05.12.2002 Feature Article

Privatisation of Water Delivery in Ghana – Issues To Be Considered

Privatisation of Water Delivery in Ghana – Issues To Be Considered
LISTEN DEC 5, 2002

There is an interesting debate currently going on about the merits or not of water privatisation in Ghana. The country is under considerable pressure from the World Bank/IMF to privatise its water delivery system. My intention here is to highlight certain issues, which I think need to be taken into consideration before making decisions concerning the management of water delivery in our country. I am in no way against the privatisation of water delivery however my main concerns relate to the structure of ownership of our water delivery infrastructure, the implications to consumers and future development of Ghana. These concerns identified can be grouped under the following: The ownership structure, and management of water delivery throughout the country. The obligation of managing companies to consumers. The cost to consumers. The future development of water delivery infrastructure in the country. The argument proposed by institutions favouring private sector participation in water delivery is that by transferring the delivery of water from state hands into the private hands, increased efficiencies gained through much needed investment will result in better services for customers. I do not dispute that assertion, and actually believe it to be true. However, private participation does not mean a failure to build local management capacity and instead handing over the most attractive elements of our water delivery infrastructure to foreign owned firms. There is the view that Ghana Water and Sewage Corporation (GWSC), the body charged with managing the delivery of water since independence has failed in its capacity, and should be privatised i.e. replaced with a private but not necessarily foreign owned company. The following points have been raised to support that argument: A private company can ensure sustainability through cost recovery A private company is a more efficient service provider A private company can help expand delivery of water to all including the poor If recent experiences in Ghana are anything to go by, private (foreign) firms have not always proved to be far more adept at service delivery. An example of this is Ghana Telecom, an organisation whose activities impacts on the well being of a lot Ghanaians, and until recently was managed by a Malaysian led consortium. This company failed to deliver a significant improvement in performance when service was transferred from state to private sector ownership. The company failed to provide the necessary capital investment, which would have enable it to expand the delivery of telecommunication as envisaged. The government as a result of these notable failures was obliged to abrogate the contract and bring in new partners. My main concerns about the provision of water delivery by the private sector, are firstly their commitment to the underlying obligation they owe to the general public and secondly the wider issue of the government always taking the easy option of handing over state assets to foreign owned firms as opposed to working diligently with Ghanaians to build the necessary local capacity and expertise to take over these opportunities as and when they occur. On this issue, the government in Ghana is poles apart from that in South Africa, which has pro-actively sought to empower its black majority, which was marginalized through the policy of apartheid. Most of the firms, which have expressed an interest in managing our water delivery systems, are foreign firms and in most cases were previously State owned companies in their respective countries. I do not intend to sound nationalistic however I believe as a nation we will be better off if we could re-structure the ownership of our utilities, provide them with adequate sources of funding and strengthen the human capital and intellectual capacity at their disposal, which might in the future enable them to bid for the management of water delivery systems in other countries when those opportunities arise. There is no immediate need to transfer ownership of local utilities to foreign owned companies. Locally owned and managed firms, given the right regulatory framework and financial incentives (i.e. set tariffs at levels agreed in consultation with the regulators) will be able to maintain sustainability through cost recovery. Local ownership does not mean an inability to charge realistic market rates. These same companies will be efficient due to their new ownership structure and independence from the government. The efficiency of these firms will be even more pronounced since they will not have to rely heavily on expatriate staff and the associated high cost of employing such personnel. I would like to know whether GWSC cannot be split into several regional based companies to facilitate benchmarking against each other, reformed as public limited liability companies and provided with the necessary financial and intellectual capital to perform the task of managing water delivery in the various regions/areas. I am not aware of any efforts the government has undertaken to explore this option in comparison to that which it has sought to undertake i.e. foreign ownership. The transfer of our national assets from state to private ownership has always been fraught with a lack of transparency and the general perception amongst most people of corruption as happened in the case of Enron/Azurix were rumours of a $5million bribe resulted in the cancellation of the deal. I will suggest that where this is the option taken, a well-publicized national debate on the issue is organized. We must realise that managing utilities in relatively backward economies is significantly different from in developed economies. We do not have a national water delivery system and the high incidence of poverty in our rural and some urban areas will mean that a system based on the narrow concept of cost recovery will have a disproportionate impact on the poor. The externalities associated with this in terms of health issues, urban unrest and its effects on national security although difficult to quantify