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Global water development in the twenty-first century

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Title:
Global water development in the twenty-first century exploring the debate between private versus public water management
Creator:
Stenberg, Heath Andrew
Publication Date:
Language:
English
Physical Description:
xiii, 131 leaves : ; 28 cm

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Subjects / Keywords:
Water resources development ( lcsh )
Water-supply -- Government policy ( lcsh )
Water resources development ( fast )
Water-supply -- Government policy ( fast )
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bibliography ( marcgt )
theses ( marcgt )
non-fiction ( marcgt )

Notes

Bibliography:
Includes bibliographical references (leaves 127-131).
General Note:
Department of Political Science
Statement of Responsibility:
by Heath Andrew Stenberg.

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|University of Colorado Denver
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|Auraria Library
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All applicable rights reserved by the source institution and holding location.
Resource Identifier:
255967758 ( OCLC )
ocn255967758
Classification:
LD1193.L64 2008m S73 ( lcc )

Full Text
GLOBAL WATER DEVELOPMENT IN THE TWENTY-FIRST CENTURY:
EXPLORING THE DEBATE BETWEEN PRIVATE VERSUS PUBLIC
WATER MANAGEMENT
By
Heath Andrew Stenberg
B.A., Fort Lewis College, 2003
A thesis submitted to the
University of Colorado Denver
In partial fulfillment
of the requirements for the degree of
Master of Arts
Political Science
2008


This thesis for the Master of Arts
degree by
Heath Andrew Stenberg
has been approved
by
Date
Christoph Stefes


Stenberg, Heath A. (Master of Arts, Political Science)
Global Water Development in the 21st Century: Exploring the Debate between
Private versus Public Water Management
Thesis directed by Professor Jana M. Everett
ABSTRACT
This thesis examines several important issues raised by the global water
crisis. The world is currently in the midst of a water catastrophe that is holding
back human progress, consigning large segments of humanity to lives of poverty,
vulnerability, and insecurity. Overcoming the crisis in water and sanitation is one
of the great global development challenges of the 21st century.
This thesis examines several important issues that are raised in the ongoing
debate between private versus public water management. These issues revolve
around many of globalizations most pressing concerns including democracy,
transparency, ownership, human rights, and contending global development
theories. I concentrate on what lessons can be learned from both ideological
perspectives and focus on how they can help in formulating effective strategies
for global water development in the future.
First the thesis analyzes the pros and cons of private sector water management
by exploring the outcomes of case studies conducted in Guinea, and Cochabamba,
Bolivia. Next this thesis examines the advantages and pitfalls of publicly
managed water systems by looking at the case studies of Porto Alegre, Brazil, and
Ethiopia. This historical-comparative method will help in answering my research
question of what can we learn about water management from both ideological
perspectives and what important questions can be drawn from the two side that
can help in formulating effective strategies for dealing with the worlds water
crisis in the future?
In the concluding chapter, the thesis reflects on the lessons learned from the
case studies and makes some observations and recommendations for improving
global water development in the future.
This abstract accurately represents the content of the candidates thesis. I
recommend its publication


DEDICATION
I dedicate this thesis to my fiancee, Leigh, for all of her understanding,
encouragement, and support during my graduate studies. I also dedicate this to
my parents for their patience and support in all of my academic endeavors.


ACKNOWLEDGMENT
I wish to thank my advisor, Jana M. Everett, for her guidance, contribution, and
accommodation throughout the writing process. I also wish to thank all the
members of my committee for their participation and support.


TABLE OF CONTENTS
CHAPTER
1. INTRODUCTION.............................................1
Literature Review.....................................3
The Worlds Water Crisis........................3
The Washington Consensus........................7
The Debate: Public versus Private Water
Management......................................10
Methodology...........................................14
Thesis Outline........................................16
2. PRIVATIZATION IN WATER DEVELOPMENT.......................18
Theoretical Background..........................19
Privatization Players and Strategies............21
The Case of Guinea....................................23
Background......................................23
Measures of Success.............................28
Implementation..................................32
Outcomes........................................35
Lessons Learned.................................39
xi


The Case of Cochabamba, Bolivia.
43
Background.......................................43
Measures of Success..............................46
Implementation...................................50
Outcomes.........................................51
Lessons Learned..................................57
3. PUBLIC WATER MANAGEMENT...................................63
Theoretical Background...........................64
The Case of Porto Alegre, Brazil........................71
Background.......................................71
Measures of Success..............................74
Implementation...................................75
Outcomes.........................................86
Lessons Learned..................................89
The Case of Ethiopia....................................93
Background.......................................93
Measures of Success..............................99
Implementation..................................100
Outcomes........................................105
xii


Lessons Learned
111
4. CONCLUSIONS AND RECCOMENDATIONS.............116
BIBLIOGRAPHY........................................127
xiii


CHAPTER 1
INTRODUCTION
The neo-liberal globalization era has produced a number of positive
breakthroughs in the overall historical progress of human political, social, and
economic development. In the decades following the fall of the Berlin Wall, the
world has made major strides in technology, science, healthcare, human rights,
communication, and education. The overall potential for positive social change
that has been demonstrated within this era of globalization is a reason to be
hopeful about the earths future. However, despite our numerous advances,
todays international community continues to be plagued by immense problems
that threaten humankind and the future of earth itself. The various global
institutions, governments, and corporations that are driving todays era of
globalization have promised that through neo-liberal principles, globalization will
eventually solve the worlds most urgent problems by working towards the
common good. Yet there is still an endless list of problems that the world has yet
to successfully address. Poverty, inequality, disease, environmental destruction,
and war are just a few of the issues that have yet to be solved through neo-liberal
globalization. The continuation of these immense global problems raises
questions about the validity that the current neo-liberal globalization model is in
1


fact the most effective global ideology for creating positive social, political, and
economic change.
There is one important global problem in particular where the call for applying
neo-liberal principles is being strongly contested: the worlds water crisis. The
fate of our most precious natural resource is currently facing immense challenges
that threaten to devastate all levels of international development in the future.
Over one billion people currently lack access to clean water and global supply is
becoming increasingly scarce (United Nations, 2006). Solving the worlds water
crisis is one of the most critical and challenging issues facing the international
community today.
The intent of this thesis is to examine whether the neo-liberal model or the
more traditional state-led public model for global water development is the more
effective approach towards improving the worlds water situation. These two
perspectives are currently at odds with one another and are part of an ongoing
policy debate about which model is best suited for improving the current situation
and ensuring water resources for the future. The thesis will examine case studies
that demonstrate both the successes and failures of each of the contending models.
Thus the research question in this thesis becomes: what can we learn about water
management from both of these ideological perspectives and what important
questions and observations can be drawn from the two sides that can help in
formulating effective strategies for dealing with the worlds water crisis in the
future?
2


Literature Review
The Worlds Water Crisis
The world is currently in the midst of a water crisis that threatens to become a
catastrophic global problem if it is not immediately considered to be a top priority
within the international community. Water is critical to successful global
development, and it is becoming strikingly clear that providing clean water for all
of humanity is an essential step in fulfilling our most important and challenging
future objectives. Water is the single most critical element of life; it is the largest
and most complex habitat on earth, nourishes every species on the planet, and is
the primary material of all living things. It is the vital element in the existence of
life on earth and profoundly influences human potential and progress. The water
crisis must be addressed successfully in order for globalization to move forward
in a progressive direction that ensures a positive future for the earths
environment and the people who inhabit it.
On the environmental front, water expert Peter Gleick (2006) points out that at
the root of the earths water problems is the sheer amount of it that exists on the
planet. With 70% of the earths surface being made up of water, a common
misconception is that humanitys water supply is infinite, but in reality, this is far
from the truth. Only 2.5% of the earths water supply consists of freshwater
resources that are compatible with human use; the rest consists of salt water. The
majority of the freshwater resources are frozen in the planets northern glaciers,
leaving humans with access to less than 0.08 of 1 percent of the total water on the
3


planet. What makes the situation even more frightening is that the water
resources we do have access to are in fact dwindling, and not only because of the
billions of thirsty people living on the planet. According to Gleick (2006),
individual humans use less than 10% of the earths freshwater supply; 60 to 70%
of it is devoted to irrigation, and the rest is taken up by industry. With rapid
population growth and expanding economies, demands for water are
skyrocketing. Despite recent global trends pushing toward conservation policies,
experts believe the total amount of water needed for people, food supply, and
industry will increase by as much as 45% in the next twenty years. Currently 1.1
billion people lack access to clean water and 2.5 billion are without proper
sanitation. With another two billion people expected to be added to the earths
population over the next 20 years, the United Nations estimates that two-thirds of
the worlds population will be without safe drinking water and basic sanitation
services by the year 2025. This number has the possibility to be even larger if
society continues to pollute, over consume, and mismanage what little access to
freshwater we currently have.
These starling numbers can be directly related to what will be one of the
greatest and most important challenges of the twenty-first century: alleviating
global poverty. One of the cornerstone beliefs of many advocates for
globalization is that the free market and the neo-liberal development policies
currently being pushed by the worlds financial institutions will eventually lead to
the end of global poverty. This will be an extremely difficult goal to accomplish
without every citizen of the earth having access to, and being able to afford, clean
4


water. If globalization is to alleviate global poverty, then first something must be
done about the fact that nearly two in three people lacking access to clean water
live on less than $2 a day (United Nations, 2006). Lack of water access and
poverty go hand in hand, and providing water to the poor is a proven first step in
helping communities escape the reins of poverty. In our increasingly prosperous
world, it is ironic that currently it is increasingly more difficult for the poor to
afford water; in fact it has been found that on average, poor people living in slums
often pay 5 to 10 times more per liter of water than wealthy people living in the
same city (United Nations, 2006).
No intervention has greater overall impact upon national development and
public health than the provision of safe drinking water and the proper disposal of
human waste. Close to half of all people in developing countries are suffering at
any given time from a health problem caused by water and sanitation deficits,
greatly affecting their nations ability to successfully adapt to the demands of the
neo-liberal driven agenda of international development (United Nations, 2006).
Every eight seconds a child dies from water-related disease; in fact the water and
sanitation crisis claims more lives through disease than all the current wars going
on in the world today combined (United Nations, 2006). Without water, there is
no life, with polluted or contaminated water there comes disease; thus access to
freshwater resources should be viewed as the first step towards the goal of ending
extreme global poverty.
The environmental, political, and economic effects of the worlds water crisis
present immense challenges to the future of global development. The
5


international tension that has built up because of water scarcity has resulted in a
strong focus on water development, diplomacy, and conservation within nearly all
of the worlds most powerful political and financial institutions. Marq De Villiers
(2000) notes that we are now at a point where the worlds water crisis is at a
critical stage, as region after region struggles to provide enough clean water for its
people, its agriculture, and its industry.
As the scramble for water worsens, and with more and more people not having
access to clean water, theres been a significant new development in waters
world order: the emergence of a strong private market where water is bought and
sold as a commodity. Marq De Villiers (2000) contends that this was inevitable,
with demand rising, supply fading, and traditional water management approaches
increasingly producing more problems than solutions. The value of water has
skyrocketed to astronomical levels, and private companies now see the potentially
unlimited profits in water. Neo-liberal economic principles are being put forward
in the area of water development. Thus a global controversy has emerged in
regards to how we presently manage our water and how we are able to preserve it
for the future. Is it more effective to privatize our water resources, essentially
making water a commodity rather than a naturally given right, or is it best to keep
water management in public hands?
6


The Washington Consensus
The global call for action in regards to water resources is structured around
the principles of what is collectively known as the current blueprint for
international development, the Washington Consensus. The Washington
Consensus is a neo-liberal model for global development. Neo-liberalism is an
economic philosophy that advocates the role of markets over states, a theory that
can be originally traced back to the early writings of Adam Smith. Ravenhill
(2005) contends that the foundations of the neo-liberal theoretical perspective are
a belief in the free market, and a reduced role for government through
deregulation and privatization. These are the cornerstones that have become the
ideological driving forces behind todays era of globalization and are strongly
supported by the most powerful governments and financial institutions in the
world. Following neo-liberal principles, the primary global financial institutions,
the IMF and the World Bank, have played key roles in assisting countries in
developing their water resources, giving out loans that come with strict structural
adjustment policies attached to them. Loans for the water sector accounted for
about 16% of the World Banks overall lending from 1994 to 2004, with just over
$17 billion being divided between water supply and sanitation, irrigation and
drainage, hydropower, and water resource management (CBC News, 2004).
Hiatt (2007) contends that these conditionality requirements force the
abandonment of state-led development policies and direct governments to fully
privatize public services (including water) and public investments, as well as
eliminating all obstacles to foreign investment and letting the market take over
7


key functions normally reserved for the state. Thomas (2005) notes that its
framers intended the Washington Consensus to provide global stability, eradicate
poverty, and demonstrate to underdeveloped countries how to successfully adapt
to the new era of globalization. The results of this neo-liberal driven blueprint for
international development have been mixed, with water management being a
prominent example.
Proponents of neo-liberalism and the Washington Consensus, such as Martin
Wolf (2005) and Jagdish Bhagwati (2004), argue that neo-liberalism is the most
effective way to ease poverty and stabilize countries around the world. Wolf
(2005) states,
The potential for greater economic integration is barely tapped. We need more
global markets, not fewer, if we want to raise the living standards of the poor
of the world. Social democrats, classical liberals, and democratic
conservatives should unite to preserve and improve the liberal global economy
against the enemies mustering both outside and inside the gates (p. 4).
For supporters of neo-liberalism, the free market is the only arrangement capable
of generating economic growth and providing the underpinnings for creating
stable economies around the world. Those who believe in the power and potential
of globalization and the Washington Consensus contend that when countries abide
by the neo-liberal economic agenda, their governments and citizens will
eventually prosper and escape the reins of poverty, disease, and war. Bhagwati
(2004) argues that the current polices under the Washington Consensus have
increased the number of countries that have undergone transitions to democratic
governments and experienced economic growth, creating significant improvement
in the overall living conditions for millions of people around the world.
8


