Will New Federal Law Facilitate Privatization of US Water?

By Carey Biron, Mint Press News | 30 May 14

Link to original article.

 major piece of legislation funding the development and improvement of water-related infrastructure passed Congress last week for the first time in nearly a decade, and President Barack Obama is expected to sign the bill soon.

Yet public interest groups warn that a key provision in the law would complicate public investment in drinking water and wastewater systems in big cities and small towns alike. The end result, they say, would be to strengthen privately-managed or -owned water systems while leaving the federal government to take on the risk of these investments—essentially subsidizing water privatization.

“This law will facilitate the privatization of water systems and prioritize funding for privatized systems,” Mary Grant, a researcher for the water program at Food & Water Watch, a watchdog group here, told MintPress News.

“The basic problem is that it will only fund up to 45 percent of project costs, but also stipulates that the rest cannot be made up through the use of tax-exempt bonds,” Grant continued. “Yet such bonds are the primary way in which local governments fund infrastructure projects, so why would they try to make use of this funding?”

The broader law, agreed upon by large majorities in both the House and Senate over the past week following a year of negotiation, is known as the Water Resources Reform and Development Act. The full bill authorizes funding for a spectrum of new water infrastructure projects—particularly around ports and waterways, including flood protection and restoration—worth some $12.3 billion, though this money will still have to go through an appropriations process.

Assuming that President Obama signs it, the Water Resources Reform and Development Act will be the first such water-related funding package to become law since 2007. Even then, the 2007 bill passed over the threat of veto from President George W. Bush, primarily due to budgetary concerns. As with any large funding bill, the act has received criticism from conservatives worried that Congress will not be able to provide adequate oversight for what they expect to be a frenzy of project requests.

The bill also includes provisions aimed at dealing with what experts say is a multi-billion-dollar funding gap for drinking water and wastewater systems across the country. Last year, the U.S. Environmental Protection Agency (EPA) estimated that some $384 billion in improvements would be needed in U.S. drinking water infrastructure over the next two decades. The EPA also found that many of the country’s 73,400 water systems are between 50 to 100 years old.

“[T]he nation’s water systems have entered a rehabilitation and replacement era in which much of the existing infrastructure has reached or is approaching the end of its useful life,” EPA Acting Administrator Bob Perciasepe said at the time. “This is a major issue that must be addressed so that American families continue to have the access they need to clean and healthy water sources.”

While Congress is receiving widespread plaudits for finally acting on this shortfall, critics are worried that the final law will be detrimental to communities across the country.

Dwindling Public Funding

According to data provided by Food & Water Watch, federal spending on improvements to drinking water and wastewater systems since the late 1970s have dwindled by some 80 percent. Since the late 1990s, the group says, federal grants have offered just $15 billion for this purpose.

In 2012, dozens of federal lawmakers wrote to the congressional leadership to highlight this situation, citing rising concerns among mayors, public water systems directors and others. The lawmakers noted that federal funding for water systems made up just three percent of total costs, down from 78 percent 35 years earlier. This shortfall, they warned, leaves “cities and towns across the country bearing the difficult challenge of pulling together funds for public water systems.”

The new Water Resources Reform and Development Act does attempt to ameliorate this problem, making available $175 million in funding over five years. But the part of the law that focuses on this issue, known as the Water Infrastructure Finance and Innovation Act, does so primarily by steering communities toward public-private partnerships.

It is unclear whether this is by design. As Food & Water Watch’s Grant notes, a central issue is the fact that the Water Infrastructure Finance and Innovation Act does not allow communities to raise funding for infrastructure through the issuance of tax-exempt bonds, a process that the watchdog group says has raised more than $1.6 trillion for local and state infrastructure projects over the past decade.

It appears, however, that this option was only removed after negotiations with an eye toward the federal deficit, following a budgetary “scoring” by the Congressional Budget Office. Groups representing the municipal water sector say the Water Infrastructure Finance and Innovation Act won’t work for their members.

“We have huge wastewater infrastructure needs, so we’ve been supportive of having more tools in the toolbox to help communities pay for upgrades and new projects,” Hannah Mellman, legislative manager at the National Association of Clean Water Agencies, a lobby group that represents the municipal wastewater sector, told MintPress.

