If Selangor’s water operations return to guardianship of the state government, this will be far from the first time we have come full circle, from public to private and back to public ownership. That usually gives an opportunity to learn something.
In the aftermath of the 1997-98 financial crisis and economic funk, a slew of privatized entities were renationalized: Malaysia Airlines, Proton, and Indah Water Konsortium (IWK), to mention a few. These past experiences may be on our minds – or maybe not. If we have forgotten, or succumbed to habitual amnesia, this is a prime time to be reminded.
We do not need to wait for a full-blown crisis. If the basis for a privatized project is flawed, if pre-conditions are not present, or if the objectives are not met, we can and must reconsider its continuing legitimacy, relevance and usefulness.
Moreover, as we think back, we find that Selangor water s bears curious semblances to privatization debacles of the past.
Then, as now, we saw vast wealth accumulation by owners, and awarding of contracts to politically connected persons.
Indah Water, operating sewerage services, is a more appropriate reference point than non-essential airlines and cars. Let’s just say it turned out very badly, leaving aside malodorous metaphors that perhaps best capture the situation.
As meticulously documented in Jeff Tan’s Privatisation in Malaysia: Regulation, Rent-seeking and Policy Failure, IWK underwent numerous switches in ownership. The profits from cashing out undermined long term stakeholding and commitment to service delivery. The company charged high fees; people refused to pay. Rates were subsequently lowered but the monopoly went bust and fell back into government arms.
That’s looking back. Looking ahead and specifically at the water sector, we must weigh heavily the experience of other countries, the essential feature of this commodity, and the credibility of various parties in the current face-off.
Water is a basic necessity, the most vital of all public utilities. The logic of privatization is pay per use, and higher price reflects better service or broader coverage. But setting tariffs is never a market clearing outcome where there is a monopoly in good with no substitutes. It must be negotiated through contract and mediated by government. I personally prefer that the lowest rate would be even a token amount instead of zero, as prevails and as the Selangor government wants to retain. Water may be cheap but we must not forget it is precious.
However, tariff increases in ought to be for widening or improving service and sustainable resource management, emphatically not for socially unproductive private profits. A comprehensive and independent report of the benefits and costs of water privatization and assessment of efficiency of private management is due, but given the unlikelihood of seeign such a document, the safer bet is to leave water management in the hands of publicly accountable institutions credible people.
Water privatization has not gone well in many developing countries. The first thing to note is that many were coerced into adopting such policies as condition for receiving World Bank loans or under intense pressure from the World Trade Organisation. Liberalization policies burst open the floodgates for multinational corporations make money selling water to poor people. A common result in various countries, such as Bolivia and South Africa, has been swelling rates, non-payment and cut supplies.
In advanced economies where water is privately operated, prominently the United Kingdom and France, companies are closely monitored by government. Even then, it is debatable whether private or public ownership of water distribution is more efficient. Note that the private sector may excel in technological innovation of water quality, but this is distinct from distribution and capital investment.
As mentioned above, the intangible yet crucial element trust come enter the frame. In general, I’m sure we would prefer entrusting public matters to people in whom we have faith. But specific to the issue at hand, both federal and state governments, as well as larger private companies proposing takeovers, have entered the fray, magnifying the need to consider each side’s credibility in safeguarding the public interest.
The federal government persists in instituting an authoritative regulatory agency and in continually preserving private concessionaire profits, even as the 2006 Water services Industry Act sought to nationalize water assets.
On the other hand, a number of individuals involved in the Selangor government’s initiative to return water supply to the ultimate accountability of elected rakyat representatives have been steadfast advocates of social concerns and sustainable development.
Let us take note of history and past misdeeds – and take heart in the potential for present and future corrective action.
This article appeared in the Selangor Times, Issue 2, 3-5 December 2010.
