Privatization of Water

The World Bank’s water privatization policy

The World Bank initiated water sector reforms aim primarily at privatizing water utilities and commercializing water resources. The water privatization policy of the World Bank articulated in a 1992 paper entitled “Improving Water Resources Management” proceeds from the belief that water availability at low or no cost is uneconomical and inefficient.

The World Bank argues that "Public sector providers waste water too much, typically losing 40 to 50 percent of their volumes through leaks and theft". Consequently, by the Bank’s logic, this accounts for governments’ inability to expand services to urban slums, small towns and villages. Moreover, governments commonly cite issues of corruption, inefficient water service, and inability to provide piped water access to the poor as reasons for inviting World Bank assistance.

As a solution to public delivery failure, the World Bank supports and vigorously pushes private participation. It asserts that increased cost recovery and privatization will actually expand access to clean water and sanitation, including for the poor.

Loan Conditionalities

Behind the pro-poor avowals of multilaterals, however, the standard policy advice of the International Monetary Fund (IMF) and the World Bank remains largely anchored on prioritizing debt payments by cutting government subsidies, increasing revenues, and shrinking the public sector through "privatization". More specifically, this means selling public enterprises such as the water, electricity and telecommunications sectors to private corporations. In effect, the Bank and Fund force borrowing countries to adopt free market policies, such as slashing government spending by privatizing public services towards removing "barriers to trade," and forcing nations into export orientation, in the belief that this would enable a quicker way of repaying their debts. The experience of developing countries that privatizing public service assets has increasingly reduced the poors’ access to health care, water and power services, education, etc. continues to be ignored.

Private sector participation (PSP) or the privatization of water supply services in Nepal is a conditionality of various loans and technical assistance projects of the Asian Development Bank (ADB), with co-financing from other donors such as the Japan Bank for International Cooperation (JBIC) and the Nordic countries.

Melamchi Water Supply Project (MWSP).

In December 2000, the ADB approved a US$ 120-million loan to finance the controversial Melamchi Water Supply Project (MWSP) which would divert 170 million liters daily (MLD) of water from Melamchi River via a 26 km long tunnel to a water treatment plant and distribution facility yet to be constructed in the Kathmandu Valley.

The Melamchi project aimed to solve the chronic water supply shortage in the Kathmandu Valley in Nepal. The existing water supply network and associated equipment would also be rehabilitated and/or replaced. To add to its complexity, the

MWSP also sought to develop a comprehensive institutional framework for water resource management within the valley.

The total project cost was originally estimated at US$ 464 million; JBIC, Norway and Sweden agreed to co-finance the project. Tunnel construction would cover 32 percent of the total cost, rehabilitation of the network, 46 percent, and the management contract plus institutional reforms, 4 percent. The World Bank earlier agreed to provide financial support to the PSP process but pulled out in mid-2002; ADB then came in to help prepare a 5-year management contract.

While Nepal is about to taste it’s celebration on democracy, the Parliament has passed a resolution to privatize the government owned Nepal Water Supply Corporation (NWSC) on December 3, 2006 due to ADB pressure. Will privatization of NWSC resolve the supply of drinking water in Nepal?

The Melamchi project is being pushed through at huge social, economic and environmental costs. Full cost recovery for urban water supplies is among the reforms instituted through the Melamchi project. In 2004, the government decided in 2004 to increase prices annually by 15 percent. For the past two years the tariff has remained the same, which means the next increase would be a whopping 30 percent. Consumers paying Rs 50 for 10,000 liters, for instance, would have to pay Rs 66.

In May 2004, water rights activists and affected community groups filed a complaint at the ADB’saccountability mechanism, citing noncompliance by the Bank of its own policies in Melamchi project implementation viz: Access to information; Environmental Impact Assessment; Land acquisition, compensation and resettlement; Indigenous peoples; Social Uplift Program; Agriculture; and Forestry.

In July 2005, Norway pulled out from the project, citing developments after the February 1 royal takeover as “a serious setback to multiparty democracy, constitutional monarchy and human rights”. Sweden formally terminated its commitment in 2006. Also in July 2005, Nepal’s former Prime Minister, a minister and Melamchi project officials were convicted of corruption and got two years jail sentence.

In March 2007, a Joint Review Mission of project donors agreed to scale down the project from US$ 464 million to US$ 350 million, raising serious concerns about the original cost estimates of the project. Earlier scheduled to be completed by 2006, the Melamchi project will now go beyond 2011.

Campaign vs Severn Trent

When three other bidders withdrew, Severn Trent bagged the US$8.5 million contract to manage Kathmandu’s water supply for six years, amidst questions of the legality of selecting a single bidder and the lack of competition. Severn Trent should guarantee two hour water supply to 190,000 taps in Kathmandu in the two years before the Melamchi project is completed. Government officials argue that Nepali companies were not qualified enough to take up the job and hence the need to bring in foreign expertise. It should be noted, however, that Severn Trent’s record elsewhere in the world had not been as sterling as painted by government. In February 2007, for instance, the government of Guyana cancelled a five-year water management contract with Severn Trent citing the company's failure to meet five out of the seven objectives in the contract. Several Nepali water rights activists and workers unions have launched a campaign for Severn Trent to withdraw from the contract.

Public water management and alternatives to PSP

Public water management is still the solution, with reforms put in place to support the autonomy and efficiency of public water operators. NWSC has been saying that it had not been given any chance for reform, or to perform autonomously.

The role of Kathmandu Valley’s five municipalities and community-based enterprises such as local cooperatives in water supply should also be strengthened.

What Kathmandu needs is public investment in its water supply and management - to cut the leakage rate and upgrade the water supply network served by the many small local rivers and springs and ponds. Nepali water experts argue that just upgrading the ageing water mains and cutting back on leakage would augment supply by anywhere between 40 to 70 percent. International donors had been quick to dismiss other cheaper and more appropriate options such as proper groundwater re-charging and collection; rainwater harvesting; constructing shallow tube well; rehabilitating hand dug well and

traditional stone spouts; improving billing collection efficiency and cross checking for proper metering. Construction of reservoirs on the Kathmandu Valley rim to store monsoon runoff is much less expensive than drilling a long tunnel. Finally, the collaboration of NWSC and Kathmandu Valley's municipalities in ‘public-public partnership’ (PUP) schemes should also be explored, where the provisioning of water remains a social good and controlled by a transparent, accountable and participatory public rather than viewed as a source of profit.

Kathmandu: The report made public by the parliamentary committee for development on February 17, 2011 stated that the construction of the Melamchi Water Supply Project has been delayed due to lack of clear legal provisions on land acquisition, compensation and on the issues relating to demands of the locals. The report has urged the government to introduce and implement a clear policy regarding the issues it has pointed out.

The report has pointed out that the project cannot fulfill different demands of the locals of project-affected areas including physical infrastructure development, education, health, water supply and road.

The China Railway 15 Bureau Construction Company—the company responsible for constructing 26.5 km long tunnel of the Melamchi project—has completed only 440-m tunnel from Sundarijal and 169-m tunnel from Sindhu so far due to frequent obstructions from the locals. The parliamentary committee for development stated that it would give necessary directives to the government after conducting detailed discussion on the report.

A high level technical team of a Chinese construction company has pledged to complete construction of the tunnel of Melamchi Drinking Water Project (MDWP) by 2014.

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