After finalising its own water strategy, the World Bank finds itself amid a storm of controversy during a series of global meetings around the future of financing water infrastructure. Conflicting signals from the Bank over the issue of public or private management remain.
Despite earlier voicing harsh criticisms of a draft (see Bretton Woods Update 27), Bank Board members approved the largely unchanged Water Resources Sector Strategy (WRSS) in late February. The most controversial elements continue to be its stated desire to “re-engage with high-reward/high-risk hydraulic infrastructure”, its emphasis on the role of the private sector and its failure to embrace the recommendations of the World Commission on Dams (WCD). Patrick McCully of International Rivers Network called the Strategy “reactionary, dishonest and cynical”. “The WRSS shows that the Bank is seeking to turn back the clock on water management.”
White knight or white elephant?
Much is at stake in the debate as water-related lending has accounted for 16 per cent of Bank outlay over the past decade. Looking forward, the Bank estimates that investments in water in developing countries will need to increase from the current level of about $75 billion per year to $180 billion per year to reach the Millenium Development Goals for safe drinking water and sanitation.
The recommendations of the Bank’s new strategy find support from the World Panel on Financing Water Infrastructure, led by former IMF Managing Director Michel Camdessus. The panel’s report, released on 5 March, argues for international financial institutions to “resume lending for dams and other large water storage and transfer schemes”, and to increase guarantees and other public subsidies for private investors in water infrastructure and supply.
NGOs working in the water sector have questioned the legitimacy of the twenty-member panel, most of whom are senior officials from the world’s major development banks, private lenders and water companies. International Rivers Network has charged that “the Camdessus Panel’s recommendations have nothing to do with solving the global crisis of water mismanagement – and everything to do with justifying more business for the bankers and corporate chiefs on the panel. This is pure pork-barrel self-interest.”
Ravi Narayanan, Director of UK-based WaterAid, and one of only three NGO representatives to sit on the panel, questioned the report’s emphasis on large-scale schemes. “There are alternative and traditional technologies used in water storage systems that are cheaper, more easily maintained, have a longer lifespan, and are less environmentally and socially destructive than many modern dams.”
Both the Bank’s water strategy and the Camdessus panel findings have been criticised for ignoring the recommendations of the World Commission on Dams. After its initial enthusiasm for the WCD process, the Bank has turned its back on the findings (see Bretton Woods Update 30). The unprecedented multi-year multi-stakeholder initiative is referred to only as a “significant point of reference” in an annex to the WRSS. Similarly, the Camdessus Panel urges financial institutions not to improve their policies to prevent the repetition of past dam fiascoes as suggested in the WCD, but to “remove unnecessary internal brakes on their water lending” and “resume serious lending for all major water projects.”
Yet another forum failure
The Third World Water Forum, held in Kyoto, March 16-23, ended with all participants feeling that they had failed to achieve their objectives. NGOs were unable to secure the characterisation of water as a human right in the final declaration and the Camdessus panel recommendation for a global watchdog to monitor progress towards the Millennium Goals was not adopted. Also not addressed were gender issues, the impact of climate change on sea levels and water management through poverty reduction.
“I honestly don’t know why I keep coming to these things,” said one World Bank official on condition of anonymity. “We keep going around and around about the need to take decisive action but at the end we are no nearer to solving the problem than we were before.”
The fiercest debates during the Forum were over public versus private ownership. Prior to the start of the summit, a series of studies by the International Consortium for Investigative Journalists revealed a string of Bank-led water privatisation schemes in Latin America, Asia and Africa that have been plagued by contract irregularities, lack of transparency and, in some cases, an outright failure to improve services (see ‘Aguas Tango’ below).
However Bank representatives at the Forum attempted to distance themselves from earlier attempts to promote privatisation in the water sector. Ian Johnson, WB Vice President for Sustainable Development, protested that “we are not religious zealots when it comes to privatisation. There is an urgent need to move beyond what has become a stale and polarized debate on public or private management. The debate is not about public or private but about sustainable access to safe water supply. Only by concerted action on the part of all parties can improvements be made.”
In an upcoming paper, Michael Klein, WB Vice President for Private Sector Development and Infrastructure, concedes that “private participation in infrastructure is no panacea.” He urges development agencies not to walk away when governments are unable to pursue sustainable projects, either public or private. Klein argues against overselling the benefits of privatisation – “the private sector can not pay in the end. It can only help finance.” He recommends better focusing of subsidy schemes to extend service coverage.
This about-face has, in large part, been forced on the Bank as private sector investment in developing countries water infrastructure has dried up. After early enthusiasm, multinationals are re-assessing the risks involved in providing Southern country water contracts. According to WaterAid’s Peter Sinclair, private companies were “only ever capable of filling a small percentage of the needed investment. What is needed is a renewed approach to working with the public sector.”
All of these debates will come to a head at the G8 summit in Evian, France in June, where the real money to address financing water infrastructure may be on the table. It remains to be seen if progress will be held up by the albatross of privatisation.
‘New Rules, New Roles: Does PSP (private sector participation) benefit the poor?’, Wateraid/Tearfund
Third World Water Forum press release, Tearfund
A failed World Bank funded privatization project, IBON Foundation
Water policy series, CNES
During negotiations for the revised Buenos Aires water contract, a senior World Bank water manager joined the staff of Aguas Argentinas [owned by French water multinationals Vivendi and Suez]. Under the World Bank’s Staff Exchange Program, Ventura Bengoechea went to work for Aguas Argentinas in 1997 and continued until a new contract was signed in 2000. His job was negotiating rate increases or, as the Bank says, “preparation of proposals for modifications to existing tariff regimes and for their negotiation with the regulatory entity.” The World Bank continued to pay his salary. After returning to the bank, Bengoechea became senior water and sanitation specialist for Latin America and was team leader on a $30 million loan made to Argentina in 1999. A spokesperson for the World Bank said that such arrangements were fully consistent with Bank rules.