Supporters of the Washington Consensus believe that economic development can
and will work in all areas of the world, assuming that states follow the policy
recommendations put forth by the neo-liberal platform.
There are many critics who strongly disagree with the contention that
globalization and the Washington Consensus are working to successfully spread
economic growth and reduce poverty around the world. They point out that over
2.5 billion people are still living in poverty and 1.1 billion are without access to
clean water, nearly twenty years after the fall of the Soviet Union and the dawn of
the neo-liberal era of globalization (Mertes, 2004). Joseph E. Stiglitz, (2003) a
former top economic advisor at the World Bank, claims that there are five specific
areas where globalization and the Washington Consensus have failed: first, global
economic integration has actually worsened inequality and poverty in developing
nations; second, liberal trade has undermined prosperity and thwarts development;
third economic globalization serves only the interests of predatory multinational
corporations; fourth, global integration undermines democracy, sovereignty, the
welfare state, and environmental regulation, creating instead a furious race to the
bottom; and last of all, financial liberalization is a threat to economic
development.
Cavanagh (2004) further backs up these claims by arguing that nations that do
follow the policy recommendations put forth by the Washington Consensus
actually end up doing more harm than good to their economies and citizens. He
believes that the Washington Consensus is an unfair, exploitive development
model that is specifically designed to benefit the advanced industrial countries
9


while continuing to leave developing nations poor because of inappropriate
conditionality and the accumulation of massive debts owed to the global
economic powers. Globalizations opponents argue that the system has failed and
needs major reforms in order to promote positive global economic development.
The Debate: Private versus Public Water Management
Solanes and Villarreal (1999) note that the Washington Consensus became
commonly linked to global water development at the 1992 International
Conference on Water and the Environment, held in Dublin, Ireland. The
conference was attended by over five hundred participants, including government-
designated water experts from a hundred countries and representatives of eighty
international, intergovernmental, and non-governmental organizations. The
participants of the conference viewed the emerging global water resources picture
as being critical and called for fundamentally new approaches to the assessment,
development, and management of freshwater resources. The conference drafted a
report known as The Dublin Statement, a set of beliefs that set out to become
universal principles for water resource management around the world. The
Dublin Statement was guided by three core principles: the ecological principle
which focuses on the environment, the institutional principle which insists that all
stakeholders have a voice in water resource management, and the instrument
principle which argues that water is a scarce resource, the allocation of which
should be guided by economic principles (Solanes and Villarreal, 1999). It is the
last idea, that water should be subject to economic principles, that is most relevant
10


and most contentious in the debate about private and public water management.
The World Bank, along with several international water organizations, adopted
the Dublin principles into their development programs and increasingly began to
incorporate private water companies into their water strategies (Barlow, 2002).
The Washington Consensus development model became further linked with
the worlds water crisis in 2003, at the Third World Water Forum in Kyoto, Japan
(Kaufman, Snitow, and Fox, 2007). The Forum was sponsored by the World
Water Council, a group whose primary goal is to improve water management
worldwide. The World Bank played a major role at the Forum, strongly
advocating the controversial practice of requiring the privatization of water as a
condition for providing loans to developing countries. The private water industry
also had a strong presence as the Forum and teamed up with the powerful World
Bank to dismiss the undermanned critics and proclaim a consensus for water
privatization worldwide. This was seen as another major event that greatly
escalated the neo-liberal agenda for privatizing water resources around the world.
Water activists from multiple countries came to Kyoto, protesting the
privatization consensus, arguing that making water a private commodity to be
bought and sold in the marketplace was morally wrong, unjust to the poor, and
environmentally dangerous. However their arguments were no match for those of
the powerful industry advocates whose presence dominated at the Forum.
The reality is that even though the privatization consensus is backed by the
most powerful financial and political institutions in the world, the truth is that
there is no consensus on how to most effectively deal with the worlds water
11


crisis, making it one of the most important and controversial topics in
international development today.
Water privatization advocate Fredrik Segerfeldt (2005) insists that the problem
is not the amount of water available, but the inability to produce and distribute
safe water. He argues that professional companies within the private sector can
accomplish affordable distribution more effectively than the public sector. He
notes that the private sector has more money and resources available to invest in
water sanitation and distribution than the public sector could ever have. Poor
countries cannot afford to invest billions of dollars in the infrastructure necessary
to provide clean and safe water to their people; private companies can.
Underinvestment and lack of maintenance by governments have resulted in many
people being excluded from water and sewerage networks and has created
unreliable payment collection services that provide money for upkeep and
distribution. Overall, Segerfeldt (2005) and various other advocates of water
privatization, believe that the private sector has many advantages over the public
sector: greater investment capital, more competence in handling water and
running an organization, better access to advanced technology, superior cost
awareness, and healthier incentive structures.
The advocates for public water management tend to be highly critical of neo-
liberalism and the Washington Consensus itself. Among these advocates, the free
market is feared rather than embraced, and there are serious doubts about the
motives and abilities of the private sector in delivering water to all those in need.
Rothfeder (2001) notes that the most common criticism of water privatization is
12


that once water is in a private companies hands, the prices skyrocket, making
water unaffordable to large segments of the population. Marq De Villiers (2000)
argues that water is a human right that the public sector is duty bound to provide
to their citizens, not a commodity that should be sold and traded for the sake of
profits. Another area of concern is the lack of democratic processes associated
with privatization, especially because water is a vital natural resource. According
to De Villiers (2000), centralized economic systems, both public and private,
erode the democratic base of politics, and are a form of economic fascism that
eliminates natural rights. Supporters of public water management worry that if
water continues to be privatized around the world, its availability to those who
need it the most will be greatly reduced, and access will be based purely on profits
rather than on people.
Currently, the world is facing a water crisis that is threatening to unbalance
every aspect of our existence. The problem must be addressed now before it
reaches catastrophic proportions. Broadly speaking, there are two contrasting
positions on how to improve the availability of clean water resources in the
future: the neo-liberal, free market, and privatization route recommended by the
Washington Consensus, and the public sector route advocated by critics of the
Washington Consensus. This thesis will evaluate outcomes from both
perspectives and identify important lessons that can serve as useful tools in
discussions about future strategies for global water development.
13


Methodology
This thesis will use a historical-comparative case study method to compare and
contrast cases of private and public sector water development. The historical-
comparative method will be a useful tool in this analysis because it examines
patterns of similarities and differences across a moderate number of individual
cases (Neuman, 2007). Historical-comparative research has also proven to be a
powerful method for addressing big questions such as the one I am exploring
here, and is suited for examining the combinations of social factors that produce a
specific outcome, such as the results of public and private water management. In
this analysis I will look at the academic literature on private and public water
management, examine the dominant theoretical perspectives regarding each
perspective, and explore landmark case studies that have established solid
arguments for each of the contending viewpoints of water development. By
following this framework I will be able to identify the benefits and dangers of
market-led versus state-led water development, and evaluate what important
lessons each model can teach us about water resource management in the future.
To help draw conclusions about the pros and cons of both private and public
water management, I will look at what are considered the definitive case studies
of private and public water systems over the past two decades. Case studies can
elaborate historical processes and specify concrete historical details, opening
doors to finding answers to tough questions. Case studies can be used in theory
testing, theory creation, identifying antecedent conditions, testing the importance
of these antecedent conditions, and explaining cases of intrinsic importance (Van
14


Evera, 1997). In this thesis I will focus on the specific case studies of Guinea,
Cochabamba, Bolivia, Porto Alegre, Brazil, and Ethiopia. These examples fit
well into my research question because they cover all bases: Guinea is an example
of a country that followed the principles of the Washington Consensus in water
development and found success in doing so. Cochabamba, Bolivia, is an example
of city that followed the policy prescriptions recommended in the Washington
Consensus for water management and suffered grave consequences in doing so.
Porto Alegre is an example of a city that has rejected the Washington Consensus
development model and has successfully kept its water sector in public hands.
Ethiopia fits the example of a country that kept its water management in the hands
of a state-run system and has experienced numerous failures.
Each of these cases provides a unique view of the principles that underlie
private and public water systems and can offer valuable insights into the
contending models base arguments. From these case studies I expect to learn
how each perspective conceptualizes the common good, and how each goes about
achieving its respective goals.
To accomplish this, I will ask a series of key questions in regards to each case
study examined in my thesis. The first question to be addressed is what was the
historical context that led to the particular chosen water management policy? The
second question asked is what were the goals set in place that would define the
level of success for the project? The third question to be explored is what process
was taken to accomplish these goals? The fourth question involves evaluating the
outcomes of the chosen water management policy and determining if the criteria
15


for success where fulfilled. This leads to the most critical question of the case
study process, which is what are the lessons drawn from each case study and what
can these lessons teach us about future water development strategies?
In conducting this research I draw upon a variety of resources. There are many
studies regarding the issue of water management for the specific countries that I
want to incorporate into my thesis. Scholarly journals, books, conference papers,
and published studies from the UN, the World Bank, the World Water Council,
and private water companies themselves are all incorporated into my research.
This will give me access to the viewpoints of advocates for both private and
public water management, effectively giving me the opportunity to present both
sides of the argument and uncover important lessons from each perspective.
Thesis Outline
This thesis is organized into four chapters. Chapter one has provided an
overview of the water crisis and the private versus public debate, reviewing the
literature behind each models arguments. Chapter two looks at the privatization
argument. It examines the case of Guinea, where the privatization of water was
considered a success and the case of Cochabamba, Bolivia, where the
privatization of water turned out to be a major disaster. Chapter three addresses
examples of public water management with Porto Alegre, Brazil, serving as the
positive example and Ethiopia utilized as the negative example. The fourth
chapter analyzes the lessons learned from both the private and public models for
16


water management and draws conclusions regarding global water development in
the future.
17


CHAPTER 2
PRIVATIZATION IN WATER DEVELOPMENT
Chapter two investigates the Washington Consensus model for global water
development. This perspective, driven by neo-liberal principles, sees
privatization as being the answer for solving the worlds water crisis. Chapter
two begins by summarizing the theoretical foundations that are driving the neo-
liberal model for water development. To explore the pros and cons of the
privatization theory for water development, the chapter will examine two case
studies, one that serves as a positive example of water privatization and one that
stands as a negative example. The first case study involves the African country of
Guinea, a small developing nation that found some successes in its water
privatization efforts. The second case study looks at the disastrous consequences
that unfolded during a well known water privatization project that took place in
the Bolivian city of Cochabamba. By exploring examples of both the successes
and failures of water privatization, I will be able to identify important lessons of
the Washington Consensus model towards water development.
18


Theoretical Background
The Washington Consensus-driven push for water privatization around the
world is molded by the theoretical foundations of neo-liberalism. Proponents of
the neo-liberal perspective such as Wolf (2005) and Bhagwati (2004) argue that
open, unrestricted free markets are the most powerful vehicle ever to exist for
raising the living standards of the worlds poor. If markets are allowed to
function without restraint, then the economic, social, and political benefits will
spread across the world and eventually work toward the common good for all of
humanity. Supporters of this position, such as Segerfeldt (2005), argue that if
water resources are transferred to the private sector, the common good will be
better served socially, economically, and politically.
These ideas can be traced all the way back to the writings of Adam Smith,
particularly The Wealth of Nations, originally published in 1776. Written as
manifesto against mercantilist economic polices during the age of enlightenment
and at the dawn of the industrial revolution, The Wealth of Nations is considered
to be the beginning of modem economic theory and the first comprehensive
defense of free market polices. In his writings, Smith showed how the principles
of free trade, competition, and choice would spur economic development, reduce
world poverty, and facilitate the social and moral improvement of humankind. As
noted by Dare and Coe, (1998) Smiths work attempted to reconcile individual
economic drives with social harmony, wealth, and progress (p. 126). Smith
believed that rational economic self-interest and competition were not necessarily
bad concepts, and they could actually lead to the common well-being for all. This
19


concept could be seen in his theory of the invisible hand which referred to the
ability of the market to correct for seemingly disastrous situations without the
intervention of governments (Dare and Coe, 1998). In other words, although the
free market might appear as being chaotic and unrestrained, in the end, it will
actually be guided to produce the right amount and variety of goods and services
that are required to meet societies needs all on its own. Smiths liberal economic
philosophy saw little need for the heavy hand of the state in individual and market
activities; he argued that the use of state power in public interests was in fact an
abuse of power (Dare And Coe, 1998). Smiths economic theories underlie the
arguments of the World Bank and the IMF in their support for water privatization
projects around the world.
This magic of the market concept has been gaining momentum within the
global water development debate, shown by the support of the World Bank and
IMF, and the overall increase in water privatization projects around the world. As
Susan George (1999) notes, For the neo-liberal, the market is so wise and so
good that like God, the invisible hand can bring good out of apparent evil (p. 5).
It is competition that is best suited to provide the world with its basic services,
and the public sector is inefficient and must be downsized in order for the
common good to be served for all. Thus from the neo-liberal point of view, the
reason why a billion plus people are without access to clean water is primarily due
to fact that the majority of the worlds water resources have not been opened up to
the free market. The Washington Consensus further backs up this claim by
insisting that privatizing a countrys national industries is the most effective path
20


towards positive development, arguing that public institutions lack the capital,
expertise, technology and management structures to effectively run their own
industries. The neo-liberal perspective argues that state-led water development is
flawed and unsatisfactory because public institutions lack these essential tools that
are necessary for ensuring productive water development. From this perspective,
the private sector and the free market are the best options for guaranteeing that the
worlds water crisis is solved in the future.
Privatization Players and Strategies
Many governments in developing countries, realizing that they are unable to
adequately supply their people with clean water, have begun looking for ways to
improve their national water distribution. Government officials across the world
are convinced that their respective countrys can no longer afford to wait for
attaining a level of development that allows for them to be fully capable of
supplying water to all of its citizens, inevitably resulting in countries looking
towards the private sector for help. Segerfeldt (2005) notes how this phenomenon
is a relatively new practice, which did not seriously get underway until the 1990s.
In fact, only 3 percent of poor people in the developing world today get their
water from private sector suppliers, but this is a number that is growing
exponentially every year, with water profits at an all-time high for some of the
most powerful water management companies in the world (Segerfeldt, 2005).
The main companies involved in the global water privatization business include
Vivendi, RWE, SUEZ, Veolia, and Bechtel industries (Segerfeldt, 2005). These
21


are the big time players in the water development business. For their services
they promise to bring massive investment resources, a high competence for
handling water and running organizations, and unlimited access to the latest
technology. They insist that they have better cost-awareness and healthier
incentive structures than public enterprises, and contend that they bring the
worlds best engineers and water experts to implement projects (Segerfeldt,
2005). Several developing nations have bought into the arguments of the worlds
most prominent private water companies and have decided to take the
privatization path towards water development.
There are two main strategies for water privatization, commonly known as the
British model and the French model. The British model consists of
privatizing both the assets (water and sanitation network and the treatment plants)
as well as the operation of the assets (Holland, 2005). This model is very rare in
the world today; most governments are resistant to give up full control of their
water operations and prefer to have some influence and ownership in the overall
process. The British model is now primarily found only in the UK itself and in
Wales, with only isolated examples elsewhere (Holland, 2005).
The French model is much more common and consists of a private-public
partnership in which all of the assets remain publicly owned, but the actual
operations are the responsibility of the private company that is rewarded the water
contract (Holland, 2005). This set-up is essentially a leasing agreement between
the private company and its client country. In this arrangement, the government
and the private company work together towards the same goals, and it is a
22


