[Nasional-m] Privatizing essential services not always the right answer

[Ambon]

http://www.thejakartapost.com/detaileditorial.asp?fileid=20021129.E02&irec=1

Privatizing essential services not always the right answer
Henry Heyneardhi, Fellow Researcher, The Business Watch Indonesia, Jakarta,
heyneardhi@watchbusiness.org

Last September 2002, the World Bank launched a draft of the World
Development Report 2004, focusing on "making services work for poor people".
The Bank wrote that the theme is based on the recognition that success in
reaching the Millennium Development Goals will depend not just on faster
economic growth and the flow of resources, but on the ability to translate
those resources into basic services.

It also said that too often, the delivery of services falls far short of
what could be achieved, especially for the poor.

Today, according to the United Nations in its fact sheets for the World
Summit on Sustainable Development (WSSD), two billion people, or one third
of the total world population, lack access to modern energy services. Some
11 million children under five years of age die each year in developing
countries. Seventy percent of these deaths are caused either by diarrheal
diseases, respiratory infections, malaria, measles or malnutrition.

In relation to water and sanitation, the World Commission on Water for the
21st Century noted that 1.2 billion people, or a fifth of the world's
population, lack an adequate supply of safe drinking water and over a third
lacks adequate sanitation. These statistics are projected to reach 2.3
billion by 2025.

How can this critical situation be resolved?

So far, basic services in most countries is generally managed and delivered
by public authorities, yet its management is considered inefficient and
ineffective. Service delivery, especially in developing countries,
emphasizes the supply side, but unfortunately reaches only a limited group
of beneficiaries. Government subsidies are not able to support public
agencies to operate and maintain their assets independently for service
improvement and sustainability.

International financial institutions (IFIs) like the World Bank and the IMF
are thus promoting a new approach by strengthening the role of the private
sector in service provision. The World Bank, for example, adopted a Private
Sector Development Strategy in February 2002 that legitimizes and enhances
private sector participation in infrastructure and essential services.

The Bank is convinced that private sector participation in provision is the
best choice for delivery of infrastructure and social service.

In addition, in March 2002 the World Bank launched its Water Resources
Sector Strategy, which stated that water management should be commercially
oriented, focused on beneficiaries, or demand-based, indicating that water
distribution depends on needs (household, irrigation, industry, etc). Every
water user is a customer, and the water tariff should cover operational and
maintenance costs in order to eliminate subsidies (full cost recovery).

Further, the Bank requires private sector participation in the financing and
development of water supply infrastructures. The indebted governments are
obliged to cooperate with the private sector in the form of a Public-Private
Partnership (PPP).

In Indonesia, according to the World Bank's document Indonesia: Private
sector development strategy issued in January 2001, the Bank will promote
conditions for private participation in infrastructure, especially for the
next three years.

The emphasis will be on the creation of competitive market structures and of
independent, regulatory authorities, and on helping with the privatization
of state-run infrastructure enterprises.

In regards urban water supply, the Bank will, through its projects, continue
to focus on improving the regulatory framework for private involvement and
on promoting investment in water supply by private operators. Meanwhile, in
the health and education sector, World Bank Group will focus on creating an
adequate regulatory environment for private provision.

To ensure that the developing countries implement its policies in practice,
the World Bank, which usually states the same loan conditions as those of
the IMF -- known as "cross conditionality" -- often includes privatization
of public services in its list of conditions. This kind of scenario is
likely to happen in Indonesia when the Bank pushes privatization of water
management through its Water Resources Sector Adjustment Loan (WATSAL).

Essential service provision is one of the government's duties toward its
citizens. Until the last decade, international financial institutions have
centered on helping governments to accomplish this obligation, particularly
in developing countries. Only recently, these institutions are changing
their policies, and endorsing the privatization of service provision. This
is a fundamental engineering project with serious implications.

Privatization implies transfer of control from public to private
corporations, allowing an unbalanced bargaining power between the
corporation and the customers. Private management, therefore, can
arbitrarily raise the service tariff, shifting the burden to customers to
pay for business risks and taxes.

Second, unlike inadequate public services, impacts of a poorly implemented
privatization may be irreversible, especially to the poor. Most
privatization contracts are long-term, usually lasting for 20 to 30 years.
It is almost impossible to cancel these contracts, even when the private
operator shows bad performance.

Third, privatization also undermines accountability. Under public entities,
citizens have a democratic mechanism, for example through their
representatives in parliament, to push the government in providing good and
affordable services. Under private management, however, there is no such
mechanism. Moreover, private firms may hide behind the principle of contract
secrecy to hinder public monitoring, and thereby prevent the realization of
transparency and accountability.

This does not mean that privatization is inherently bad (or good). Like any
other option, it has its strengths and weaknesses. Privatization should thus
be treated as one option among many other alternatives in providing
essential services, especially to the poor. Further, IFIs should not push,
nor impose, the privatization of essential services through conditions
applied to loans, grants or debt relief.

Instead, the decisions as to whether we need to privatize our essential
service provision or to reform public service should be democratically
debated among our citizens. This also goes along with the discourse
disseminated by the World Bank on the importance of popular participation in
policy making, as stated in the draft of the World Development Report 2004:
"Strengthening citizens' voice and participation in policy making can make
public spending more pro-poor and hold policymakers more accountable for
service outputs that affect poor people."

The real issue regarding essential service provision is not public versus
private, but whether citizens, especially poor and marginalized people,
receive affordable, quality service. Criticism and resistance against
privatization of essential services are based on numerous empirical
evidence, which show that private sector participation in service provision
tend to raise the service tariff, thus lowering people's access to them.

In many cases, privatization has also failed to provide good, quality
service and is less effective than public service. Therefore, privatization
proponents must respond to their opponents by providing arguments and
evidence that privatization is not only more effective than public service,
but could also serve social goals like equity and protecting the rights of
people.

Finally, through a rational, democratic and participatory process, let the
people determine their own choices and decisions.