The World Bank Botches Water Privatization Around the World

Though the World Bank may be changing its formerly dogmatic approach to full privatisation of the water sector, key cases in Tanzania, Armenia, Zambia and India highlight that the Bank may not be learning quickly enough and that the poor may be left both without improved water and paying for botched privatisations.

At Water Week in Washington in May, Bank vice president Kathy Sierra asserted that privatisation was not "the only answer"-- there was the full spectrum of public-private mix of investments instead. Only a few days earlier, a senior World Bank official, Shekhar Shah, reported in New Delhi how the Bank had "learned the hard way" that it was not correct to leave it to the private sector.

But the statement by Lars Thunell, head of the Bank's private-sector arm the International Finance Corporation (IFC), at World Water Week in Stockholm in August shows that the Bank is still not interested in pursuing public solutions to water provision: "We believe that providing clean water and sanitation services is a real business opportunity."

Currently the IFC's focus is on creating the right conditions for private investors, including a $100 million fund, called IFC Infraventures, to "provide risk capital for early stage development of infrastructure projects in the poorest countries, but also to encourage more public-private partnerships." Thunell also claimed: "The debate is shifting. Instead of 'should the private sector be involved in water?' the question is 'how can we work together for sensible and fair solutions?'"

Tanzanians' nightmare

A fair solution has still not been reached in Tanzania, where the Bank-supported privatisation of water services resulted in sharply higher water prices, little improvement in supply and the eventual termination of the contract with UK-based multinational Biwater in 2005 (see Update 55, 46). In August this year, the Bank's International Center for the Settlement of Investment Disputes (ICSID) issued its ruling in Biwater's lawsuit against Tanzania, and found that while technical breaches of Biwater's investors' rights did occur, Biwater was not entitled to compensation because the breaches were worth zero in monetary value and the termination of the contract was inevitable.

"The Tanzanian water privatisation project was a scandal right from the beginning," said Vicky Cann of the World Development Movement. "It is absolutely right that this Court has found that Tanzania owes Biwater nothing, but shocking that Biwater saw fit to drag the government of such a poor country through the courts in the first place."

Even though the ICSID has refused Biwater's claim to compensation, the Tanzanian people will have to carry the financial burden of $140 million loan without benefiting from improvement in their water sector. The lawyer who defended the Tanzanian government suggested that the World Bank should pay reparations to Tanzania as "the whole affair was the prescription of the World Bank. It will be fair that they should pay the government".

At the very least, as Mussa Billengeya from the Tanzanian Association of NGOs said, "The failure of this policy should be a lesson to the World Bank, aid donors, and governments that privatisation is not a solution for problems in developing countries. In fact, this failure has added a burden to a country that is already struggling to reach its international poverty target on access to water."

Armenia water corruption

In August US-based NGO Government Accountability Project (GAP) released a new report investigating the corruption allegations facing the water privatisation project in Armenia's capital Yerevan (see Update 57).

Armenia borrowed from the World Bank in 1998 to restore the Yerevan water utility, with water-sector multinational ACEA eventually winning the contract to take control of the facility. During the course of the first two years, complaints about unreliable service and contaminated water increased, and the exclusion of local vendors from ACEA tenders led to allegations of corruption.