symbiotic relationship. However, in most cases, the private company usually has
more power in this set-up, particularly when it builds and invests in additional
infrastructure. When new water infrastructure is constructed solely through a
private companys capital, it is the private enterprise that has control over the
asset. Thus, while private-public partnerships are in theory supposed to have an
equal power distribution, in most cases it is the private sector that garnishes more
influence in the overall development plans and procedures (Holland, 2005).
Guinea offers one of the earliest and most widely noted instances of a poor
country that welcomed in a private company, Suez-Lyonnaise, to take over
control of its nations water sector, and in doing so, experienced some positive
results.
The Case of Guinea
Background
As a developing country in Africa, Guinea has poor economic, political, and
social material conditions. Guinea is widely known as one of the poorest
countries in the world, and water distribution in particular has always been one of
the most pressing issues in the everyday life of the Guinean people, making an
already difficult situation even harder to endure.
Guinea has a long history of struggling to adequately develop its abundant
water resources. Many of these struggles can be directly linked to Guineas first
government after independence from France in 1958. Ahmed Sekou Toure, a
23


leader in the fight for Guineas independence, ruled the country for 24 years, from
1958 to 1984 (US State Department, 2007). Under Sekou Toure, Guinea was a
one-party dictatorship, with a closed, socialized economy and no tolerance for
political opposition, human rights, or free speech. During Toures rule, Guinea
became increasingly isolated, which devastated the economy and decimated the
countrys public services, including the water sector.
When Sekou Toure died in 1984, a military junta the Military Committee of
National Recovery, (CMRN) headed by then lieutenant Lansana Conte, seized
power of the country, immediately abolishing the previous constitution and
announcing the creation of the Second Republic (US State Department, 2007).
The newly formed government quickly wrote a new constitution, prohibited
political parties, decentralized the administration, reorganized the judicial system,
made a commitment to improving human rights, and initiated the process of
reversing the countrys previous economic policies by liberalizing its economy. It
was under this regime that the privatization of the countrys water supply took
place.
The public agency that was in charge of Guineas water before the countrys
privatization effort was known as the Enterprise Nationale de Distribution de T
Eau (DEG). Cowen (1999) notes that in the years leading up to the 1989 water
privatization, statistics showed that the people of Guinea had very poor access to
their prolific water supply (estimated at 166 billion m3 of renewable water, some
of which is shared with other countries, but a robust supply of water resources
nonetheless). It is estimated that throughout the 1980s, only 23% of the urban
24


population had access to clean, safe water (Cowen, 1999). As the decade moved
forward and the population grew, the situation continually got worse. In the
capital city of Conakry, the peoples needs for water could not be met by DEG,
with only 2 out of every 10 people having access to clean water. Those lucky
enough to have access to water connections found that the quality of the water
was poor and the supply very sporadic. Cowen (1999) notes that under such dire
circumstances, the people of Guinea reverted to stealing their water through
thousands of illegal water connections, resulting in low billing and collection rates
that ended up costing DEG money that could have been used for investments in
the water infrastructure.
Kim Bayliss (2001) notes that with little access to clean water, thousands of
people turned to heavily polluted water resources for their daily needs,
significantly increasing the amount of water borne diseases across the country.
The effects of having such poor access to water quickly spread across the country,
with water borne diseases becoming the main cause of death of infants, and
causing massive outbreaks of cholera epidemics all across the nation. In 1988,
the year before the nations water privatization, the average life expectancy in
Guinea was a sobering 43 years. (US State Department, 2007). With no shortage
of actual freshwater supplies, the low access to clean water and high incidence of
water borne diseases was primarily blamed on a lack of economic resources and
administrative ineptitude.
In their extensive study of the Guinean water privatization effort, Claude
Menard and George Clark (2002) concluded that Guineas bureaucratic weakness
25


and overall lack of financial resources led to the nations water distribution
problems. On the administrative side, Menard and Clark (2002) point out, the
allocation of responsibilities among various authorities was unclear, water
management was fragmented and civil service efficiency was very poor (p. 117).
The lack of competence in DEG greatly damaged the operations of the public
water utility. As Menard and Clark (2002) explain, Few private customers
willingly paid and many were not billed at all the 1985 consultant report
estimated that less than 12% of private users were actually billed (p. 110). This
lack of discipline and poor work ethic cost DEG significant amounts of capital.
With hardly any money coming in, the workforce received paltry wages, resulting
in low moral and bad performance.
The overall incompetence of DEG can be attributed to the leaders of the
Guinean government itself. Under former president Sekou Toure, the government
was infamous for corruption and poor economic planning and seemed more
concerned with fighting various ethnic conflicts with neighboring states,
(particularly with Sierra Leone) than it was with providing its citizens with proper
water and sanitation services. The repeated economic failures and the numerous
violent conflicts led to a significant waste of economic resources and massive
political instability, resulting in a government that was fragmented, corrupt, and
far from capable.
When Sekou Toures regime was overthrown in 1984, DEG continued to
suffer. The new government would remain in transition for several years and
needed time to develop the strong institutional framework necessary for guiding
26


the utility towards success. It was also hampered financially, not having any
capital to contribute to the water utility because of the countrys poor economic
standing. While the new government was more dedicated to improving the lives
of its citizens than the previous one, DEG did not benefit from the transition of
power.
Financially, DEGs budget was always meager at best. The utility received
very little financial assistance from either regime and was straddled with debt
from previous international loans (Menard and Clark, 2002). DEG did not have
the capital it took to build proper water infrastructure, keeping access levels low,
and in fact, the agency was actually losing significant amounts of money. With
no money being made, DEG was essentially helpless in improving Guineas water
services. These financial circumstances left Guineas water industry in shambles.
The poor access, dangerous health problems, governmental incompetence, and
overall lack of financing that plagued Guineas water sector caught the attention
of the World Bank, which began to put pressure on Guinea to privatize their water
industry. The institution had a long history of granting Guinea loans for its
development, and decided to add water privatization in its conditionality
requirements for future loans to the country. Sara Grusky (2001) notes how
structural adjustments calling for water privatization in World Bank loans are
slowly becoming common practice throughout the world, particularly in Africa.
Grusky (2001) argues, In general it is African countries, the smallest, poorest,
and most debt-ridden countries that are being subjected to World Bank conditions
on water privatization and full cost recovery (p. 2).
27


When the World Bank came to Guinea with a new loan proposal in 1989, the
government, led by President Lansana Conte, had only been in power for five
years, and was still going through the process of strengthening its institutions.
However, the government was determined to improve the countrys dire
economic situation and had aspirations to become successful in the global
economy (Menard and Clark, 2002). The newly established government, already
deep in debt because of the previous regimes actions and desperate for more
financial lending, quickly agreed to the conditionality terms of the World Bank
loans, jumpstarting the process of privatizing the nations water sector. Menard
and Clark (2002) note how this fit well into Guineas long-term plans, first
because it was compatible with the governments commitment to economic neo-
liberalism, and second because the country viewed the World Bank as its only
realistic option for obtaining more international aid.
Measures of Success
With the background for why Guinea decided to privatize its water sector now
explained, it is now important to examine the goals of each of the stakeholders
involved in the privatization process. In this instance the main actors involved
were the Guinean government, the World Bank and the company that was
awarded Guineas water contracts, Suez-Lyonnaise. All of the players involved
in the privatization of Guineas water supply shared the goals of enhancing the
countrys access to water and spurring economic growth.
28


For the Guinean government, the goals of this privatization project revolved
around the desire to reverse Guineas past economic failures and become
successful in the global economy. Bayliss (2001) notes that to stimulate the plan,
the government believed it needed additional financial assistance from the World
Bank and understood that to qualify for more loans, the country had to abide by
the neo-liberal foundations of supporting the free-market, reducing the role of the
government, embracing deregulation, and bolstering privatization. Guineas
leaders also believed that having a stable, healthy, and educated population base
was a pre-requisite for fostering economic growth, and improving the access to
water was considered to be a good first step in obtaining these requirements.
Guineas population was suffering because of its water problems, and the
government knew that it needed to provide clean, safe water to all of its citizens in
order to create a workforce that could contribute to all levels of society and help
in reaching the countrys long-term goal of escaping mass poverty (Bayliss,
2001). Guineas government was aware of its own limitations in its ability to
provide the infrastructure that was needed to improve the access to water and
believed that turning to the private sector would help solve its problems. These
are common pressures in todays era of globalization, and the Guinean
government succumbed to them with little hesitation. Thus Guinea would
measure its success based on its ability to provide clean, safe water to its citizens,
improve its populations health, allure new investment, and advance economic
growth.
29


In this case, the World Bank shared many of the same goals as the Guinean
government, with an emphasis on creating a stable business environment that
could help strengthen the economy. For the World Bank, an important element in
achieving this goal was to provide safe water to the citizens of Guinea, which it
viewed as a critical step in escaping the reins of poverty. To accomplish this, the
World Bank required Guinea to follow its neo-liberal model for economic
development, which specifically called for the privatization of Guineas water
sector. As John Briscoe, head of the World Banks global water unit once stated,
Effective water resource management requires that water be treated as an
economic good. Private participation in water and wastewater utilities has
generally resulted in sharp efficiency gains, improved service, and faster
investment in expanding service (Grusky, 2001, p. 4). The World Bank believed
that this was the best way for Guinea to improve the overall health of its people,
pull itself out of poverty, and become successful within the global economy. As
Briscoe noted about Africa in general, Human capital is a critical factor in the
fight to reduce poverty and reach the Millennium Development Goals. The
overarching goal for the Banks assistance to Sub-Sahara Africa is poverty
reduction through sustained economic growth at a high level, with a pro-poor
distribution, and improved social services (Grusky, 2001, p. 6). Therefore, the
goals of the World Bank consisted of creating a healthier society by improving
access to clean water, which would help in reducing poverty and promoting
economic development.
30


The company that was awarded the contract to privatize the water sector in
Guinea was Suez-Lyonnaise, a water giant based in France. Suez-Lyonnaise was
founded in 1822 and has since become one of the largest corporations on the
planet, with a long history of providing electricity, gas, and water services to
countries all over the world (Kaufman, Fox, & Snitow, 2007). In 2006, Suez
posted record earnings, thirteen times higher than they were 10 years earlier in
1996, delivering the best stock market performance in its sector in Europe over
the past 10 years, and in 2007, recorded astronomical profits in the first two
fiscal quarters, with earnings well into the billions of dollars (Kaufman, Fox, &
Snitow, 2007). Suez-Lyonnaise has done several water management projects over
the past two decades, but this case in Guinea was one of their first privatization
efforts in Africa.
Suez-Lyonnaise had several goals in mind that would define the corporations
overall level of success on the Guinea water privatization, starting with providing
clean, safe, and sustainable water to the population: Our mission is to deliver the
essentials of life. For 150 years, the guidelines for our business has consisted in
providing public utility services to local authorities, industry, and individuals in
electricity, gas, energy, water, and waste services (SUEZ Environment, n.d.).
Suez-Lyonnaise claimed it had the capital, competence, and incentive to deliver
safe water to as many people as possible. As the company explains, The
competitive advantage of SUEZ is its complete control of the water and waste
cycles. Depending on the customers requirements, thanks to the professional
skills of our staff, SUEZ can take action at various levels to meet all or part of the
31


needs of local authorities and industry, from operation to delegated management
of services, or technical support (SUEZ Environment, n.d.).
Once the effective distribution of clean water to the people of Guinea was
completed, Suez could focus on some of their other goals, specifically ones that
made their thousands of shareholders happy. Like any multinational corporation,
the most effective way for Suez-Lyonnaise to define their success on any water
privatization project was to earn profits. The more successful the company was at
water distribution, the more customers it would have to bill, making the
distribution process very important for both the people of Guinea, as well as for
the bottom line of Suez-Lyonnaise (Clapp, 1996). It was also important that
Suez-Lyonnaise created an effective billing and collection structure that would
guarantee the company incoming payments from its customers (Clapp, 1996).
Thus from a powerful multinational corporation viewpoint, the main goals that
would define success for Suez-Lyonnaise were to effectively distribute clean
water to the people of Guinea, establish an effective payment collection service,
and generate profits.
Implementation
The privatization of Guineas water was a challenging project that took a lot of
hard work before any results were accomplished. However over time, the
privatization of Guineas water did produce some positive outcomes. The project
began in 1989, funded primarily through World Bank loans and from capital
coming through Suez-Lyonnaise. The project followed the French model and was
32


a ten-year public-private partnership formed between Guineas national water
utility and Suez-Lyonnaise. Bayliss (2001) noted that the arrangement called for
the private operator to invest and improve the water infrastructure of Guinea
while actually keeping it under the ownership of the government. The private firm
paid a lease fee in return for the rental of the infrastructure and was responsible
for operating the system, billing, and collecting revenue. Bayliss (2001) explains
that the public-private partnership model worked well for both parties. For the
private investor it was beneficial because leasing meant that the corporation did
not have to commit long-term funds to investment projects in a relatively unstable
country that recently had gone through a military coup and had a poor history of
enforcing private contracts (Bayliss, 2001). The ten-year lease arrangement was
politically appealing to the government because it did not give the impression that
the new leadership was selling off the nations water assets to the highest bidder,
as they were still officially owned by the government (Bayliss, 2001). With the
private-public partnership model in place, Guinea went forward with its water
privatization.
Menard and Clark (2002) note how the financial power of Suez-Lyonnaise
combined with the World Bank loans had an immediate impact on the amount of
capital that was suddenly available for Guineas water sector. This granted
Guinea the opportunity to work with Suez-Lyonnaise to formulate a massive
investment plan that would substantially upgrade the nations water sector. The
plan included a $58 million investment to upgrade and expand the water system in
Conakry, the countrys most populous city, adding pipelines and treatment plants
33


