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Public Services International Research Unit (PSIRU) www.psiru.org

Water privatisation and restructuring in Asia-Pacific

byDavid Hall, Violeta Corral, Emanuele Lobina, and Robin de la Motte

[email protected] , [email protected], [email protected] , [email protected]

December 2004

(with minor corrections January 2005)

This report was commissioned by Public Services International (PSI) for its Asia-Pacific meeting in Changmai, Thailand, December 2004

Public Services International Research Unit (PSIRU), Business School, University of Greenwich, Park Row, London SE10 9LS, U.K.

Email: [email protected] Website: www.psiru.org Tel: +44-(0)208-331-9933 Fax: +44 (0)208-331-8665 Director: David Hall Researchers: Robin de la Motte, Jane Lethbridge, Emanuele Lobina, Steve Thomas

PSIRU’s research is centred around the maintenance of an extensive database on the economic, political, financial, social and technical experience with privatisation and restructuring of public services worldwide, and on the

multinational companies involved. This core database is financed by Public Services International ( www.world-psi.org), the worldwide confederation of public service trade unions. PSIRU’s research is published on its website, www.psiru.org

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1. INTRODUCTION AND EXECUTIVE SUMMARY............................................................................................3

1.1. INTRODUCTION....................................................................................................................................................31.2. SUMMARY...........................................................................................................................................................3

2. MULTINATIONALS (FROM OECD COUNTRIES) IN THE REGION...........................................................4

2.1. SUEZ....................................................................................................................................................................4Table 1. Suez: current contracts in Asia-Pacific......................................................................................................5

2.1.1. Suez: Lost contracts...................................................................................................................................62.2. VEOLIA................................................................................................................................................................6

Table 2. Veolia: current contracts in Asia-Pacific...................................................................................................82.2.1. Veolia: lost contracts.................................................................................................................................9

2.3. THAMES WATER..................................................................................................................................................9Table 3. Thames: current contracts in Asia-Pacific...............................................................................................10

2.3.1. Thames: lost contracts.............................................................................................................................112.4. SAUR................................................................................................................................................................112.5. UNITED UTILITIES.............................................................................................................................................11

2.5.1. United Utilities: lost contracts.................................................................................................................122.6. BIWATER/CASCAL.............................................................................................................................................12

2.6.1. Biwater: lost contracts in Asia-Pacific....................................................................................................132.7. MULTINATIONALS NO LONGER ACTIVE IN ASIA-PACIFIC..................................................................................13

2.7.1. IWL...........................................................................................................................................................132.7.2. Anglian.....................................................................................................................................................14

3. PRIVATE COMPANIES BASED IN ASIA-PACIFIC: ACTIVITY IN WATER SECTOR.........................14

3.1. HONG KONG COMPANIES..................................................................................................................................143.2. CHINESE COMPANIES.........................................................................................................................................153.3. JAPANESE COMPANIES.......................................................................................................................................153.4. MALAYSIAN COMPANIES...................................................................................................................................15

4. COUNTRY REPORTS...........................................................................................................................................16

4.1. BANGLADESH....................................................................................................................................................164.2. CAMBODIA.........................................................................................................................................................174.3. INDONESIA (JAKARTA)......................................................................................................................................174.4. JAPAN................................................................................................................................................................174.5. MALAYSIA.........................................................................................................................................................184.6. NEPAL................................................................................................................................................................194.7. PHILIPPINES.......................................................................................................................................................194.8. SINGAPORE........................................................................................................................................................214.9. SRI LANKA........................................................................................................................................................214.10. THAILAND.........................................................................................................................................................21

5. DEVELOPMENT BANKS AND DONORS.........................................................................................................22

6. ISSUES AND TRENDS...........................................................................................................................................22

6.1. THE RISKS OF WATER SUPPLY BOTS.................................................................................................................226.2. ASIAN PUBLIC SECTOR WATER OPERATORS......................................................................................................23

Table 4. ADB water indicators for 18 cities..........................................................................................................256.3. LEAKAGE AND THE MULTINATIONALS..............................................................................................................26

Table 5. Colombo: lower leakage than London.....................................................................................................266.4. PROBLEMS AND TERMINATIONS: FAILURE RATE IN ASIA..................................................................................26

Table 6. Terminated contracts, exits and major renegotiations..............................................................................27

7. Notes..........................................................................................................................................................................28

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1. Introduction and executive summary

1.1. IntroductionThe report surveys the activities of the multinational water companies in Asia. The companies are struggling with existing contracts, have policies to withdraw, and show no enthusiasm for expansion except in China. The activities of Asian private companies in water are also surveyed, with the conclusion that their international activities are so far limited, and mainly consist of joint ventures with multinationals.

The experience of a number of countries is also reviewed, highlighting the problems that continue to be experienced in countries which have made extensive use of private companies, such as Indonesia, Malaysia and the Philippines.

The report identifies a number of key issues emerging from the Asian experience with water privatisation.

1.2. SummaryA number of water supply BOT projects have been abandoned or are causing serious problems in Vietnam, China, Malaysia and elsewhere, due to unaffordable levels of prices being built into take-or-pay contracts. Similar problems have been observed elsewhere in the world. There should be a serious re-appraisal of the economics of existing water supply BOTs, and a moratorium on further developments, while the lessons of this experience are explored. Otherwise long-term economic liabilities may be accumulated which damage the ability of water utilities to function.