“Yet the tax-exempt bond exemption will make [the Water Infrastructure Finance and Innovation Act] pretty unworkable for our members. That’s not to say that they wouldn’t use [the Water Infrastructure Finance and Innovation Act], but if they can’t finance their side of projects with tax-exempt bonds we don’t see how it will be usable. So we’re disappointed to see that in the final bill.”

Funding criteria under the bill will also be different than under traditional federal water assistance. For instance, the latter has always been in part based on issues related to public health, but the Water Infrastructure Finance and Innovation Act requires no such consideration. Instead, criteria for funding under the act will include issues that strike some observers as odd — for instance, how much of the money would go to areas with significant energy development, or whether the projects already have private financing partners.

Access and Equity

On the one hand, then, the Water Infrastructure Finance and Innovation Act likely will not offer communities large or small the funding required to address the water infrastructure needs that the federal government admits are necessary and widespread. On the other hand, watchdog groups say the bill’s impact could be more far-ranging still, touching on issues of access and equity.

“We are alarmed by the implications of this bill, which would open the doors to an increase in water public-private partnerships in the U.S. and effectively subsidize water privatization,” Erin Diaz, the director of Public Water Works!, a campaign at Corporate Accountability International, told MintPress in a statement.

“The privatization of water systems around the globe has often resulted in devastating results for the economy and people—rate hikes, layoffs, labor abuses, environmental damage and public safety risks—all while failing to invest in essential infrastructure.”

In 2012, Diaz’s office published an exhaustive report on the international experience of water privatization over the past two decades. With a focus on the World Bank’s role in this issue and a call for the multilateral lender to divest from private water companies worldwide (it has yet to do so), the report undermines the central rationale in favor of privatization: that corporate efficiency leads to lower operating costs.

Such findings have come up repeatedly in the U.S., as well, with surveys finding that investor-owned utilities in dozens of U.S. states charge around one-third more than those owned by the public.

Profit-driven systems also experience problems in deciding where to extend service. Driven by profit rather than public access, companies have at times proved reluctant, for instance, to provide services in low-income areas or very small communities.

Indeed, Grant says this was one of the original reasons that U.S. water infrastructure—much of which was originally privately owned—was taken over by the public sector during the early twentieth century. As this trend has reversed in some places over recent decades, similar concerns have again cropped up.

“Though water privatization remains fairly rare, there has been a lot of work on the part of private utilities trying to expand their operations,” Grant said.

“In West Virginia, for instance, a private water utility has been buying up other utilities, and the result has been smaller households have struggled in attempts to force the company to serve their areas. The company was also trying to cut back on its investments after the state government wouldn’t allow the rate increases it wanted to impose.”

Meanwhile, even as lawmakers are undercutting municipalities’ ability to raise money for water infrastructure from tax-exempt bonds, lobby attempts have made some headway in pushing Congress to remove legal caps on the levels to which bonds to fund private activity would be allowed in the water sector. In mid-May, senators formally proposed removing limits on what are known as private activity bonds for water-related projects, prompting applause from the National Association of Water Companies, a group that lobbies on behalf of water companies.

Lifting these caps would “open the floodgates to financing water privatization projects, effectively subsidized by taxpayers,” Corporate Accountability International’s Diaz told MintPress.

“This interference, present at every level of government, is just one small part of the private water industry’s strategy to expand its market across the U.S.,” said Diaz. “The provisions in [the Water Infrastructure Finance and Innovation Act] that could provide public financing to private water are just one example of the many policy avenues the private water industry pursues to privatize water and weaken its greatest competitor—publicly-controlled and democratically-governed water systems.”