cannot be left unnoticed and un-addressed. In the case of this transfer of management of water delivery form the state to private sector and other aspects of our economic development we need to develop solutions, which take into consideration our relative backwardness as a country. These solutions should guarantee a revenue stream that is economic for the firms providing the service thereby acting as an incentive for capital investment and are equitable to the majority of Ghanaians. For example we can introduce a system that discriminates on location within cities and within the country as a whole. Water tariffs will be set at a level, which is a percentage of the average incomes of the designated urban area or region. This idea will enable areas, which have access to water make a contribution to the development of the infrastructure to those areas, which do not. It is only fair and practical that those who are privileged to have it first make some contribution to enable the project to continue and maintain the infrastructure. Furthermore, the foreign companies which are currently bidding to manage our water delivery infrastructure will be managed by expatriate employees who although not necessarily those companies brightest employees will be paid salaries not only equalling the salaries paid in their respective countries but exceeding it due to the additional expatriate allowances. These salary levels will distort the local (Ghanaian) employee pay structure which can subsequently resort to a highly demoralise work force, and would also result in customers facing higher tariffs. It would be nice to know whether the brief outlined by the government would involve both the rural and urban water delivery systems. I doubt very much whether any of the companies, which have expressed an interest, would be interested in managing the delivery of water to rural areas. Short to medium term financial analysis will prove that unless a significant proportion of rural incomes are spent on water, it would not be economical to undertake these investments. The underlying issue here is; will the companies be serving the national interest, or the needs of shareholders? The two interests are not compatible in a relatively backward economy where incomes are not only low but also disparate. According to the Ghana National Coalition Against Privatisation of Water about 35 percent of the Ghanaian population lacks access to safe water and 68 percent lack sanitation services. More than 50 percent of the population earns less than US$1 a day and approximately 40 percent fall below the national poverty line. The poorest 20 percent of the population earns 8.4 percent of the national income while the richest 20 percent receive 41.7 percent of the national income. It is estimates 50-70 per cent of the urban population in Ghana live in poor shanties dotted around the cities. Most of them earning less than one dollar per day Although not specifically referring to the delivery of water, a study by the UN agency World Resources Institute (WRI) titled 'Power Politics: Equity and Environment in Electricity Reform', stated that the reforms often targeted at reducing subsidies and increasing tariffs, "have also triggered social hardships and political opposition,” This brings us to the issue of regulation. We have an office for Utility regulation (PURC) whose sole purpose apart from regulating the market is to ensure that the utilities do not take advantage if their local monopoly position and exploit consumers. How does the regulator envisage reconciling the responsibilities of ensuring cost recovery on the part of the utilities, that they provide a excellent service to consumers, that they continue to invest in infrastructure, expanding the coverage are for electricity and at the same time ensuring that the percentage of household income spent on water is not disproportionate with the per-capita national income. I doubt it very much if all these potentially conflicting objectives can be addressed by handing over the responsibility of water delivery to foreign companies simply because the World Bank is placing pressure on us to do so. We must remember that the banks do not necessarily have all our interest us a nation at heart. They are performing an extremely important task i.e. facilitating global trade and development, which although commendable does not mean all of their initiatives are complementary to our quest for economic development. The responsibility for our national development must not be outsourced we must strive to build our own capacity internally even if this means relying temporarily on the assistance of external consultants who will provide advice on best practice. We must initiate programmes aimed at turning over the management of water delivery services to offshoots of GWSC which will be regional publicly listed companies, and allow them to raise finance through various forms of borrowing e.g. issuing of shares or asset securitization. The government's agenda to privatise water delivery is driven by expected handouts promised it by the World Bank, which are based on meeting certain conditionalities, and the commitment under the IMF/World Bank Poverty Reduction Strategy to divest urban water system to private sector operators. I would like to reiterate that privatisation does not necessarily mean handing over the management of our water delivery systems to foreign owned companies. We must not for short-term budgetary reasons signup to contracts, which will not be favourable to us in the longer term. The World Bank and the IMFs' fundamental reason for water privatisation is to reduce the governments budget deficit, which is partly caused by subsidising the delivery of water. The government must not fail to realise that its objective, is not development at any cost. Market based models for development are not always entirely appropriate we must endeavour not to forget the social underpinnings of development and hence strive to find solutions which although market oriented, will seek to build and strengthen domestic human capital and intellectual capacity, are equitable and would not alienate disadvantaged sections of our society.

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