Issue Brief: The World Bank and Water Privatization - March 2004

The Role of the World Bank in Developing Country Water Privatization

Just as there is a global consensus on what constitutes a sound energy sector, so too is there a consensus on the central features of a sound water supply and sanitation sector. This consensus draws on the same principles of separating the roles of providers (increasingly private) and regulation and policy formulation and assessment (a public role), and of competition amongst providers.

  • World Bank Water Resources Sector Strategy, 2002

The World Bank accounts for approx 50% of external financing of developing country water investments at an average expenditure of US$ 3 billion annually with plans to expand it by a factor of three by 2006 (Alexander 2002).

  • More than 80 percent of World Bank water and sanitation loans approved in 2001 contain cost recovery measures and over 40 percent require privatization of water utilities. (Ghana Fact Finding Mission 2002).
  • While 90% of the US$ 60 billion invested in water in developing countries each year comes from domestic sources, the figure understates the role of the Bank in water policy formulation (Alexander 2002).
  • Through private sector leveraging and structural adjustment (SAP) conditionality lending, the Bank and its sister institution, the International Monetary Fund (IMF) play a decisive role in domestic water policy development.
  • The standard prescription of structural adjustment policies include: fiscal austerity (cutbacks to reduce budget deficits and create space for multinationals), privatization, de-regulation, and trade liberalization.
  • Both the World Bank and IMF frequently make water privatization a requirement of structural adjustment loans and insist on substantial reforms to legal, regulatory and institutional structures to pave the way for water privatization. These requirements then become conditions for any other loans.
  • The World Bank loans approximately $US 20 billion annually to approximately 60 developing countries.
  • Bilateral lenders are moving away from specific localized projects and towards providing funding which supports Bank/IMF structural adjustment requirements, thus further multiplying the leverage of the institutions in demanding water privatization by billions of dollars.
  • The “aid cartel” of donors and creditors acts informally and formally to circumscribe the policy options of government. There is a growing creditor consensus that, in most countries and circumstances, it is unwise to invest in public services. Thus, in order to be eligible for external assistance, governments must be willing to privatize their services. (Alexander 2002)
  • The leverage of creditors, led by the Bank and the Fund, over developing countries cannot be overemphasized. Africa pays around US$15 billion in debt servicing every year to the World Bank, IMF and rich country governments. This is more than the continent receives in aid.
  • In 2002, the World Bank Director for Water and Power stated in a public meeting, that water and sanitation loans to Africa would be “out of the question” unless they included private sector participation. (Alexander 2002)
  • In response to corporate water giants, who claim the water business is too risky, the Bank is responding with subsidies. These include subsidies for rural water connection, subsidies to support gradual tariff increases, subsidies for waste water treatment etc. The Bank is using public money to pay corporations to take less money from the poor in a gross distortion of its mandate of a world free of poverty.
  • The Bank’s Development Communications Unit has developed public communication strategies designed to create “a political environment supportive of private sector participation among key political stakeholders” including reluctant publics. The Bank is effectively using public money to market water privatization for which it and the private sector are beneficiaries. In one case, the people of Nigeria borrowed from one part of the World Bank Group (IDA) to convince themselves of the virtues of private water supply facilitated by another part of the World Bank Group (IFC). This is both a blatant conflict of interest and a violation of the Bank’s mandate (Alexander 2002).
  • Water and sanitation is among the Bank’s worst performing portfolios. The Bank’s own internal evaluators say projects fail because there is no political will, targets are set without means to achieve them, consumer preferences are disregarded, demands are overestimated and projects are built on a co-financing house of cards (OECD 2002).
  • Since 1994, the Bank/IMF have intensified their interaction with the WTO aimed at achieving “policy coherence”, a new form of coercion. The World Bank trade agenda explicitly states, ”liberalize entry to foreign service suppliers through elimination of restrictions on entry and promoting increased competition, with wider use of GATS to bind nondiscriminatory access and lend credibility to domestic programmes.” (World Bank Private Sector Development Strategy in Caliari 2002)
  • The World Bank is forcing countries into situations that they might be unable to exempt themselves from under GATS by demanding the privatization of basic services. Any public service privatized under World Bank SAP requirements are no longer GATS exempt and are automatically subject to GATS rules. Only services provided “in the exercise of governmental authority - neither on a commercial basis, nor in competition with one or more service providers” are exempt. Thus, GATS general commitments including Most Favoured Nation (MFN) and domestic regulations apply once the Bank forces privatization. Thus the Bank is leveraging GATS compliance and reducing developing country negotiating leverage through its privatization agenda.
  • Trade arrangements should encourage water scarce regions to focus on production and export of high-value crops while importing water intensive lower value staple crops. World Bank Rural Development Strategy: Reaching the Rural Poor (Draft, 2002)

March 2004