Privatizing water and wastewater in developing countries: assessing the 1990s' experiments

Abstract

In the 1990s, low and middle-income countries experimented extensively with public–private partnerships (PPPs) in water and wastewater. Concession-based contracts were the favored form of PPP. Although these experiments produced promising managerial innovations, they suffered from high rates of failure. These stemmed from the ambitious scope and hasty design of many concessions, which made them susceptible to macroeconomic shocks and political opportunism. A key lesson from the 1990s' experiments is that PPP contracts combining long-term financing and exploitation should be avoided in country settings combining weak governance with a volatile economy.

Public–private delivery of urban water services in Africa

“…For instance, performance contracts and other devices set up to minimise the interference of government bureaucrats in management of SOEs did not achieve the objectives, and set performance targets were rarely enforced or met. 3,10 As a result, performance improvement, such as the one attained by Sierra Leone's Guma Valley Water Company, was more the exception than the rule. 4 In addition to the dismal performance of water utilities, there were other key factors that compelled governments in developing countries to consider PPPs.…”

“…PPPs in infrastructure were sought to reduce the overdependence of SOE on the government coffers. 3,10 Adoption of PPPs was also buttressed by radical economic theory that originated from the USA in the 1960s, which had inspired the American deregulation and British divestiture programmes.…”

“…7,10 Studies carried out in other infrastructure services such as telecommunications, in which PPPs have induced performance improvements in developing countries, have shown that competition is more important than ownership in explaining efficiency gains. 15 However, published studies conducted with water utilities in SSA have provided mixed results on the correlation between adoption of PPPs and performance improvement.…”

“…16 Other positive changes brought about by PPPs reported in the literature are (a) strengthening of managerial innovations in the SSA water sector, such as indexation of tariffs to the rate of inflation (b) placing water utilities under corporate law and liberating it from the government rules and regulations (c) tangible improvements in cost recovery. 10 Whereas several studies conducted in SSA have shown evidence of positive performance trends, most published econometric analyses of the effects of water privatisation in lower-income economies show little evidence that PPPs have resulted in marked improvement in performance. 15,17 Another study carried out in Africa in the late 1990s reported greater service coverage for utilities under PPPs.…”

“…Being a basic necessity, water is seen as a public good, and by some people as a gift of God, which perceptions challenge the principle of full-cost recovery for water services. 10 Water services have got some other unique characteristics. Provision of water/sewerage services is a natural monopoly, for which scale economies of water production and network systems make it efficient to have one provider.…”