that improved both the distribution (18,500 new connections) and the overall
quality of the citys water (Menard and Clark, 2002). Another $14 million was
immediately used to upgrade and repair existing water infrastructure in rural
sections of the country, improving water access for those outside of the major
population areas. Access to this amount to money was simply not possible before
privatization took place.
On the administrative side, Suez-Lyonnaise addressed previous areas of
weakness by bringing in skilled engineers, technical water experts, and corporate
level organizational skills into the countrys water sector. Suez-Lyonnaise
brought in hundreds of employees who had successfully worked on water projects
in the past, bringing in a sense of professionalism that was previously lacking in
the water sector. Cowen (1999) explains how the company used their experience
and expertise to establish an effective metering and bill collection system that
ensured incoming revenue. This was previously a major problem, with only an
estimated 5% of all connections having working meters, resulting in only around
12% of customers actually paying their water bills (Cowen, 1999) Suez-
Lyonnaise, quick to make profits on the companys investments, fixed this
problem and established a reliable metering and billing system. The company
also worked with Guineas governmental institutions to instill some of the
strengths of corporate culture into the newly minted organizations, teaching
professional business values to government officials who collaborated with them
on water projects (Cowen, 1999). All of these measures set out to improve
Guineas water sector so that it could strengthen its population and prepare them
34


for entering the global economy. The next section looks at the outcomes of all the
actors involved in this process and determines if their measures of success were
actually accomplished.
Outcomes
Overall, the outcomes of the Guinea water privatization produced some very
positive results, with some disappointments along the way. Because this case
study is commonly referred to as an example of the possibilities of privatization, I
will first focus on the positive aspects of what water privatization did for Guinea.
The most impressive accomplishment of the Guinea water privatization was
the significant increase in the number of people who gained access to clean water.
Segerfeldt (2005) notes that Suez-Lyonnaise was successfully able to increase the
number of people who had access to clean water from only 20% throughout the
1980s, to just over 70% in 1999, the last year of the contract agreement. This is
considered quite an accomplishment for Guinea, allowing millions of more people
to have access to clean water. Water projects constructed throughout the process
were completed on time and passed quality inspection tests. The water network
was greatly expanded, increasing the countrys water coverage. Prior to
privatization, only 10 cities in all of Guinea were connected to its water network,
at the end of the contract, the number had doubled to 20 cities (Segerfeldt, 2005).
The overall number of water connections in the country also increased, from only
12,000 in 1989 to 30,500 in 1999 (Segerfeldt, 2005). The water production in
Conakry, the nations capital and most populous city, nearly tripled in the ten
35


years (Segerfeldt, 2005). These results dramatically increased the percentage of
the population that had access to clean water.
Bayliss (2001) found in her study that nearly everyone, from the World Health
Organization, local consumer organizations, to the general public agreed that the
quality of the water was far superior after privatization. The Organization for
Consumer Protection in Conakry rated water quality as excellent and in
compliance with WHO norms, specifically noting that it could be consumed as
delivered (Bayliss, 2001). The improved water quality led to another positive
aspect of privatization: the enormous reduction in the number of people suffering
from water borne diseases. The overall number of infant deaths from water borne
diseases such as cholera dropped 33% from 1989 to 1999, with fewer reported
cases of adults getting sick from polluted water sources as well (Bayliss, 2001).
Data such as this demonstrates that the water privatization efforts did in fact help
in protecting Guineas citizens from disease and actually decreased the amount of
people dying from water borne diseases.
The overall customer service of the water sector improved as well, making it
easier than ever before to complain, register faults and get repairs taken care of
(Segerfeldt, 2005). This was primarily accomplished because before
privatization, only 5% of people had functioning water meters, and now that
number has risen to 98%, making it much easier to keep track of individual water
accounts (Segerfeldt, 2005). This tremendous boost in efficiency enabled Suez-
Lyonnaise to collect payments effectively for the water it supplied. The improved
collection rate helped Suez-Lyonnaise earn profits, making at least $3.2 million
36


for every year that the company was in Guinea (Menard and Clark, 2002). The
ten year project also strengthened the companys reputation for carrying out
effective water development projects.
All of these results count as true victories in the Guinea water privatization
effort. The number one goal for all the actors involved, improving the
distribution of clean, safe water to the people of Guinea, was certainly
accomplished. The fact that fewer people died because of water borne diseases
was also a significant achievement. From a business perspective, Suez-Lyonnaise
did what it set out to do, generate profits and positively build upon their
reputation. However the project was not 100 percent successful; there where
some important gray areas that should be addressed.
One negative outcome of the process is a common criticism of water
privatization efforts around the world: a significant increase in prices that citizens
could not afford to pay. Cowen (1999) notes that throughout the process,
especially in the early stages, water prices increased more rapidly than planned,
making it difficult for families to pay their bills. In most cases, it is the private
company that gets most of the blame for higher prices, but this is a unique
instance in which it was the government that was primarily responsible for the
increase in rates. Even though the water project was a public-private partnership,
the government was still responsible for paying its share of the bills to Suez-
Lyonnaise. The Guinean government was a significant percentage of the Suez-
Lyonnaise customer base, accounting for about 30% of its total sales and it was
not paying its bills at a satisfactory rate (Cowen, 1999). During the first two years
37


of the lease agreement, the government paid bills regularly and on time,
succumbing to the pressure from the World Bank to do so. However, over time
the collection rate from the government fell dramatically, from 50% in 1991, all
the way down to a dismal 10% by 1993 (Cowen, 1999). This created a major
problem for the citizens of Guinea, as the cost were than passed on to the smaller
consumers who regularly paid their bills. Water prices skyrocketed, rising from
15 cents per m3 in 1989 to almost a dollar in 1999 (Cowen, 1999). This was a
significant increase that made it very difficult for the average family in Guinea to
afford their monthly water bills, leaving many people with no water at all.
Segerfeldt (2005) noted how the World Bank took notice of the problem and
introduced a sliding-scale subsidization scheme that helped level out the prices
and made water more affordable for lower income consumers. The institution
also applied more pressure on the government, which eventually became more
reliable with paying their bills, and eventually prices fell, allowing more people to
afford water connections.
The other disappointing outcome is related to the long-term goals intended to
be accomplished by the World Bank and the Guinean government itself. The
water privatization in Guinea was hoped to be an important part of the overall
effort towards successfully transitioning into the global economy and escaping
poverty. Sadly, this has not been the case. Guinea does in fact have the potential
to develop; the country is richly endowed with minerals, being the worlds second
largest producer of bauxite, and possessing perhaps 50% of the worlds reserves
(CIA, 2007). Guinea also has the soil, water and climatic conditions to provide
38


opportunities for growth in the agriculture and fishing industries as well (CIA,
2007). Unfortunately, the weak institutional environment that was demonstrated
by Guineas government during its water privatization continues to handicap
development efforts. It is apparent that to fix the problem, the country must work
on strengthening the administrative and judicial structures of its government.
This is a difficult circumstance for the people of Guinea, and it shows in the
countrys economic statistics. The per capita GDP of Guinea is currently only
$1,000 and the growth rate remains slow at 1.5%, with only 21% of the national
GDP going towards investments (CIA, 2007). Economic mismanagement, weak
government institutions, and the lack of a transparent budgeting system have all
come together to cripple economic growth. So while many important goals in the
water privatization were certainly achieved, the project was not perfect, with
Guinea so far falling short of its long-term objective of enhancing the countrys
economic growth.
Lessons Learned
There are several lessons that can be taken out of the Guinea water
privatization. The first lesson revolves around the possibilities of privatization
itself. The case in Guinea demonstrates that water privatization can be beneficial
to countries that are struggling with the responsibility of distributing water to their
citizens. In Guineas case, the involvement of the private sector in the water
supply greatly increased the number of people who had access to water. Suez-
Lyonnaise made the challenge of improving the water supply of Guinea a top
39


priority in its overall business plan, and it paid off with the company successfully
increasing access to water by over 50%. This is a grand accomplishment that
granted access to clean water for millions of people who did not have it before the
privatization effort. Even though prices did increase, the improved access and
quality of the water helped compensate for the higher rates. It should also be
noted that a reason why Guinea found a degree of success in its water
privatization is because all of the actors involved shared a desire to improve the
access to water and stimulate economic growth.
The fact that Suez-Lyonnaise was successful at improving the water sector in
Guinea shows that the private sector has some degree of ability to perform in a
weak institutional environment where contracts can be hard to enforce and
political interference is common. The fact that the water services were able to
improve so dramatically in the presence of such governmental weakness is a
compliment to the privatization effort. Supporters would argue that bringing in a
private company to manage a countrys water sector can compensate for
governments that have dysfunctional bureaucracies. The success of Suez-
Lyonnaise in Guinea provides a good example in the argument that private firms
have superior water management competence and better expertise than public
administrations in small, impoverished countries.
Further lessons emerge in this case study when the reality unfolds that only the
possibilities of water privatization are in fact demonstrated in the Guinean water
privatization project. The reason why the privatization was not a complete
success was primarily due to the fact that Guinea was a young democracy that
40


was still going through the growing pains of becoming a strong republic. Though
Suez-Lyonnaise was able to achieve a significant amount of success in the
absence of a strong institutional environment, there is no doubt that the overall
project would have produced greater results had there been a more competent
government in place to work with. Thus another lesson from this case study is
that for water privatization to work effectively, it takes not only professionalism
and good intentions from the private sector, but from government institutions as
well. The government must be strong enough to live up to its own obligations in
the privatization process and must have the ability to effectively work with all
outside actors that are typically involved when dealing with water privatization.
Privatization works best when its part of a larger program of reforms promoting
efficiency, effectiveness, integrity, and accountability. The main reason why the
Guinea water privatization did not meet all of its measures of success was because
the government did not live up to any of these key criteria. Instead the
government was plagued by a weak institutional environment that demonstrated
signs of gross irresponsibility and did not effectively plan for the future. This is
important because privatization projects are most effective when the private sector
works closely with governments and their citizens. It is important that host
governments are strong enough to regulate the privatization process and are
involved in the decision-making process. The outcomes of the Guinea water
privatization project would have been more successful if the government had
better lived up to its share of responsibilities.
41


The lesson of transparency being critical to both economic and political
success, also shows up in this case study, with the government of Guinea showing
that it was more corrupt than transparent. If the government would have been
more honest and dependable at paying its share of the countrys water bills then
the pricing problems would not have been as dramatic. Corruption ultimately
holds a country back from reaching its goals, as was the case with Guinea.
The importance of having a strong government with capable institutions for
privatization to be successful was perhaps the most important lesson drawn from
the Guinea case study. This was evident in the year 2000 when the contract
between Guinea and Suez-Lyonnaise expired. Progress had stalled because Suez-
Lyonnaise was frustrated with the corrupt government, but the company tried to
negotiate a new 15-year contract that was full of reforms aimed at further
improving the water sector in Guinea (Bayliss, 2001). Much to the dismay of the
World Bank and other investors interested in investing in Guinea, the deal fell
apart and Guinea re-nationalized their water industry in 2001 (Bayliss, 2001).
Today the water industry of Guinea has actually taken a step backwards and the
struggles of the 1980s are re-emerging. At one point, the World Bank had
expected the Guinea contract to provide as an example for the success of water
privatization that could be replicated in other countries around the world that
were facing a water crisis themselves. Unfortunately, this did not come about and
Guinea has become a case study commonly referred to in exploring the
possibilities of water privatization only.
42


The next section of chapter two examines the events that unfolded in
Cochabamba, Bolivia, and how it serves as the primary example for the dangers
and failures of water privatization.
The Case of Cochabamba, Bolivia
Background
While Guinea serves as an example of the possibilities of water privatization,
the case in Cochabamba, Bolivia, is the exact opposite, and is commonly referred
to as the landmark example of the failures of water privatization. The disastrous
results and loss of life that unfolded during the attempted water privatization
exposed some serious flaws in the neo-liberal argument that privatization is the
most effective way to distribute a countrys water resources to its people.
Shultz (2005) notes that Bolivia is South Americas poorest country, with
nearly two-thirds of the population living below the poverty line and an annual
per capita income of about $950. Cochabamba is the third largest city in Bolivia,
with a population of about 600,000 (CIA, 2007). It is located in central Bolivia at
the very edge of the Andes and Rocha River, about 120 miles southeast of the
capital, La Paz (CIA, 2007). As a tin mining boom town that provided ample jobs
to its citizens, Cochabamba used to be the epicenter of Bolivias economy.
However when tin prices collapsed in the early 1980s, Cochabamba and the rest
of Bolivia suffered, falling into a deep economic recession that still plagues the
country today. Shultz (2005) notes how the situation hit an all-time low in 1985
43


when hyperinflation reached the astronomical rate of twenty-five thousand
percent, effectively scaring all foreign investors out of the country.
As time moved on and the Bolivias economy continued to slip backward
because of the massive capital flight of the tin investors, the countrys public
services quickly fell into disrepair, most notably Cochabambas water sector.
Rothfeder (2001) notes the number of people who were connected to the water
supply network fell from 80% in 1991 to only 60% in 1997. It was reported that
50% of the citys water supply was being wasted due to rusty, poorly maintained
pipes and rotting infrastructure. Those who were tapped into the water network
only had access to their water for about 3 to 4 hours a day. Water quality was
inadequately monitored, and thousands suffered from water borne diseases. It
was the poorest citizens of Cochabamba who suffered the most. Water was
heavily subsidized, which mainly benefited the upper and middle classes; the
lower-income families ended up having to pay the highest prices for water, which
was commonly delivered to them in trucks and handcarts, making its quality
suspect (Rothfeder, 2001). It is hard to imagine that the privatization of
Cochabambas water sector could actually make an already dire situation worse,
but that is exactly what it did.
Shultz (2005) notes that with Bolivia in economic shambles and its essential
public services suffering, the government turned to the World Bank for help.
Bolivia had a history of working with the World Bank and had been following its
economic prescriptions since the inflation crisis of 1985. In 1997, the World
Bank analyzed the failing infrastructure of various public services throughout
44