World Bank Sponsors ‘Water Resources Group’ aiming to Privatize Water Services in Less Developed Countries

Chris Buchanan, DW4L, December 8, 2011

In 2007, the World Economic Forum Water Initiative was created to “raise awareness among governments, businesses, and the expert community about the challenge of managing future water needs, and on piloting public-private-expert platforms for reform.”  http://www3.weforum.org/docs/IP/MM/Water_Resources_Group_Phase2_4pager.pdf

Out of this initiative came the 2030 Water Resources Group.  Formed in 2008, the WRG was sponsored by the International Finance Corporation, a part of the World Bank Group, which “provides investments and advisory services to build the private sector in developing countries.”  http://www.2030waterresourcesgroup.com/water_full/Charting_Our_Water_Future_Final.pdf 

Then in October 2009, WRG published a landmark report, Charting our Water Future, which analyses the global water supply-demand gap to 2030 and economic options to close the gap. Detailed case studies considered in the report include China, India, South Africa, Mexico and the state of São Paulo in Brazil. http://www.weforum.org/issues/water#note

In short, the mission of this group was not only to analyze water access worldwide, but to create a plan for privatization.  Defending Water for Life is extremely concerned about how the worldwide privatization of water services, combined with this international approach to support water commodification, will impact the human right to access water for life, and the rights of communities.

Below is an article by Corporate Accountability International from November 3, 2011, summarizing this monumental attack on the right to water for people, and not for profit:

The World Bank has launched a new partnership with global corporations including Nestlé, Coca-Cola and Veolia. Housed at the World Bank’s International Finance Corporation (IFC), the new venture aspires to “transform the water sector” by inserting the corporate sector into what has historically been a public service. The new partnership is part of a broader trend of industry collusion to influence global water policy.

The venture — called the 2030 Water Resources Group Phase 2 Entity — aligns global corporations that have major financial stakes in water governance with the World Bank, one of the world’s leading development institutions. Nestlé Chairman Peter Brabeck-Letmathe has been appointed to chair the Water Resources Group, which has already received $1.5 million in IFC funding. Nestlé is the world’s largest water bottling corporation.

Advocates for people’s access to water point to this as the latest example of water corporations’ efforts to interfere in legitimate, democratic water governance. The Water Resources Group presents a conflict of interest to the World Bank’s goal of poverty alleviation. It also advances an approach to water governance that is in incompatible with the U.N. recognized human right to water.

‘This is an unmistakably activist campaign by the private water industry to gain funding and credibility for a radical power grab, with the help of the World Bank,’ said Corporate Accountability International’s Senior Organizer Shayda Edwards Naficy. ‘According to the World Bank, 34 percent of private water contracts are in distress or terminated before maturity. Last April, the IFC’s Compliance Advisor Ombudsman reported that an astounding 40 percent of complaints received from all regions and sectors were water-related. This is evidence that water privatization has been fraught with a range of problems, including broken promises for expanded service, wasted public funds and threats to human rights, especially for the lowest income families. For the Bank to sanction this approach despite a track record of failure points to compromised decision-making at the Bank due to pervasive partnerships with and financial stakes in corporations.’

Currently, 90 percent of the world’s water-users access water through public delivery. Turning these systems over to private corporations would result in rate hikes, cutoffs and significant layoffs of water sector employees. Focusing on the private sector also distracts from the need to support governments in protecting human rights.

The Water Resources Group aims to ‘develop new normative approaches to water management,’ paving the way for an expanded private sector role into best and common practices, worldwide. In order to be eligible for support from this new fund, all projects must “provide for at least one partner from the private sector,” not simply as a charitable funder, but ‘as part of its operations.’ The group’s strategy is to insert the private sector into water management one country at a time, through a combination of industry-funded research and direct partnerships with government agencies. Currently, the Water Resources Group is formally working with the governments of Jordan, Mexico, and the Indian state of Karnataka, and discussions are ongoing with the governments of South Africa, China and several other countries slated for participation in the next phase.

‘Corporate Accountability International has consistently demonstrated the World Bank’s inherent conflicts of interest, acting as an investor, a government advisor, an arbitrator and a public relations vehicle in support of profiteering in the water sector,’ said Naficy. ‘Global water corporations must not be allowed to tap into public ‘development funds’ to promote their private agenda because case after case shows that profitability and fulfillment of human rights in the water sector are at odds.’

Corporate Accountability International (formerly Infact) is a membership organization that has, for the last 34 years, successfully advanced campaigns protecting health, the environment and human rights. Through its Campaign Challenging Corporate Control of Water, Corporate Accountability International is playing a leadership role in the global movement to secure the human right to water, and people’s access to water; prevent corporate control of water; preserve and protect water resources and systems for the public good; and preserve water resources as an ecological trust.

link to the article: http://www.pambazuka.org/en/category/comment/77639