Water not for profit

Water privatisation has a history of failure in India. Why are we still engaging private operators to manage our waters?
16 Oct 2016
0 mins read
NMC employees union and residents of Nagpur protest water privatisation.
NMC employees union and residents of Nagpur protest water privatisation.

In August 2016, the Karnataka government gave Abu Dhabi-based businessman B.R. Shetty permission to privatise the iconic Jog Falls to make it a perennial waterfall and to develop it into a tourism hotspot. As per the newspaper report, Shetty is to invest Rs 450 crore towards the project and charge visitors a “minimal” fee. 

Privatising natural water bodies is not new in the country with Madhya Pradesh (now Chattisgarh) setting the trend 17 years ago by selling the rights of the Shivnath river, that extends to about 23.5 km, to a private company, Radius water Limited (RWL). Not just RWL, there are many private companies working in different parts of India in the water sector like Veolia water (India) Ltd, Jusco, Vishwa Infrastructure Ltd, MSK projects (India) Ltd, Orange City Water Private Ltd (OCWL), etc. The state governments and Urban Local Bodies (ULBs) encourage private parties to come forward and participate in the water and sanitation sector by opening up several opportunities like Jawaharlal Nehru national urban renewal mission (JNNURM) and urban infrastructure development scheme for small and medium towns (UIDSSMT) under public private partnerships (PPPs) for them.

This is surprising considering the privatisation of the Shivnath river was a big blooper on the government’s part. Though the shortage of government funds to supply water to the industries was cited as the reason for the privatisation of the river water, it didn’t really work out that way. In fact, it not only affected the livelihoods of thousands of people around the river with RWL restricting the villagers from using the water by fencing it, the arrangement also resulted in huge financial loss for the government. 

The government and the industries had initially believed that privatising the Shivnath river will solve the water woes of the industries at Borai. The plan was to build a barrage on the Shivnath to supply up to 30 million litres per day (MLD) to the Borai industrial centre near Durg in Chhattisgarh on BOOT (build, own, operate and transfer) basis. 

“Though there was a lack of sufficient demand for water, the then managing director of MPAKVN (Madhya Pradesh Audyogik Kendra Vikas Nigam Ltd) G.S. Mishra signed the agreement with RWL. Back then, Borai had two large- and medium-scale industries, and their combined water requirement was between 1.14 and 2.5 MLD, while the CSIDC (Chhattisgarh State Industrial Development Corporation) had to compulsorily shell out money for 4 MLD. Adding to this financial loss, CSIDC purchased water at Rs 15/ cubic metre (1,000 litres) from RWL. It sold water to industries at Rs 12/ cubic metre, incurring a loss of 20 percent on every unit of water it sold. Increase in both supply or demand would mean higher losses. Adding to the loss was Hindustan Electro Graphite (HEG) that was to buy almost 90 percent of the CSIDC’s water sales but reneged on its agreement," says a Tehelka report.

Till date, RWL has not transferred the ownership of land to the government. (View full story here.) Neither has the government taken any visible action against RWL for the financial loss to the state exchequer.

Why privatise water resources?

Water privatisation refers to the transfer of ownership of water resources from the public sector to the private sector. Since 1990, the government, through its reforms, has encouraged private sector projects in the water sector in the hope that transferring the responsibility of water to private companies will bring more transparency and accountability to the process. 

The drive to privatise the water sector in India accelerated after the year 2000 when the government of India adopted various reforms suggested by international financial institutions like the World Bank and the Asian Development Bank. 

In 2002, the government implemented National Water Policy. As per the policy, “Private sector participation should be encouraged in planning, development and management of water resources projects for diverse use, wherever feasible. Private sector participation may help in introducing innovative ideas, generating financial resources and introducing corporate management and improving service efficiency and accountability to users. Depending upon the specific situations, various combinations of private sector participation, in building, owning, operating, leasing and transferring of water resources facilities, may be considered.” 

The saga of failure

Within a decade, however, the private sector participation projects in the water sector shot up to more than 300. As per the database maintained by Manthan Adhyan Kendra, a centre set up to research, analyse and monitor water and energy issues, Maharashtra has the maximum number (48 projects) of privatised water followed by Karnataka (26 projects), Tamil Nadu (25 projects), Delhi (20 projects), Rajasthan (17 projects) and Andhra Pradesh (15 projects). More than 70 percent of the projects are under various stages of implementation and still need to be evaluated. As per a study titled Water: The market of the future by RobecoSAM AG, the global business opportunities related to the water sector are expected to reach one trillion US dollars (USD) by 2025.