Bolivia and concluded that the country needed to privatize several of its national
industries, considering Bolivias continued poverty and lack of social
improvements as a direct result of the absence of any privatization schemes in the
country (Shultz, 2005, p. 17). Consultants viewed Cochabamba in particular as a
city that was in dire need of water privatization. Shultz (2005) notes that in 1998,
driven by the belief that poor governments are often to plagued by local
corruption and to ill equipped to run public water systems efficiently, and that the
use of private corporations opens the door to needed investment and skilled
management (p. 7), the World Bank announced it would not renew a $138
million dollar loan to Bolivia unless it carried out its various privatization
recommendations. The Bolivian government felt obliged to keep receiving loans
from the World Bank with the hope of being able to stimulate economic growth
and agreed to the conditions of the loan proposal, privatizing the countrys
national airline, phone company, train service, electric utility, and finally,
Cochabambas water system (Shultz, 2005).
The key document that set the privatization tidal wave in motion was known as
the Enhanced Structural Adjustment Facility (ESAF) policy framework paper for
1998-2001, which was prepared by Bolivian leaders in collaboration with World
Bank and IMF consultants (International Monetary Fund, 1998). Policy
framework papers are written by the World Bank and the IMF to serve as outlines
of the macroeconomic policies and structural reforms a country is required to
implement as a condition for receiving loans earmarked for poverty reduction. In
Bolivias case, the ESAF policy framework papers specifically called for Bolivia
45


to privatize Cochabambas water utility (SEMPRA) along with several other
public enterprises throughout the country (International Monetary Fund, 1998).
Bolivia agreed to implement the specific privatization requirements, and signing a
contract with U.S. based construction giant Bechtel to manage Cochabambas
water system in 1999.
Measures of Success
With the process officially underway, the actors involved were ready to move
forward and work towards achieving their measures of success. The actors
involved in the Cochabamba water privatization were the Bolivian government,
the World Bank, and powerful multinational corporation, Bechtel. In the initial
stages of the water privatization project in Cochabamba, all three of these actors
had specific goals in mind that would ultimately define their measures of success.
All three strongly believed they would accomplish the main goal of improving the
distribution and quality of Cochabambas water resources. Unfortunately the
actors involved in this case study all fell short in achieving their objectives, and
the people of Cochabamba continue to suffer today because of the disappointing
water privatization results.
The Bolivian government would first measure success on how effectively
Bechtel improved the water conditions in Cochabamba. Rothfeder (2001) notes
how Bolivia expected Bechtel to improve the overall access and quality of
Cochabambas water by investing in the aging infrastructure, improving the daily
operations, and constructing new projects. One project in particular, known as the
46


Misicuni Dam, was expected to be completed by Bechtel during the privatization
process. Originally started in the early 1990s, the project was supposed to be a
gigantic step in improving the water sector of Cochabamba, but the government
had not yet finished its construction because of a lack of financing. It was
believed that Bechtel could complete the Misicuni Dam within the first five years
of its contract, making it a critical goal for both Cochabamba and Bechtel. The
other major goal of the Bolivian government was to secure more financial aid
from its only international lender, the World Bank. The country was desperate for
loans, and like many other developing countries, was doing everything it could to
improve its economic growth and better the lives of its people. Rothfeder (2001)
argues that the goals established by the Bolivian government, to improve
Cochabambas poor water system, and to receive more international aid, were
measures of success that seemed more like succumbing to the pressures of the
World Bank rather than doing what was actually best for Bolivia. It is important
to note that citizens of Cochabamba had never called for the privatization of their
water resources even though the public utility was failing them.
According to World Bank documents, its most important goals in the
Cochabamba water privatization project were to provide service for all in the
most efficient manner, and lay the foundation for sustainability. Major areas of
focus where system expansion, improvement of operations and management,
accelerated sector development through better policies and regulation, and
improved national coordination (Campbell, 2002, p. 2). To reach the long-term
World Bank goal of providing sustainability to the economy of Bolivia, the
47


country first had to achieve the national goal of providing safe water for its
citizens. Access to clean water resources would vastly help in reducing the
extreme poverty in Bolivia, and would help in creating a healthy population that
was more prepared to enter the global economy.
Scholars such as William Finnegan (2002) argue that besides these objectives,
the World Banks underling goal was to successfully transition Bolivia into the
global economy by having the country following its neo-liberal agenda. Finnegan
supports this argument by pointing to an economic report, the Bolivia Public
Expenditure Review, in which the World Bank stated that no subsides should be
given to ameliorate the increase in water tariffs in Cochabamba (Finnegan, 2002,
p. 44). World Bank President James Wolfensohn further backed up this statement
by arguing that free or subsidized delivery of a public service like water leads to
abuse of the resource; the biggest problem with water is the waste of water
through lack of charging (Finnegan, 2002, p. 45). Finnegan (2002) contends that
countries receiving loan assistance from the World Bank and IMF are often
discouraged from heavily subsidizing public services like water because such
expenditures contradict IMF and World Bank economic formulas for reducing
debt, controlling inflation, and attracting foreign direct investment. For Finnegan
(2002) successfully privatizing Cochabambas water sector was in essence an
objective that was part of the World Banks larger goal of continuing to lead
Bolivia down the Washington Consensus model for development in its attempt to
foster economic growth.
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Bechtel, the multinational corporation that was awarded the Cochabamba
water privatization contract, was at the time of the water deal the largest
engineering company in the United States. Bechtel had over 40,000 employees
working on projects in over 50 countries and had an astounding $20.5 billion in
total revenue (Rothfeder, 2001). At the time of the Cochabamba water
privatization, Bechtel was not yet considered to be in the top tier of water
management companies, that distinction belonging to SUEZ, RWE, and Veolia.
However, in the run-up to Cochabamba, Bechtel had been aggressively trying to
become a major player in the water business.
As a powerful multinational corporation, Bechtels goals would revolve
around dollars more than anything else, with the principal objective being to
generating profits for the company and its shareholders. As a new player in the
water business, Bechtel also wanted to establish a reputation for being a reliable
company for water privatization efforts around the world (Rothfeder, 2001). In
addition, the corporation set out to improve the daily operations of the water
sector, most importantly, advancing the coordination of payment services for
water use so that it could collect revenue. To accomplish these goals, Bechtel
first needed to do an effective job of improving the distribution and quality of
Cochabambas water sector. With a long history in the construction industry, and
plenty of capital to back the project, Bechtel felt confident that it could
dramatically improve the Cochabambas dismal water situation (Rothfeder, 2001).
A big reason why Bechtel felt so confident about reaching its goals was because
49


the contract that was negotiated with Bolivia came with some very beneficial, and
some would say exploitive, clauses.
Implementation
In 1999, under closed door negotiations, the Bolivian government came to
terms on a 40 year, $2.5 billion contract agreement with Bechtel to run SEMAP A,
Cochabambas water system (Finnegan, 2002). The contract was to be
implemented in the common French Model, public-private partnership style, with
Bechtel promising to create a water network that was capable of reaching every
citizen in Cochabamba. The main objective laid out in the agreement was for
Bechtel to double the existing coverage area to get Cochabambas water access up
to 100 percent. The company set out to accomplish this by promising to build
new high-tech water infrastructure, investing in a maintenance program to
improve the existing deteriorating water system, and by funding the completion of
the much over do Misicuni Dam project (Finnegan, 2002).
From the outside, the agreement sounded like any other French Model style of
water privatization that had been done in the past, with both sides cooperating
with one another to achieve similar goals. However, Bechtel had negotiated
sweetheart clauses in the contract that would prove to be anything but fair, and
even disastrous. First, Bechtel would be allowed to raise water rates each year to
match the increase in the U.S. consumer price index, meaning that prices would
rise dramatically (Menard and Clarke, 2002). Second, the contract guaranteed
Bechtel an average 16% annual return on its investment, a demand that the
50


Bolivian government was in no financial position to achieve. Guaranteeing such
a generous profit margin allowed Bechtel to reach one of its most important goals
before the company ever went to work (Menard and Clarke, 2002).
Both of these clauses virtually assured that Cochabamba citizens would have
pay significantly more for their water. According to Segerfeldt (2005), Pricing
intervention to balance supply and demand is a frequently used globalization
stratagem, but the Cochabamba economy and its people couldnt support so
aggressive a market adjustment (p.108). Worse yet for the residents of
Cochabamba, the contract stated that Bechtel could begin to raise the prices for
water well before they had completed the majority of their improvement projects.
Thus the contract seemed to heavily favor the private company and its objectives
more than the goals of government itself. Regardless of the apparent unfairness,
the Bolivian government made the privatization legal by passing law 2029,
verifying the contract with Bechtel and officially beginning the process
(Finnegan, 2002).
Outcomes
It took little time to see that the water privatization project in Cochabamba was
proving to be a massive failure. Bechtel claimed that In the first two months of
the concession contract, water supply increased by 30% through repairs and
technical enhancements (Bechtel, n.d.). Shultz (2002) argues that this seemed to
be a fabricated number because the majority of Cochabamba residents repeatedly
claimed that they had seen no improvements to their water access since the
51


privatization began. With anger already in the air, the situation exploded in
January of 2000, when the water prices skyrocketed, less than half a year after
Bechtel took over the citys water operations, and within a week of the company
beginning construction on the Misicuni Dam project. Shultz (2002) notes that in a
country where the average monthly income was around $70, thousands of poverty
stricken families were suddenly hit with monthly water bills of $20 or more.
People could no longer afford water for their daily needs. Peoples most vital
resource was suddenly swept out from under them, now affordable now to only
the richest of families. Bechtel argued that Rate increases were needed to
finance proper maintenance and expansion of the water system, and even these
rates were comparable to those in other major Bolivian cities (Bechtel, n.d.).
The problem was that the city had yet to experience any significant
improvements, and the shocking new water prices were far too much for the
majority of people to pay, the city quickly became a hotbed of frustration and
anger.
As the rate increases rippled through Cochabamba, activists and local labor
unions rallied the citys citizens to fight against the increased water prices and
renounce Bechtel. The leader of the rising anti-privatization movement was a
man named Oscar Olivera, a forty-five year old shoe factory worker who was the
head of the Cochabamba Federation of Factory Workers (Olivera, 2004). Olivera
quickly proved his leadership skills when he created the movement known as the
Coalition for the Defense of Water and Life, otherwise known as La
Coordinadora. In January of 2000, La Coordinadora, backed by various unions
52


and supported by thousands of Cochabambas citizens, began to fill the streets
and stage the first in a series of massive protests against the privatization of its
water. At one point, the city was shut down for four days and brought to an
economic standstill, ending with promises that Bechtel would not increase rates
again and would work towards adjusting its pricing structure to make water more
affordable (Olivera, 2004).
However, as Oscar Olivera (2004) notes, this was not satisfactory to La
Cordinadora and the people of Cochabamba, who demanded the return of the
citys water system back into the hands of the public and wanted the privatization
effort completely shut down. Fed-up with the governments inaction, the protests
continued and became violent during the first weekend of February, 2000 when
the Bolivian government declared the protest illegal and sent in more than a
thousand troops to disperse the crowds. The skirmishes quickly turned violent,
resulting in about two thousand La Cordinadora and government soldiers
suffering injuries (Olivera, 2004). The police brutality brought even more
supporters to the movement and further escalated public resentment towards
Bechtel. In March 2000, La Cordinadora held an unofficial referendum in which
an overwhelming majority, 96% of the 50,000 voters, disapproved of water
privatization and the Bechtel water contract. Government officials refused to
terminate the contract, stating there is nothing to negotiate (Oliver, 2004, p. 67).
The situation came to a climax in April 2000, as more and more protests
became violent and began to spread beyond Cochabambas boarders. Protest
began erupting in La Paz and other cities and even in small outlying rural
53


communities as well. Shultz (2000) notes that before long, the movement began
to take on a more anti-globalization role, with thousands of protesters roaming the
streets all over the country rallying against, not only the water privatization, but
the countrys overall economic malaise, the high unemployment, and the failures
of neo-liberalism. The Bolivian officials began to feel the pressure and believing
they could not survive without Bechtel and the World Bank, they set-out to
destroy La Coordinadora. Curfews and martial law were put in effect, and the
government conducted nightly raids on La Cordinadora leaders, arresting them on
the spot. Oscar Olivera (2004) explains that the situation was pure chaos, with
people who violated government laws being either arrested or beaten, and in some
cases, even killed. Olivera (2004) noted that It isnt clear how many
Cochabambinos were killed during this time, but its likely that at least six
residents were murdered and tens of thousands were injured (p. 101). With the
Cochabamba water war now in full swing, the government arrested the La
Cordinadora leader on April 6th, 2000. Olivera (2004) notes It was a trap by the
government to have us come in and negotiate; instead they arrested us as soon as
we walked in the door (p. 107).
As soon as word of Oliveras arrest spread, more Cochabamba residents than
ever before poured into the streets, this time with so much fiery emotion that they
spared nothing in their path of destruction. The response was so violent that the
government quickly realized that it had made a mistake and released Olivera
within hours. The next day, President Hugo Banzer declared a state of siege a
condition similar to martial law that is provided for in the Bolivian constitution
54


and can be enacted for 90 days when there is a perceived emergency (Rothfeder,
2001). The act allowed for the arrest and detention of individuals without
warrants and the enforcement of curfew and travel restrictions. The world press
finally took notice and reported how Bolivia was under a state of emergency due
to the water conflict. The rioting continued in Cochabamba and in several other
cities around the country. It became so intense that the Bolivian police threatened
to go on strike themselves because they felt as it they were not being paid enough
for the job at hand (Segerfeldt, 2005).
The incident that marked the end of Bolivias water war occurred on April 8th,
2000 when a 17-year-old boy named Victor Hugo Daza was shot in the face while
protesting at Cochabambas downtown square. Olivera (2004) reminisces in his
autobiography that the Daza killing finally drove home the point that this indeed
was a civil war over water and it was getting out of hand: Sadness replaced
truculence, and nobody seemed to have any more energy to fight (p. 144).
Finally on April 10th under pressure from international diplomats who had
ignored the crisis until the much publicized death of Victor Daza, the Bolivian
government canceled its deal with Bechtel. The water sector was returned to
Cochabamba and national law 2029 which made the privatization legal, was
overturned. Langman (2002) notes that control of the water was granted to La
Cordinadora, who effectively put future water management and development
decisions back into the hands of local communities, requiring that residents be
included in all water related discussions. The Bolivian government also agreed to
55


give financial compensation to the families of people killed and injured during the
water war.
Langman (2002) explains that when the water war was officially over and the
dust had settled, the battle actually continued in the courtroom. Bechtel was not
at all happy with the outcome of the contract with Cochabamba and demanded
that the company be compensated for its financial losses. Thus one of the largest
private companies in the world took legal action against one of the poorest
countries in the hemisphere, suing the Bolivian government for $25 million.
Langman (2002) notes that Bechtel took a lot of negative press considering in the
year 2000 its revenue was $14.3 billion and it was suing a country whose entire
national budget was only $2.7 billion. Oscar Olivera (2004) effectively made the
company look even worse in the public eye when he said With the $25 million
they are seeking, 125,000 people could have access to water (p. 186). The
lawsuit dragged on for years before finally reaching a settlement on January 16,
2006, when both parties finally dropped all financial claims against the other.
The people of Cochabamba had achieved a great victory in defeating a
powerful multinational corporation and earning back the rights to their water.
However when the water was returned back into public hands, the problems that
existed before the attempted privatization were still there. La Coordinadora
eventually returned control of the water sector back to the public utility
SEMAP A, which immediately slashed prices and got them back to the levels they
were at before the privatization effort. However this proved to be the only benefit
of putting the water back into public hands. Only 50 percent of Cochabambas
56


