Privatisation often leads to higher prices

Free access to the drinking water market should improve the quality and price. But privatisation in Paris and Berlin painted a different picture. At he moment Ireland and Greece are fighting against privatisation.

In cities in Hungary and Cyprus private companies recently improved the performance of water provision. But at the same time a lot of non-paying, poor customers in the suburbs were cut off from their water supply. Similar examples are found in Bucharest (Romania), Sofia (Bulgaria) and the Czech Republic.

Concerned citizens joined forces in Right2Water and collected over 1.000.0000 signatures out of 7 member states against forced privatization and adjusted a new frame of thinking as well: water as a human right. “The campaign was successful”, says campaign leader Jerry van den Berge. Although the 'right to water' is not yet integrated in European guidelines, the Commission carried out an intensive research and consultation throughout Europe. According to Van den Berge and his numerous withstanders the provision of water is an essential public service for all and shouldn’t be commercialized.

Different roles
The European water market shows several models for financing water with varying roles for private companies. For example, water service in the Netherlands is a public task, operated by privately run companies. In the UK private investing agencies own all the water services, which is carried out by local enterprises. In most European states water is first of all a matter of public interest and therefore placed in public hands. Still the situation differs a great deal due to local circumstances. “Leave it that way”, says Van den Berge, employee of the European Federation of Public Service Unions (EPSU). “In fact: there is no market for water in Europe,” he states. “There are only two, French multinationals, Suez and Veolia, with expanding strategies to other states.”

Could we profit from internationalization of water provision? Probably, as state of the art knowledge – private or public – is spread all over European member states, especially the ones with malfunctioning water service systems. It is a states’ own decision if it wants to commercialize the water supply, but in order to prevent failures in all models proper regulations for water price, quality and operation conditions should be stated beforehand. And last but not least: a financial drive for selling out the water provision is never a valid reason. In that case governments should be urged to reconsider their plans.

Water tap in bathroom

Water tap in bathroom

Privatisation of water provision dates back to the eighties. Due to the desire to address environmental issues and pollution of drinking water the EC called upon large investments in water supply infrastructure. If necessary – stated Brussels and the International Monetary Fund – the investments should be made by private parties. During the eighties France was one of the first countries that chose to privatise water services, followed by the UK in 1989.

Privatisation created large businesses in France; Suez, Veolia and a smaller competitor, named SAUR. The French water infrastructure stayed in public hands and the operation was handed out to businesses in long-term contracts. The government would take care of new investments. For a long time Paris was considered as a positive example of commercialization of water provision. But times changed. In 2010 Paris handed over the water services from Veolia back to the city, due to consumers’ dissatisfaction with the water prices that doubled over years. Since 2010, water prices were lowered by 8 %. Turning back the privatisation was an expensive operation for Paris.

In the UK, water services are completely commercialized. Ten regional water companies were sold to privately owned companies, subsidiaries of multinationals. Entrepreneurs are responsible for investments, shareholders own the infrastructure and the operation is in private hands as well. The government initiated institutes controlling the water provision, like the Office of Water Services (OWAT) that carries out inspections, sets maximum prices and sees after the infrastructure. Because of the high costs and long life cycle of infrastructure, companies did not care a lot for new investments. So since the nineties, the investments were cut off in order to be able to pay the shareholders. Between 1989 and 1999 water prices were raised by 46 %. In 2001 OWAT forced water companies to lower their prices by 13,7 %. Not only investments stayed behind, comparing to other European countries the quality of water is poor as well in the UK. Salaries of high employees and profits were raised enormously in the same time period. The companies were criticized by the public and in the parliament. Between 1990 and 2007 about 40.000 employees lost their jobs. A part of the businesses is now in the hands of Asian entrepreneurs.

Encouraged by their governments and the EU, German energy businesses expanded to water services in 1990. Ventures like Energie Baden-Wurttemberg (EnBW), RWE, Vattenfall and E.on became gained access in water provision. Mostly in public-private partnerships with varying grades of governmental influence. However prices were raised and in Eastern Germany expensive, unnecessary infrastructure was built, due to false predictions on consumers demands. Despite the strict national rules citizens complain about the water quality. In 2008, the outcome of a referendum in Leipzig has prevented the transfer of the local water supply to private businesses. In 2010 the city of Stuttgart bought back the privately operated water supply. The lack of transparency of the German water structures hasn’t done well to the public perception. After a long time it revealed high water prices in Berlin are partially caused by contractually stated profits for Veolia en RWE. “Schluss mit den geheimvertragen” states Berliner Wassertisch. Veolia and RWE sold their shares back to the city of Berlin. RWE has ended its activity in water.

Water market
In Europe, the revenues of the drinking water and water purification sector lie around 95 billion euro. The global revenues is estimated between 400 and 500 billion euro.