The figures in south Asia are very similar. Again, we cannot
find any evidence at all of any contract in south Asia where there
have been commitments, particularly around the area of connecting
communities to water, that have been funded by the private sector.
In other instances we have seen that privatisation has happened
and connections have risen as a result of that, but when you unpick
the reality on the ground actually those connections are coming
not from private money but from public money. They are coming
from the loan that came alongside the privatisation process. In
the example of Ghana that you raised, originally, when privatisation
was first mooted by the World Bank, there were big sums talked
about, "The private sector will bring in hundreds of millions
of pounds". The reality is now that the private sector is
bringing absolutely no investment to that privatisation contract
at all. As you were saying, investment has been a critical—
Q172 Hugh Bayley: I do not think
that was the idea. The idea was that government funding should
buy in consultancy and advice and improve the efficiency of Ghana
Water Company, not that it should be sold off.
Ms Cann: We are not talking about
selling off either. We are talking about perhaps concessions for
25 or 30 years. Very rarely has water been sold off in the way
that it has been sold off in this country, but my point was about
the history of what has been—
Q173 Hugh Bayley: If I could interrupt,
is that not the point? You are characterising privatisation or
the role of the private sector as if there is only one kind of
privatisation, which is a sort of UK-style: you sell a public
utility to a private company through a share flotation or in developing
countries through a purchase by an outside company. The point
I am putting to you is that that is one option, probably not a
very appropriate option, but I have seen communities in Ghana,
rural communities, which get absolutely no help from the public
sector at all. I am assuming it has broken down, it is completely
useless. Their only option if they want to have a village water
supply system is to either raise capital themselves or find somebody
who can bring in capital through a community enterprise or, in
one case, a small scale private business. Surely that is part
of the garden of a thousand flowers and one should let whatever
system delivers for a community, be it private, community or state-funded
or donor-funded, be adopted. Is this not a bit of a passé
debate is what I am saying?
Ms Cann: I am not sure it is because
we still see the rhetoric around—if you bring in the private
sector they will bring in their money—so that rhetoric is
still being used within international debates.
Q174 Hugh Bayley: I do not really
hear that. The evidence we are getting is that if that ever was
the case there may have been a few ideologues on the other side
of the fence making sweeping statements, but I do not think anybody
seriously expected companies to invest in Lagos's or Accra's water
supply system as a money-making venture. There is always the possibility
that they might be hired with public money from a donor to provide
a water service in the possibly forlorn hope that it will be more
efficient, but this is a myth—the idea that Thames Water
or some French water company is going to make loads of money drilling
new water mains in Nairobi, is it not? Who is suggesting that?
Ms Cann: It is myth; we can absolutely
agree on that. There are still aid structures set up and we have
just published a report on something called the Public-Private
Infrastructure Advisory Facility, which has got a terrible name
but is a mechanism within the World Bank which receives UK funding
and was set up in partnership with the UK Government. Part of
the rhetoric and the rationale for that institution is very much
about trying to bring in private sector investment into, as the
name says, developing countries' infrastructure, including in
the area of water. I absolutely agree with you that at the local
level there are a number of different providers and we are in
touch with utilities in India, for example, in Tamil Nadu where
very much the public utility has been working hand in hand with
the local community. The local community have been making increased
contributions to the utility, sometimes in terms of their labour
and sometimes in terms of resources in order to, yes, find that
new borehole or to revive that old water borehole that perhaps
previously dried up, so I absolutely agree with you and sometimes
when we talk about the public sector we are perhaps, and I accept
this, a little bit clumsy in not talking more broadly about the
wider not-for-profit sector that is out there.
Q175 Hugh Bayley: I think you said,
Vicky, that only 1% of private sector investment in water in developing
countries was directed to sub-Saharan Africa. I think that was
what you said, was it?
Ms Cann: What I said was that
sub-Saharan Africa has received less than 1% of the promise of
private sector investment. The World Bank database that this is
from is from investment promises rather than the reality on the
ground, but it is less than 1% of private sector promises in investment
for new connections on the ground.
Q176 Hugh Bayley: Can I ask Professor
Franks to comment on the ideology versus pragmatism? Is there
a role, maybe in Asia rather than in Africa, from what Vicky is
saying, for some of the capital that is needed and some of the
expertise that needs to be hired to come from the private sector?
Professor Franks: Personally I
certainly think there is. I think that is what governance is about.
It is about bringing in the appropriate player, the appropriate
source of finance to provide or assist in the provision of water
services. I think we see that on all scales. It may be that it
has in the past been a bit more problematic in the big conurbations.
It has become a very political issue and I think the private sector
was a bit naive, frankly, at the start, in saying that it could
provide those services and do things better, but it seems to me
clear that there is a role in different contexts for different
players to be involved and that is what I think water governance
is about.
Q177 Hugh Bayley: I can see everybody
nodding their heads in a way to say, "Right, sell-offs do
not seem to be the solution. Different kinds of partnerships should
play a role".
Professor Franks: Yes.
Q178 Chairman: There is clearly expertise
and capacity in the private sector that has to be drawn in, however
the mechanism is being delivered.
Professor Franks: Could I just
make one more point about water governance, one other aspect of
it that I think is important for DFID and for you in your consideration.
I absolutely support your focus on water and sanitation but we
must not forget that water has a very broad range of applications
and particularly we must not forget the land and water sector.
It is a very big user. The big conurbations are increasingly impacting
on rural areas as they take water away and so on, so I think that
DFID is trying to get more bang for its bucks but it must keep
engaged with the land and water sector.
Chairman: I appreciate you have made
that point too in your submission.
Q179 John Battle: Given private sector
investment in water and the potential role for that and partnerships,
should our Committee focus more on the contractual arrangements
between governments and water companies or will that lead us into
a morass that we ought to steer clear of, or will it be central
to understanding future investment?
Mr Miranda: Definitely. You are
absolutely right. Our main conclusion about this question of private
sector participation is that as a requirement for a successful
private sector participation we should have at least a bottom-up
decision, never again a top-down one, and on the other hand a
very strong institutional capacity for managing this situation,
institutional capacity meaning not only the capacity of the institution
to manage the contract but also the legal and financial implications
of that. If we do not have that it will be unsuccessful. The private
company will lose money. Let me not say about public-private partnerships
because they are not actual partnerships; they are businesses,
they are contracts. In terms of the public sector you must have
these kinds of conditions; otherwise they will lose money, people
will make demonstrations on the streets and the story will repeat
itself again and again. It is very important to focus on that.
Another important point, if you will allow me very briefly, is
to promote these partnerships now, real partnerships between public
operators. There are initiatives already in place. The UN Advisory
Board have written into that. I do not know if we are going to
have some time to talk about it later, but one of the recommendations
of the advisory board is to promote these water operators' partnerships
to create a mechanism, to stimulate the exchange of experience
on a not-for-profit basis with only costs recovered in terms of
salaries and travel expenses, financed partly by the international
financial institutions. We are aiming for that and we are trying
to raise funds. We have been receiving information that DFID is
particularly interested in that, which for us at the Advisory
Board would be a very welcome initiative. This is part of the
capacity building process as a whole.
2 Aquafed has commented on this point-See Ev 137. Back
3
Public Private Partnerships. Back
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