residents have access to water today, and the ones who do only get about 3-4
hours of service per day (Shultz, 2005). The quality of the water has actually
gotten worse, with more cases of water borne diseases spreading around the city.
The water infrastructure, barely touched during the privatization project, is still
old and deteriorating, in desperate need of repairs. Shultz (2005) notes that the
main problem behind all of this is the lack of funding. SEMAPAs annual budget
is around $5 million per year and it has been estimated that to fix Cochabambas
water sector, it would take at least $350 million, a tough irony to swallow when
considering the financial powers that private companies have. With no new
capital being invested into Cochabambas water sector, it will be very difficult to
fix any of the problems. Oscar Olivera (2004), the leader of the anti-privatization
movement and now a national hero, admitted I would have to say we were not
ready to build new alternatives (p. 194).
Lessons Learned
The water privatization that took place in Cochabamba has become a
benchmark case study for exploring the failures of water privatization. The entire
process turned out to be a complete disaster in which none of the original goals
were accomplished, leaving behind lots of important questions for the future
water development.
An important outcome of the Cochabamba case study was the message that the
movement conveyed to the world about the process of globalization and the
integration into the global economy. The events in Cochabamba awakened the
57


world to the controversies and consequences of the neo-liberal, free market driven
policies that are often forced upon developing nations. It demonstrated that the
policy prescriptions of the Washington Consensus can produce dangerous results,
and that reforms are needed to improve the system. What stood out the most was
the ugly business side of economic globalization, which encompasses values that
treat water as a commodity and people strictly as customers. The people of
Cochabamba and the citizens of the world took notice too this, opening up more
avenues of discussion about the implementation of neo-liberal globalization. As
Oscar Olivera (2004) eloquently stated in his book,
Globalization cannot mean the only ones benefiting in making the world one
market are companies. The local people are a part of this relationship as well
- we are the consumers of products being sold or the workers who make and
deliver them and there have to be benefits for us also. Not just promised
benefits later on, but immediate ones as well. Nobody, even us in
Cochabamba, thought very hard about this before they tried to steal our
water, for our benefit supposedly (p. 114).
Millions of people agreed with Olivera, and now Cochabamba is commonly
referred to as an example of what everyday citizens can do to fight the injustices
of neo-liberal globalization.
The way in which the privatization of Cochabambas water supply unfolded
certainly questions the underlying motivations of the Washington Consensus
development model and what it considers to be the common good. In
particular, the contract that was agreed upon by the actors involved in the
privatization process appeared to heavily favor the goals of Bechtel rather than the
goals of the Bolivian government and the citizens of Cochabamba. The clauses in
the contract that called for pricing adjustments and guaranteed profit margins
58


make it easy to argue that the contract was in fact an exploitive mechanism that
was created strictly for profit maximization. In this case it certainly appears that
the notion of the common good centered more on making money than it did on
creating a better life for the people of Cochabamba.
This leads to another important lesson from the Cochabamba case study, that
when power is centralized within the private sector during the development
process, then the outcomes will disproportionately favor the objectives of the neo-
liberal perspective. This is especially dangerous in terms of water development
because the neo-liberal values of monopolization, profit maximization, and
commodification are directly odds with the utmost public value of keeping water
as a common resource that is available to all. In the Cochabamba case, decision-
making was highly centralized within the private sector, with Bechtel calling
nearly all of the shots throughout the development process. The Bolivian
government and the citizens of Cochabamba had little to no say in the
development of their water resources, and it showed in the disastrous results. The
centralized decision making process in Bolivias water privatization effort
completely ignored the reality of local economic conditions, resulting in a
contract that was impossible for the government and the people of Cochabamba to
live up to.
A more decentralized approach to water development would have been more
effective. Private companies need to mold their plans around the material
conditions that are presented to them and find solutions and strategies that are in
correlation with what they have to work with. In Cochabamba there was little
59


effort to ensure that the project would actually be a success for the city and its
people. The project seemed to move ahead only with the private sectors interests
in mind. For water privatization to succeed, state leaders must work together with
private companies and oversee operations, demand certain standards of
performance, and ensure that their citizens will be able to afford the price of
water. A more cooperative plan tailored to local economic circumstances and
structured around the principles of transparency, participation, and social justice
would have provided better solutions. As the World Bank itself admitted A
pragmatic approach tailored to local circumstances should be adopted for
effective institutional development (Campbell, 2002, p. 3). A more
comprehensive development approach certainly would have benefited the
Cochabamba water sector.
This case showed that water privatization is a very complex process with
aspects unique to the country involved and goes beyond just following the one
size fits all neo-liberal development philosophy. In this case, the Washington
Consensus development model was applied in such a strict and one-sided fashion,
that it actually ended up causing considerable damage to its recipients.
Privatization does not make any sense if it leaves the water sector in worse shape
than it was before the private company came in. The consequences of this are
incredibly dangerous. Water is our most precious resource and as Cochabamba
has shown, the threat of full scale wars over its distribution is a reality today and
perhaps the most dangerous threat of tomorrow. The way we distribute water
60


must be fair and equitable in order ensure positive water development in the
future.
Last of all, it must be noted that even though the people of Cochabamba did
win back the rights to their water, the public has so far failed to find a viable
alternative. Certainly this is not the case for many parts of the world, as we will
see in the next chapter, but in Cochabamba, the public water system continues to
fail in distributing safe water to the population. If the public is to take over the
water system they must be held accountable to the same standards that a private
company would and do all in their power to effectively manage it properly.
By examining the privatization case studies of Guinea and Cochabamba,
Bolivia, chapter two has revealed some interesting dynamics of both the positives
and the negatives of private water management. The experience in Guinea has
given credibility to the neo-liberal argument that privatization is the most
effective path towards water development. Guinea showed that private water
companies can bring extensive amounts of financial capital, scientific expertise,
professional leadership, and organizational skills. This case study also showed
that the presence of strong governmental institutions is an important factor in the
outcomes of water utilities. The case of Cochabamba, Bolivia, served as an
example of the failures of water privatization. This was clearly seen in the
outcomes of the privatization project. Cochabamba supports critics claims that
the Washington Consensus model for water development undermines democracy,
is extensively centralized, treats water strictly as a commodity, creates inequality,
and encompasses priorities that are not conducive to the common good. Both of
61


these case studies offered valuable lessons that can help in formulating strategies
for water development in the future.
In the next chapter, I will explore the arguments of the public water
management perspective in the global water development debate by analyzing the
successes and failures of the public water systems found in Porto Alegre, Brazil
and Ethiopia.
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CHAPTER3
PUBLIC WATER MANAGEMENT
Chapter three explores the other side of the global water development debate,
focusing on the perspective that believes the best strategy for solving the worlds
water crisis is keeping water under the control of public institutions. Proponents
of public water management argue that when water is managed and distributed by
public institutions, the principle of the common good is better served.
Advocates contend that public water systems are a superior model for ensuring
that the basic water needs of people are accounted for. Chapter three explores
such assertions by utilizing the case studies of Porto Alegre, Brazil and Ethiopia
to demonstrate both the successes and the failures of public water management.
In the first part of the chapter, the arguments for public water management will
be presented. Although water privatization is a fast-moving trend that is being
pushed heavily by the World Bank and IMF, it is estimated that only 3% of the
worlds water utilities are controlled by private companies (Hunt, 2004). The vast
majority of the world still follows the public management model. Public water
supporters want to keep it this way, and are highly critical of the neo-liberal
principles that are currently being touted in global water development. The next
section in chapter three will examine the highly successful public water system
63