“The unlimited access to water resources by the governments to the private companies has given rise to well developed water markets,” says a study conducted by Manthan Adhyayan Kendra. Privatisation or private sector participation in the water sector involves hydropower, industrial and domestic water supply, and even irrigation.

Even after opening several fronts for the private companies, the companies have failed to improve water services. The Manthan Adhyan Kendra database on private sector participation in the water and sanitation sector in India shows that there are more than 20 private sector participation projects that are facing problems in implementation. 

For example, Jamshedpur Utilities and Services Company Ltd. (JUSCO), the flagship company of the Tata group, was formed in 2004. Even prior to JUSCO, Tata Steel has been managing the water distribution network as well as the operation and maintenance work for Jamshedpur since 1941. In the last two decades, JUSCO has expanded its water operations to Mysore, Bhopal, Gwalior, Kolkata, Haladia, Muzzafurpur and Chennai and has become the largest water supply developer and operator in the country. The operations of JUSCO in India have not only failed to deliver services in Jamshedpur, but it has also failed to provide its services in Mysore, Kolkata and other cities. The Mysore City Corporation has imposed a penalty of Rs7 Crore in 2013 on JUSCO for various lapses in the 24x7 water supply project.

This is not an isolated case of failure of water privatisation in India. In June 2007, the Nagpur Municipal Corporation (NMC) handed over the operation and management of water services of the Dharampeth area of Nagpur to private operator Veolia Water (India) Pvt Ltd on a pilot basis. The key project objectives were to provide 24x7 water supply at the desired pressure, 100 percent meterisation, to optimise the unaccounted for water (UFW) losses, create efficient billing mechanisms, reduce consumer complaints and ensure sufficient supply. They also had to manage the entire water supply cycle including procurement, treatment, storage and distribution.

Without properly assessing the project outcomes, NMC extended the project to the entire city in November 2011. It signed a concession agreement with the Orange City Water Private Ltd. (OCWL) which is a joint venture of Vishwaraj Environment Pvt Ltd and Veolia Water (India) Pvt Ltd. The total cost of the project increased from Rs 387.86 crore to Rs 566.09 crore before handing over the water work to OCW.

“The privatisation of drinking water services in Nagpur is a complete failure model. The tariff of water has increased to four times and the losses to NMC after privatisation is 180 crores annually. The privatisation process neither bring the water leakages down nor could the private company ensure sufficient supply of water to the residents,” says Jammu Anand, president of NMC employees union. In January 2016, the (NMC) Employees Union and the residents of Nagpur protested the privatisation of water services in the city.

“The public-private partnerships in India have so far failed to improve water services in the country, and there is no private sector regulation act and rules to regulate the functioning of the private sector,” says water law expert Pradeep Purandare.

What’s wrong with water privatisation?

Following are the global trends observed when water is privatised:

  • It leads to increase in the water tariffs.
  • It undermines water quality.
  • Private companies are not accountable to consumers.
  • It fosters corruption.
  • Privatisation reduces local control and public rights.
  • Private financing cost more than government funding.
  • It leads to job losses.
  • Privatisation is hard to reverse.
  • The poor could be left with no access to clean water.
  • Privatisation would open the door for bulk water exports.

Recently, several individuals from different universities and non-profit organisations from all over the world, under the banner of Corporate Accountability International, wrote an open letter to World Bank group president Dr Jim Yong Kim and appealed him to end all sorts of advisory and financial support to the private companies due to the adverse impact of water privatisation on the humanity. You can read the full letter and organisations and individual details here.

A way forward

Food and Water Watch, a champion for healthy food and clean water for all, reviewed 18 communities across the United States of America that reclaimed public management of water or sewer services and found that public operation was an average of one-fifth cheaper than private operation. The study concluded that a municipality typically saves 21 cents on every dollar by returning their water systems to public hands.

A report by the Transnational Institute (TNI), Public Services International Research Unit (PSRU) and the Multinational Observatory, a prime international research and advocacy organisation working on international water and other social development issues suggests that 180 cities and communities in 35 countries across the globe have "remunicipalised" their water systems in the last 15 years. Remunicipalisation is defined as the transfer of water services from private companies to municipal authorities. It is a way to show that the public sector can outperform the private sector and can be an efficient water provider anywhere in the world.










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