0.18 Natural capital: water  (Page 11/11)

Privatization in argentina, bolivia and chile

An alternative solution may be, in some nations, privatization of the water supply, so that markets may play a role in promoting sustainable use of drinking water. In most of the world, provision of drinking water is dominated by small, inefficient government departments or government owned enterprises (as in India). But in dozens of countries, infant mortality from unsafe water remains very high. What can happen when reliance is placed on market mechanisms instead of government enterprises to provide water? Here is one example.

In the 1990s Argentina embarked on one of the largest privatization campaigns in the world, including the privatization of local water companies covering approximately 30% of the country’s municipalities. Argentinean researchers later found child mortality fell 8% in areas that privatized their water services overall; the effect was largest (26%) in the poorest areas. Privatization was associated with significant reductions in deaths from infectious and parasitic diseases. However, the Argentina program died due to politics.

So, can privatization of water distribution sometimes yield the expected results? Experience suggests yes, according to a recent Report of the World Bank See the World Bank study by Gassner, Popov and Pushak, Does Private Sector Participation Improve Performance in Elec. Power and water distribution? Washington, DC: World Bank, 2009.

Using data from all over the world, from emerging nations in Latin America, Asia, Africa and Mideast the author shows that privately run water and electric power companies outperform government owned enterprises in:

• Production
• Operational efficiency and probably
• Sanitation
• Avoiding water wastage

The only negative they observe in water privatization: staff reductions. State-owned firms in almost any activity anywhere tend everywhere to have 20% - 50% more workers than needed for the job. Payrolls are often padded with political supporters of the government.

Privatization was tried also in Bolivia in the early years of this century but ran afoul of politics.

Privatization of water supply in Chile began in 1990. In the period 1990-94, average prices for water were increased by 90%, to enable prices to cover the marginal of providing water. Water consumption fell by 10% over the period even as the population and economy grew substantially.

Did the poor suffer? The poor never need to suffer from policies to secure sustainable of water, energy or even food.

To protect the poor, Chile provided a 2-prong subsidy program:

1. Poorest families received a 15% discount on water use.
2. The poorest families got a direct cash subsidy to cover higher water cost. The subsidy reached 95% of poor households

Earlier, we stressed that water issues extend well beyond possible shortages of supply. Water quality also needs to be considered.

Consider, for example China in 2014. Contaminated groundwater has become a really serious problem in China, as we noted earlier in this chapter. About half the population uses water supplies heavily polluted by animal, human and industrial waste (some of this pollution is now showing up in by way in Chinese exports of wallboard and other products.

Chinese cities are seriously polluted by sewage. The Chinese Academy of Sciences stated in 2005 that 21 cities along the Yellow River register dangerous levels of contamination in foodgrains (especially rice) and other food stuffs. Just to achieve a 50% treatment rate, China would have to build 10,000 new sewage treatment plants. Clearly for China, there is no environmental problem more serious than that for water .

Finally, China is beginning to take steps to rectify its abuse of water resources. In 2009 Shanghai and Beijing both raised water prices substantially. Shanghai rates increased by 25%. There was another 22% raise in November of that year. In Nanjing rates went up by 12%, but direct subsidies were given to the poor to compensate them.

More countries are beginning to recognize the role of pricing in water conservation. Indonesia uses a flawed system called Pasten. Jordan , a very arid country, has adapted a pricing system that encourages farmers to select water efficient crops (not cotton). Chile has introduced a spot market for irrigation water, which relies on the buying and selling of property rights to water. This has notably reduced use of irrigation water in the valley south of Santiago.

We close on a somewhat positive note. Not all developing nations face severe or acute shortages of water: Brazil is blessed with water, even after it destroyed so much of the tropical forest.

Brazil has 8,000 billion cubic kilometers of renewable water each year. This is #1 among all nations, and is more than for all of Asia alone (with 4 billion population). Brazil’s population is approaching 250 million. So Brazil’s per year capita availability of water is 32 times that of Asia.

With this very generous water endowment, and with very good Brazilian research on tropical agriculture, Brazil in 2011 became the largest food exporter in the world. This has all been done without any significant government support, except for subsidies on seed research.