located in Porto Alegre, Brazil. This case study exemplifies the various benefits
of keeping water management in public hands and provides numerous lessons on
what conditions are necessary for successful water development. The last part of
the chapter looks at the case study of Ethiopia, a country that has experienced
numerous struggles with its public water system. Ethiopia serves as an important
case study because it demonstrates some of the most common pitfalls of public
water management. The outline of this chapter will help to identify the strengths
and weaknesses of public water management that can be useful in conceptualizing
water development strategies for the future.
Theoretical Background
Proponents of public water believe there are several aspects of the neo-liberal
ideology that threaten to preserve water as a universal human right. The first area
of concern is the doctrine that the market should be allowed to make major social
and political decisions. In his work The Great Transformation, written over 50
years ago, Karl Polanyi (1944) summarizes the fears of such a concept that are
still strongly regarded today: To allow the market mechanism to be sole director
of the fate of human beings and their natural environment.. .would result in the
demolition of society (p. 73). However, Polanyi (1944) did have faith that this
would not actually occur, stating in the context of post WWII, Within the nations
we are witnessing a development under which the economic system ceases to lay
down the law to society and the primacy of society over that system is secured
(p. 251). Unfortunately, in todays era of neo-liberalism, this is not the case; it is
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the economy that is dictating rules to society, not the other way around. Critics of
neo-liberalism such as Susan George (1999), argue that this is an intimidating
concept in the area of water development because the neo-liberal global economy
of the twenty-first century is solely concerned with profit maximization, not the
benefit of the human good.
Public water proponents point out that even Adam Smith (1776) in his work
The Theory of Moral Sentiments suggests that a level of sympathy is required to
achieve socially beneficial results in free trade economics. Smith regarded pure
selfishness as being inappropriate, and believed the self-interested actor had, or
should have, sympathy for others (Dare, & Coe, 1998). For Adam Smith, moral
sentiments and self-interest would always add up to the same thing (Dare, & Coe,
1998). George (1999) argues this theory is strikingly absent in todays global
economy; financial self-interest has trampled and taken over any sense of moral
sentiments. Twenty-first century neo-liberalism has allowed for the strictly
profit-minded global market to dictate the fate of human beings, creating an
unequal global doctrine for development. The pursuit of profit maximization has
overshadowed the pursuit of improving the human condition. The common
good that neo-liberalism and the Washington Consensus insists that it serves is a
mirage. According to proponents of public water management, the rules and
structure of the global economy today are in fact serving the rich in far greater
proportion than they are serving the poor, and this is beginning to be seen in water
development.
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Neo-liberalism contends that competition allocates all resources with the
greatest possible efficiency. In rebuttal, George (1999) argues that what
competition has done is set the stage for winners and losers in the global
economy, a concept that should not be tolerated in global water development.
Every human on earth needs water, and there should be no losers in terms of
having the right to water. Critics argue that Adam Smiths economic model is
based on the assumption of the presence of perfect competition, which the global
water business currently does not have. Only a handful of companies control the
global water business, creating an environment that resembles an oligarchy more
then a competitive environment. This reality greatly weakens the competition
argument. Thus public water supporters argue that neo-liberalisms theoretical
foundations are not relevant for water development because the free market treats
water as a commodity that cannot always be guaranteed for everyone, and it has
no moral imperative that considers water to be a human right that everyone
deserves.
Public water advocate Elizabeth Hunt (2004) describes some of the most
common moral arguments put forth by those who are against water privatization,
starting with the conventional concern of keeping water as a human right. Hunt
(2004) and many others believe the commodification of water to be wrong -
ethically, socially, and environmentally. Water has traditionally been treated as a
natural right, an ecological commons that is the basis for all life, and its
sustainability and equitable allocation ultimately has depended on the cooperation
among people themselves. Public water advocates fear that when control of water
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is in private hands, the allocation of water resources is implemented according to
the principles of scarcity and profit maximization rather than with the goals of
long-term sustainability and social justice (Hunt, 2004). Ethically, supporters of
public water believe that water is a naturally given common resource that should
not be subject to the neo-liberal principles of economic globalization. Proponents
argue that selling of water services is detrimental because global corporations
operate on an entirely different set of priorities than those of the public interest.
Specifically, scholars such as Hunt (2004) argue that when water becomes a
commodity, its availability becomes based solely on supply and demand,
automatically lessoning its overall availability to hundreds of millions of people
who can not afford to pay for it as a private service. From the public perspective,
this practice is morally wrong. Water rights should be forever linked to the
natural rights of human beings because water is a necessity of life rather than a
luxury item.
Ralph Nader (2005), founder of Public Citizen, a D.C. based non-profit
organization that leads the worldwide campaign known as Water for All, says
the logistical side of the public water argument revolves around the issues of
accountability, transparency, affordability, and sustainability. In terms of
accountability, proponents of public water argue that unlike private companies,
public utilities are first and foremost accountable to consumers. Nader (2005)
backs up this assertion by pointing out that in democratic systems, when served
by a public utility, water users can always hold public officials responsible for
poor quality of water service and for failure to address their concerns. Having to
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stand for re-election is a powerful enough incentive for public officials to remain
responsive to citizens concerns (p. 4). Accountability is not present when a self-
interested private company holds control of the water sector; citizens cannot vote
out incompetent or corrupt company CEOs (under some conditions they do fight
back, as was experienced in Cochabamba, Bolivia).
Proponents contend that public water systems are also more transparent with
their decision making and daily business operations. Hunt (2004) points out that
public water utilities are required to hold open meetings and open records
regarding their business practices and often abide by decentralized decision-
making. This keeps the public informed and involved with the operations of the
local water service. The private water companies who meet in private to make
decisions and keep all federally required financial reports secret do not have to
abide to such requirements. Decision-making within the private sector is
generally a more centralized process that ignores the needs and values at the local
level.
Transparency in public water systems is a direct result of the democratic
process that is upheld when a utility is owned by public institutions. Public water
systems in countries with democratic governments give citizens the opportunity to
be involved in their water resources. Democracy is a vital element in water
development because it ensures that water is managed with the peoples interest in
mind, rather than those of a business corporation. As George (1999) explains,
Democracy is an encumbrance, neo-liberalism is designed for winners, not for
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voters who necessarily encompass the categories of both winners and losers (p.
11).
As for prices, supporters argue that public water systems offer consumers a
lower price than private companies do. Hunt (2004) contends that unlike private
companies, government agencies qualify for low-interest, tax-exempt bonds to
pay for system improvements, helping to keep the cost of running the water sector
down and the rates that customers pay low. On numerous other water
privatization projects around the world, it has become common for water prices to
increase significantly when private companies take over control of the water
services, making it difficult for the lower-income citizens to afford their water
bills. Hunt (2004) points out that even in California, public utilities in the state
charged an average of four times less than private water companies in 2003.
Supporters argue that unlike public utilities, private companies are strictly out to
maximize profits, charging higher rates and minimizing cost in order to do so.
Hunt (2004) contends that public water systems do not have to worry about
making profits and can solely concentrate on providing clean water to its
customers. Proponents also insist that public water is more affordable because
bills that are paid to public utilities are invested back into the system for
maintenance, repairs, and upgrades (Public Citizen, n.d.). Multinational water
companies are not obliged to re-invest all profits back into the water systems they
control; they can invest in businesses or projects they have elsewhere, or can
simply just reward shareholders.
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Finally, public water advocates believe the overall sustainability of water
resources is higher when in public hands. Public municipalities often have to
follow strict governmental regulations when it comes to developing
environmental resources such as water. Private companies often negotiate terms
in their contracts that loosen up some of these restrictions, allowing them to
pollute the environment without facing any consequences. This has resulted in
several cases of private water companies severely polluting local environments
and water resources. Kaufman, Fox, and Snitow (2007) uncovered such an
example in a documentary of a water privatization project that took place in
Felton, California. The company awarded the contract was water giant Thames
Water, who subsequently got the county to agree to ease regulations before
making the deal official. This was no surprise considering Thames Water has
been named worst polluter for seven years running by the London Times in its
home country of Britain (Kaufman, Fox, & Snitow, 2007). The end result of this
water privatization effort was the county voiding its contract with Thames
because the company polluted the city and the water so badly that people actually
noticed that the water coming out of their taps had a horrible taste and smell.
Lastly, supporters claim that public municipalities do a better job of conserving
water resources, arguing that private companies want to sell as much water as
possible rather than conserving it.
While the privatization route has been gaining momentum from being backed
by the most powerful development institutions in the world, there is also an
emerging anti-privatization approach to water management that is taking place in
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various countries around the world as well. One of the most renowned and
successful of these movements taking place is in Porto Alegre, Brazil.
The Case of Porto Alegre, Brazil
Background
Brazil prides itself on being the fourth most populous democracy on earth with
an economy that ranks as the worlds ninth largest in terms of purchasing power
parity, and tenth largest in terms of market exchange rates (CIA, 2007). The
country implemented various free trade and privatization reforms throughout the
1990s in an attempt to become successful in the global economy. The results
have included the creation of a diversified middle-income economy, but with
wide variations in development levels. Strong manufacturing, mining,
technological, and agricultural industries have emerged, but despite the important
economic achievements, the countrys development has been hampered by
numerous social issues (CIA, 2007). Economic inequality, urban violence, and
poor public security and healthcare services are slowing the country down in
terms of reaching its full potential. However, despite these shortcomings, Brazil
is home to one of the most successful individual cities in the developing world,
Porto Alegre.
Porto Alegre is one of the largest cities in Brazil with over four million
residents and is the capital city of the southern most Brazilian state of Rio Grande
do Sul. It has long been known as Brazils most progressive city and has been at
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the epicenter of discussions about alternatives to economic globalization for quite
some time. The city has been host three times since its inaugural session in 2001,
to the World Social Forum, an international anti-globalization gathering of
scholars, government officials, and NGOs that strives to find development
alternatives. The city is known worldwide for its participatory democracy, and a
prime example of this is the Departamento Municipal do Agua e Esgoto, (DMAE)
the internationally recognized public water and sanitation utility, that has
effectively become one of the most referred to models for opposing the global
trend towards water privatization. DMAE is an autonomous municipal service
that is responsible for the collection, treatment, and distribution of water to the
residents of Porto Alegre, as well as for the collection and treatment of sanitary
sewage (Todeschini, 2003). It is the largest provider of water services in Brazil
and is autonomous from Porto Alegres City Hall. DMAE is run as a social asset,
with the public having a voice in every area of its business procedures. With its
roots founded in the principles of public service, DMAE has effectively involved
local communities in its decision-making, enabling true access and transparency.
The results have been successful, with 99.5 percent of the Porto Alegre population
having access to clean water (Todeschini, 2003). As Carlos Todeschini, (2003)
former General Director for DMAE stated Through social control, democracy
and transparency, people push us to be more efficient (p. 9).
According to the human development index created by the United Nations
Development Program (2004), Porto Alegre has the highest quality of life and the
best human development index score in Brazil. In fact, the city has one of the
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best standards of living for any major capital in the developing world (UNDP,
2004). Porto Alegre is the most literate, healthy, and linguistically talented city in
all of Brazil, with people communicating in Portuguese, Spanish, and English
(UNDP, 2004). The UN index is based off of a number of different basic service
indicators including health, literacy, education, security, and quality of public
service index scores in Brazil. The water and sanitation services provided by
DMAE, as well as its participatory business model, have been given a lot of credit
for Porto Alegres high development ratings.
The history of water management in Porto Alegre shows that the formation of
DMAE was very different from the typical pattern of how most publicly owned
utilities have been created in the past. Between 1861 and 1904, a private
company, Hidraulica Porto-alegrense, along with a municipal department in the
citys central administration, combined to control the water resources of Porto
Alegre (Hall and Viero, 2002). In those days, it was extremely rare for a private
company to help manage water resources, but this was the case in Porto Alegre.
In this period, the city was not satisfied with the progress of the private water
company, which did little to improve the citys water system. This, along with a
mass outbreak of cholera, persuaded the government to nationalize the water
sector in 1904 (Maltz, 2005). The city council was now solely in charge of the
water sector and created an administrative department known as the Secretary of
Water and Sanitation to handle all water related issues (Maltz, 2005). The
administration built numerous advancements, including the first sewage system
and the first water treatment plants. These were great achievements, but in the
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late 1950s the city was struggling to finance further improvements to the water
sector and sought out an international financial institution to grant it a loan so it
could continue to improve the citys water services, which were good, but not
excellent (Maltz, 2005). Porto Alegre found a donor in the Inter-American
Development Bank (IADB) the main source of multilateral financing for
economic, social, and institutional development in Latin America and the
Caribbean (Hall and Viero, 2002). The IADB, contrary to the current practices of
the World Bank and IMF, agreed to fund a public water system, but only under
certain conditions. To guarantee the repayment of the $3.5 million loan for
investments in basic water sanitation services, IADB required that the borrowing
entity be autonomous, self-sufficient and have its own separate accounts (Hall and
Viero, 2002). The city council obliged and decided to transform the water
department into an autonomously administrated, financially independent,
municipally owned utility. Thus in 1961, DMAE was bom.
Measures of Success
When the Municipal Department of Water and Sewage was launched, it had
several goals outlined that would be used to measure its overall success. The first
goal was to be completely open to the public and abide by democratic principles,
encouraging as much citizen participation as possible in every area of the
company (Maltz, 2005). DMAE stood by the principles of accountability and
transparency and vowed to reach out to all of Porto Alegres communities to get
them involved in its daily operations. Second, DMAE wanted to provide all of it
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customers with clean water at an affordable price, as well as provide healthy
sanitation services in an environmentally friendly manner (Maltz, 2005). Finally
DMAE pledged to further improve the infrastructure of Porto Alegres water
sector and let the public decide on how to spend, and where to invest, its surplus
finances (Maltz, 2005). Todeschini (2003) sums up the goals of DMAE by
referring to the companys own mission statement:
DMAEs mission is to pursue excellence in the provision of public sanitation
services, emphasizing water and sewage, to contribute to the sustainable
management of natural resources, and to guarantee a good quality of life for
community of Porto Alegre that includes universal provision of the services,
while incorporating social control (p.2).
With the goals of DMAE articulated, the next section examines how the publicly-
owned water utility went about in reaching these goals and explains how the
enterprise has become such an internationally recognized success.
Implementation
The foundations that make DMAE known worldwide as a model for public
water management are accountability, transparency, sustainability, and public
participation. DMAE achieves these principles by practicing them on every level
of its operations. David Hall and Odete Maria Viero, (2002) found that this has
been made possible through DMAEs unique relationship with Porto Alegres
regional government and because of the bottom to top management philosophy
that is incorporated into the organization itself.
Institutionally, DMAE is setup as a public water utility that is wholly owned
by the municipality of Porto Alegre and is subordinate to it on political and
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regulation issues. However, what makes the arrangement unique is that DMAE
enjoys legal, financial, and operational autonomy (Hall and Viero, 2002). As an
autonomous public body, DMAE is fully responsible for its own financial system
and does not rely on government funding for resources. Hall and Viero (2002)
explain that DMAEs finances are ring-fenced so it receives no subsides and
makes no payments to the municipality itself, not even to cross-subsidize other
public services. As a result DMAE has to be financially self-sufficient, covering
all expenses from its own income. It produces its own accounts, separate from the
municipality (p. 7). Essentially, this arrangement categorizes DMAE as an
autarky, granting DMAE the authority to make its own decisions on how to spend
its incoming revenues, meaning that its investment decisions are not directly
subject to the government interference and deliberation that has bogged down
other public utilities elsewhere (Cordeiro, 2003).
Maltz (2005) notes this arrangement was specifically called for by the IADB
when granting the loan that originally created DMAE in 1961, and it has greatly
helped in ensuring that the utility runs efficiently. With DMAE in control of its
own finances, it has successfully been able to re-invest its profits back into the
citys water sector. The department also financially benefits from its tax-exempt
status, allowing it to keep water prices low while still pricing it to match with
current expenses and investments. This system creates a business environment
where DMAE can provide affordable, clean water to all of its customers while
being able to make a profit and re-invest into improving the water services on a
yearly basis.
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However, the city government does in fact retain some degree of power
because the Mayor appoints DMAEs Director General, works with the utility in
implementing projects, and assists in getting the people of Porto Alegre involved
with their water department (Cordeiro, 2003). This is a unique and productive
relationship in which the public utility and the local government work together to
ensure that there is full public participation, solid checks and balances, and above
all, excellent water management.
The other aspect that makes DMAE so successful is the departments
decentralized style of management that gives the people of Porto Alegre the
power to fully participate in the decision making process of the organization. The
management structure of the DMAE consists of three elements: the Director
General, the Technical Management Council, and most importantly, the
Deliberative Council (Maltz, 2005). The three management bodies work together
to construct water projects that are voted on by the people of Porto Alegre
themselves through what is known as the Participatory Budgeting Council.
The Director General is appointed by the Mayor of Porto Alegre and serves the
position for four years. The Director General is responsible for the general
management of the water services and sees that all operations are running
smoothly. He or she presides over meetings of the Deliberative Council and
keeps sessions organized. However, the Director Generals primary job is to
appoint senior managers within DMAE (Maltz, 2005). All of the job positions for
senior managers in the director generals office are publicly advertised and
anyone is welcome to come and apply, but it is the director general who has the
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final say in who is awarded each post. The Director General also keeps in close
contact with the Mayor of Porto Alegre, who implements the chosen water
projects of DMAE.
The groups of senior managers who are appointed by the Director General are
collectively known as the Technical Management Council (Hall and Viero, 2002).
Their primary job is to listen to and effectively carryout the desires of Porto
Alegres citizens in regards to their water services. Here, the Technical
Management Council acts almost as a middle-man, meeting weekly with both the
Director General and the Deliberative Council. Its responsibilities include
analyzing projects, formulating the annual budget, and assisting in recommending
what should be considered top priorities (Hall and Viero, 2002). The Technical
Management Council helps in giving advice and technical support to both the
Director General and the Deliberative Council. In other words, these are the
water industry experts who help to devise effective business and technical
strategies that are modeled to reflect the needs and desires of the Porto Alegre
citizens. They receive approved project ideas from the Deliberative Council and
then technically plan them out and present them in business terms to the Director
General. The Director General then passes on the blueprints to the Mayor who
then finally implements the recommendations. This business practice ensures that
everyone who is involved in the decisions of DMAE gets an opportunity to voice
their opinion and have ideas be analyzed from every section of the organization,
from the bottom to the top.
On paper, the Deliberative Council is listed near bottom of the management
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structure flowchart of DMAE, but in reality it is an influential and unique body
that has ensured social control of DMAE for over forty years. Hall and Viero
(2002) note that the Council is the equivalent to a board of directors; it has the
power to approve all major decisions to be adopted by DMAE and advises on a
number of secondary issues. What makes the Deliberative Council unique is that
it is an institution set up for citizen participation. It consists of thirteen
representatives from different civil society organizations, all reflecting different
political views and interests, incorporating the idea of checks and balances into
DMAEs management (Hall and Viero, 2002). Helio Maltz (2005) a former
member, notes that This feature of the Council is generally regarded as vital to
ensuring its ability to enhance the companys accountability, and despite different
political views of its members there have never been politically dictated divisions
on technical issues such as rate increases (p. 34). There are thirteen different
civil organizations involved in the Deliberative Council, representing a large
variety of social interests. To demonstrate the diversity of organizations involved,
below is a list of all those organizations that made up the council in the year 2002,
with each organization getting one representative:
1) Commerce Association of Porto Alegre
2) Engineering Society of Rio Grande do Sol
3) Industries Centre of Rio Grande do Sol
4) Federal University of Rio Grande do Sol
5) Lawyers Institute of Porto Alegre
6) Porto Alegre Municipal Employees Union
7) Press Association of Rio Grande do Sol
8) Economy Society of Rio Grande do Sol
9) Department of Statistics and Social-Economics Studies
10) Medical Association of Porto Alegre
11) Environment Protection State Association
12) Union of Porto Alegre Neighborhood Association
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13) Union of Real State Intermediary and Administration of Condominiums of
Porto Alegre (Hall and Viero, 2002, p. 9).
The list shows the diversity in the make-up of the Deliberative Council, which
is selected by Porto Alegres mayor and sees a turnover of about one-third of its
members every year in order to ensure that other important organizations get their
chance to sit on the board as well (Hall and Viero, 2002). The Council meets
weekly, with all meetings being completely open to the public. The Council is
responsible for approving all DMAE projects, contracts, and financial operations
that are proposed to DMAE (Maltz, 2005). The Deliberative Council has
represented many sectors of the society in the forty plus years since it has been
created, and has played an important role in ensuring that all of Porto Alegres
citizens receiving clean water at a cheap price. However the chain of command
of DMAE doesnt stop here; there is one more public body that the Deliberative
Council and all the other elements of the DMAE organization are accountable to:
the everyday citizens of Porto Alegre.
The people of Porto Alegre are the number one contributors to the most
important and distinguishing characteristic of DMAE, known as participatory
budgeting (Maltz, 2005). Participatory budgeting is a fully decentralized
decision-making process that allows the public to decide what projects DMAE
should invest in. Hall and Viero (2002) note that the participatory budget
process is a form of direct democracy, allowing citizens to participate in the
neighborhood they live in and choose which of their priorities the municipality
should implement (p. 10). This is a remarkable occurrence in which the public
has a direct voice in deciding exactly where their money goes. Hall and Viero
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(2002) note how the participatory budgeting takes place in the 16 regions in
which the city in divided. Anyone is welcome to vote, regardless of political or
religious affiliation. Participation is strictly voluntary, but this would be hard to
tell considering that participation is very high and grows exponentially with each
passing year.
Andre Cordeiro, (2003) a Brazilian economist who commissioned a study of
the public water sector in Porto Alegre, explains that over a calendar year, there
are three rounds to the participatory budgeting process. The first round occurs in
the months of March and April. These initial meetings consist of the citizens
coming together and discussing what they think are the most important water
projects that need to be addressed in their region within the coming year. Several
meetings take place over this time period, occurring in neighborhoods,
marketplaces, and community centers. Cordeiro (2003) notes how the
government takes numerous steps to participate and help in the meeting process
by sending representatives to local gatherings to present proposals and provide
basic and vital information to improve the quality of the discussion (p. 25).
These representatives enrich the discussion by providing technical logistics of
proposed projects, detailed reports of the previous years activities at DMAE, and
information regarding budgets for the year. After these measures by the
government, weeks of critical discussion occur about prioritizing what are the
most important water projects that need to be implemented in the coming year.
Once the priority lists are narrowed down, citizens hold a vote on what projects
they feel are the most important. Voting occurs at the end of April in voting
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stations set up by the government in neighborhoods across Porto Alegre. After
the vote, lists are put together to represent the five most voted on priorities for
each of the 16 regions, and are then passed on to the Deliberative Council for
DMAE consideration (Cordeiro, 2003).
The second round of the participatory budgeting process takes place in June
and July. Cordeiro (2003) explains that the second round begins with each of
Porto Alegres 16 regions electing two councilmen to represent their respective
regions priority lists at the Deliberative Council. This group of representatives is
collectively known as the Participatory Budget Council, whose members are
voted in on a yearly basis with only one re-election permitted. The role of the
Participatory Budget Council is to lobby its respective projects and work with the
Deliberative Council in formulating an investment plan that best represents the
priorities on their regions lists, and to approve of the projects chosen by the
Deliberative Council (Cordeiro, 2003). The water experts in the Technical
Management Council help in this process by addressing the technical feasibility
of the proposed projects and calculating how much money and manpower will be
required to get the projects done. Once a budget is determined, an investment
plan is formulated that determines which projects will be accomplished in the next
year. Projects that were rated as the most important by the voters in their
respective regions are weighed in heavily during the decision-making process.
(Cordeiro, 2003). Projects that were rated the lowest (the least voted for) on lists
are sometimes not budgeted into the investment plan and often make appearances
on the next years lists in higher order. Once the decisions are made by the
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Deliberative Council, the representatives prepare for the final stage of the
participatory budgeting process, which is completed in October and November.
The third step of the budgeting process actually begins in August and goes into
September when members of the Participatory Budget Council review the projects
that were approved by the Deliberative Council. In these months, the programs,
services, and proposed investments are carefully reviewed and discussed.
Cordeiro (2003) notes how even though it is the Deliberative Council who makes
the decisions on what projects are to be initiated in the next year, they still have to
be approved by the members of the Participatory Budget Council, not only from
the technical and financial point of view, but from a logistical point of view as
well. In this process councilmen dont necessarily reject approved projects, but
rather shuffle them around. Members strongly take Porto Alegres overall water
situation into consideration, looking out for each others regions needs. If a
particular region did not get a project approved that is commonly viewed as being
better for the city of Porto Alegre as a whole, then another region will recognize
this and forgo one of its less important projects, freeing up money and resources
that can be spent on another regions project that is considered more important.
Essentially this is merely just tweaking the allocated budget and resources that
were granted to the city of Porto Alegre by DMAE. In his study, Cordeiro (2003)
explains that Resources are distributed between regions according to their needs
and population sizes. Those with greater needs are and higher populations receive
a larger volume of resources for the priorities that they have selected (p. 27).
Usually the changes are minor, but this process ensures that projects and
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resources are evenly distributed and that the water sector works for everybody.
Once changes are made, money is re-allocated, and the Technical Management
Council once again advises on any new projects. The process concludes in
November, when the Participatory Budget Council gives its final approval of the
upcoming years investment plan and passes it on to the Mayor.
In January of the following year, the implementation of the projects begins and
the focus turns to the monitoring of DMAEs selected projects. Commissions are
set up to follow the progress of water projects and report them to the local
communities. While this is going on the citizens of Porto Alegre are already hard
at work thinking about what proposals to bring for the following years projects,
and the process starts all over again.
The Deliberative Council and the Participatory Budget Council are designed to
work together throughout this process and rationally deal with any conflicting
interests. Hall and Viero (2002) explain, With the direct and continuous
involvement of the population through the Participatory Budget, social control is
exerted over the water undertaking, and there is a dialogue between consumers
and service providers, which enables the creation of a collective awareness of
how to achieve and maintain a sustainable water system (p. 11). The two sides
work together in a cohesive fashion to do what is best for the citizens of Porto
Alegre and what is necessary to keep DMAE strong. This cooperation has
effectively met three key public objectives: the peoples need for a reliable,
sustainable service, the strong public desire for the sustainable use of their natural
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resources, and the permanent engagement of citizens in the management of public
funds (Hall and Viero, 2002).
Once projects are set in motion, DMAE does all it can to ensure transparency.
Cordeiro (2003) explains that there are several steps taken to ensure that the
business process and inner workings of DMAE are as transparent as possible.
First, all decisions made by the voters are documented and published. All
documentation is published in a year-end report, allowing the public view the
progress of all the decisions made through the participative budgeting process.
Secondly, DMAE actually posts billboards in the Porto Alegres city centre
showing how the yearly budget was spent, and how projects appropriated for were
implemented. All this information is now readily available on DMAEs website
as well. Finally, all of the internal rules of the participatory budgeting process are
established by participating citizens, making the process self-regulating. The
participating members can vote to change rules in order to improve performance.
As Cordeiro (2003) explains, The purpose is to guarantee the independence of
civil society in its relationship with the state. This gives the participating citizens
power and liberty to control the actions of the government (p. 33). These
standard procedures at DMAE demonstrate the great lengths the organization goes
in ensuring transparency in all of its operations.
The structure and business practices of DMAE have created a water sector that
is transparent, accountable, and above all else, democratic. With these principles
in mind, DMAE ultimately measures its success simply on its overall quality of
service to the people of Porto Alegre. The company considers itself successful if it
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effectively distributes clean water to all of its customers and continues to strive
towards doing so in the future.
Outcomes
The accomplishments of DMAE have been very impressive. The organization
has been internationally recognized for being an excellent model for public water
management. In June of 2003, the city of Porto Alegre was awarded the
International Water and Cities Prize in the fifth Water Symposium at Cannes,
France for the management of its water resources (Slocum, 2007). The
recognition has even led to some consulting work for DMAE, who has been
invited to share its public water experience in Italy and Switzerland,
demonstrating the potential for other countries to apply the DMAE model into
their own cites.
Of course the most important measures of success for DMAE have not been
the international praise and awards, but what it has been able to do for the city of
Porto Alegre itself. The most important accomplishment has been the fact that
99.5% of the population in Porto Alegre have access to clean water (Hall and
Viero, 2002). This number is even more impressive when considering that Porto
Alegre has more than doubled in size from some 700,000 people in 1961 to
1,661,000 in 2007 (CIA, 2007). The overall quality of the water is deemed
excellent by the World Health Organization. This can be attributed to the fact that
DMAE monitors it supply very carefully, analyzing over 3,000 samples of water
taken from over 280 points along its pipeline network on a monthly basis (Hall
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and Viero, 2002). As a result of these procedures, Porto Alegre has the fewest
registered cases of water bom diseases in all of Brazil. For example, Brazil had a
cholera outbreak recently, yet not a single case was identified in Porto Alegre,
demonstrating that DMAEs highly controlled water treatment system acted as a
barrier to the disease (Maltz, 2005). Just as important, DMAE has been able to
provide the citizens of Porto Alegre with clean water for price that everyone can
afford. The average household in Porte Alegre consumes about 16m3 of water
per month, with the monthly bill being about $7.50 (Slocum, 2007). This is a
price that even the poorest of families in the city can afford, granting them access
to lifes most precious resource. Under DMAE access, quality, and affordability
are all accounted for, making it a resounding success for the people of Porto
Alegre.
The financial independence of DMAE has provided the opportunity to invest
its surplus revenues back into the company. This set-up has allowed DMAE to
provide its operations with excellent infrastructure that ensures top-notch
customer service. DMAE has provided Porto Alegre with all of the pipelines,
treatment plants, connection services, sewage systems and machinery that are
necessary for guaranteeing affordable and safe water. Slocum (2007) notes that
the water system network is constantly being expanded and upgraded, with an
estimated $19.2 million being invested in Porto Alegres water infrastructure in
2006 alone. As of 2004, 157 water projects have been worked on, with the
majority of them having been completed (Maltz, 2005). DMAEs dedication to
keeping Porto Alegres water infrastmcture at the highest level possible has
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helped the city and its population in moving forward toward positive
development.
The strides toward progressive development in Porto Alegre have not gone
unnoticed by the international business community. In 2005, Porto Alegre was
acknowledged as being one of several cities worldwide with a high potential for
attracting foreign investment in the next 10 years (Maltz, 2005). The study was
published in the international report World Winning Cities a study issued by the
English consultancy Jones Lang LaSalle. The report looked at 24 cities around
the world, only one of which, Porto Alegre, was located in Brazil. According to
the study, besides being economically developed, Porto Alegre was chosen for its
excellent quality of life, as a global reference point for participatory democracy,
and for having good conditions for starting a new business (Maltz, 2005). Its
easy to understand how a well-run public water utility such as DMAE would have
an impact on this choice. By keeping the citys population healthy with lull
access to clean water, Porto Alegre creates a positive environment for sustainable
development and success in the global economy.
DMAEs public water management has been very successful. The goals that
were established during the original creation of DMAE have all largely been met.
DMAE has provided the people of Porto Alegre with clean water at an affordable
price, built the necessary infrastructure to maximize distribution, and laid down
foundations for positive economic and social development. DMAE has proven to
be a sustainable and responsible municipally-owned water system that could
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certainly be used as a blueprint for public water management in other parts of the
world.
However, it should be noted that the success that has been experienced through
Porto Alegres decentralized public water management is not necessarily
universally applicable in all parts of the world and does not guarantee positive
results. In other words, local governance is not a panacea (Cavanagh, 2004).
Localization does not guarantee democracy, human rights, equity, or good
governance. There have been many cases around the world where local
governance has been authoritarian, oppressive, and even brutal. However this
case study has demonstrated that bringing governance and economies down to
smaller-scale systems, where people are closer to the sources of power, offers far
greater opportunity and promise for democratic participation than the current neo-
liberal model for global water development.
Lessons Learned
The public water management practices that are currently taking place in Porto
Alegre, Brazil offer several important lessons that the international community
can take into account when formulating strategies for water development in the
future.
The first lesson that comes out of the Porto Alegre case study is simply that
public water management can work. Public water management is excelling in
Porto Alegre despite the claims from the World Bank and the IMF that public
water systems are inferior to privately operated systems. DMAE proves that with
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the right methodology in place, public water can not only work, but can thrive.
DMAE has created one of the most successful public water utilities in the world,
and has done so by rejecting several of neo-liberalisms core principles. Instead,
the public water utility has been guided by three ideals that are often in conflict
with economic neo-liberalism; democracy, decentralization, and participation.
Democracy has been the cornerstone that has made DMAE into the highly
successful public water utility that it is today, revealing an important lesson in
international development policy: democracy must be accounted for when
attempting to develop a nations natural resources. Because water is at natural
commons that is required for all life on earth, it is necessary that its distribution
and conservation abide by the principles of democracy. Allowing the public to
directly exercise their power to decide and oversee is critical in water
development. As Fisher and Ponniah (2003) argue, Social democracy means
that major socio-economic choices, investment priorities, and the fundamental
orientation of production and distribution are democratically discussed and
decided upon by the population itself, and not by a handful of exploiters or their
supposed market laws (p. 336). Extending democracy to the social and
economic spheres is a common argument in the anti-globalization movement and
is applicable to water development as well. It helps to ensure that water stays as a
common resource that is available to all of the worlds citizens rather than a being
a commodity on the open market.
The level of decentralization has also been a critical part of DMAEs success
and is a practice that can improve both public and private water management in
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the future. Decentralizing decision-making all the way down to the local level has
been a key factor in DMAEs success, and is vitally important when dealing with
a common resource such as water. Decentralization has produced several benefits
in Porto Alegre, starting by guaranteeing that the water needs of the people are
effectively being addressed. DMAE has successfully brought governance closer
to the citizens, giving them a chance to voice their opinion on what they feel are
the most urgent needs related to their water services. Decentralization allows for
greater participation, which means that decisions made are more connected to the
interests of society. This practice has worked remarkably well in Porto Alegre
and can work effectively in other situations as well.
The decentralization practice within DMAE has directly led to the
participatory budgeting process that has also been so important to Porto Alegres
success. An important lesson that has come out of the participation element of
Porto Alegres water sector is that it has given the people a sense of self-
ownership in their water utility. This is beneficial because it creates an
environment that stresses the importance of community and conservation. It can
be argued that people care more about the politics of water and tend to not waste
as much when they feel like they have a voice in the distribution practices of the
resource. The mobilization of local communities in Porto Alegre for the purpose
of improving water distribution has proven to be very effective, showing that
community participation is an important factor regarding the success or failure of
water services. A community is more likely to come together and participate if its
people feel as if they are actually helping themselves rather then the profit margin
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of a foreign multinational corporation. This has been the case in Porto Alegre and
it is a practice that is very important in terms of water development.
The presence of strong government leadership has also been an important
element in DMAEs success. The local government in Porto Alegre, has the
strong institutions in place that have made it easier for DMAE to work
productively. The government has helped inform their citizens about water
projects and made considerable efforts in making the people understand that they
are an important part to the success of the water utility. The government
effectively does its part in creating the proper conditions for progress, and in turn
has seen its population receive proper water services.
These three principles, along with the strong institutional environment, come
together to ensure that the interests of the public are considered over the interests
of the private sector, a critical factor in water development. It is important to note
that development of this sort, one that respects the values of local communities
and believes in democracy, encompasses a very different set of success measures
than the neo-liberal development perspective. With the local people themselves
being in charge of the water utility, the goals and motives of the company focused
more on doing what was beneficial for the citizens themselves rather than strictly
being driven by the potential of making profits. Instead of striving towards profit
maximization, DMAE worked solely towards maximizing water distribution.
These are striking differences that can essentially be broken down to the simple
terms of money versus people. Many globalization scholars would argue that the
Washington Consensus model has faced such a tremendous global backlash
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