The performance of public utilities in Asia compares well with that of the privatised operations in Jakarta and Manila. This confirms other evidence, for example a comparison of public and private water operations in Latin America, which found that private operators, despite all the financial and other support they had received, were no more likely to have extended services than cities without private operators. The ratings of the Asian cities call into question the continuing enthusiasm of the ADB and a number of governments for privatization in some form or other. Cities such as Osaka and Phnom Penh, run by effective public sector water operators, can clearly provide lessons for other water undertakings in Asia.

The levels of non-revenue water in Asian cities can be separated into leakage and financial losses. Leakage figures alone do not look so out of line when compared with the UK: Colombo’s leakage is lower than London’s. It may therefore be questioned whether leakage levels are to be explained by reference to specifically Asian factors, and also whether there is a clear rationale for commissioning European multinationals to address leakage problems in Asia.

There has been an extremely high failure rate for private concessions and long-term BOT contracts, which may get worse if Suez and Thames leave their contracts in Manila and Jakarta. In the light of this, any future consideration of a private concession or BOT should factor in the high risk of premature termination and renegotiation with their associated costs.

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2. Multinationals (from OECD countries) in the region

The main objective of the strategies of all the OECD-based water multinationals (MNCs) is to reduce their exposure to developing countries. This is being done by exiting from contracts and concessions which are seen as inadequately profitable or too risky. Some of the smaller MNCs have left the sector altogether. The MNCs are also avoiding new contracts and concessions, except for contracts considered less risky, such as engineering build-operate-transfer (BOT) contracts. Suez and Veolia continue to treat China as a special case where they wish to invest even in relatively risky projects – but RWE-Thames is exiting from its projects in China. However the multinationals clearly remain interested in the potential of the Japanese and South Korean markets.

2.1. SuezSuez www.suez.com (formerly Lyonnaise des Eaux) is the largest of the major multinational water companies. Apart from water, it has a waste management division (Sita) and an energy division (Tractebel) both of which are also internationally active. Suez used to be active in telecoms and media, but has now sold all its interests in those sectors. Suez has reorganised its water division so that Ondeo (the water services business) has merged with Degremont (the water engineering and construction business). Suez’ core strategy since January 2003 is to exit from 1/3 of its investments in developing countries, maintaining only those which carry low levels of risk and generate a good rate of profit, while reducing company debts; the only stated exception to the policy of contraction is China, where Suez aims to continue expanding.

The strategy for 2004-2006 gives absolute priority to increasing profitability, with the target of 11% return on capital employed by 2006, and financing all investment and dividends out of those profits, without borrowing, to achieve: “the objective of self financing all capital expenditure (maximum of € 4 billion per year for the period) and dividends by 2005”. For the water division, Europe is the key market for expansion: outside Europe, Suez aims to: “maintain strict selectivity in capital expenditure, and improve profitability and financial results for less high performance assets“.1

Outside Asia, the most important issue for Suez in the water sector is the renegotiation or termination of the concessions in Argentina, which became technically bankrupt after the economic crisis. Other major contracts have been terminated by public authorities, including the contract in Atlanta (USA), and the concession to run water in Puerto Rico.

The table shows all Suez’ water operating contracts in Asia, including bulk water BOTs, wastewater BOTs, as well as operating concessions. Suez has no water operating contracts in Australia or New Zealand.

IndonesiaSuez holds the concession for water distribution in the west half of the city of Jakarta, through its subsidiary Palya, since 1997, when it was originally negotiated, without competitive tender, with the former president Suharto and one of his crony companies. The concession is controversial: there has been lengthy industrial action and strong opposition to price rises. In 2003 both Palya and TPJ (Thames Water’s subsidiary, operating in east Jakarta) threatened to pull out of the agreement with PAM Jaya if their price increase proposal was rejected by the City Council: which prompted the administration to implement their proposed 40 percent price hike in late 2003 2, opposed by consumer groups. See below for more detail.

Suez also holds a bulk water supply BOT contract in Medan, since 2000, through a subsidiary Tirta Lyonnaise, which includes a take-or-pay agreement with the city water board. This was the subject of

1 Suez Annual Report 2003 section 4.1 pp28-33 http://www.suez.com/documents/english/docderef2003en/SUEZ_RA2003_entire_EN.pdf 2 Source: Bambang Nurbianto, “PAM Jaya could face Rp 3t fine for any contract termination”, Jakarta Post, 17 November 2003; Bambang Nurbianto, “Council discloses silent approval of tap water rate hike”, Jakarta Post, 11 December 2003.

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http://www.suez.com/documents/english/docderef2003en/SUEZ_RA2003_entire_EN.pdf

http://www.suez.com/


allegations of corruption, which have been denied by the city council and the company.3 In 2001 Suez won a further bulk water supply BOT in Tangerang.4

PhilippinesSuez holds the water distribution concession for the west of Manila, through its subsidiary Maynilad Water, a joint venture with the Philippine company Benpres. It started in 1997.The concession has encountered major financial and performance problems, and there has been a tense judicial standoff between Maynilad, and the state authority the Metropolitan Waterworks and Sewerage System (MWSS). This has included threats of unilateral termination of the agreement from both sides, suspension of payment of concession fees by Maynilad due to MWSS, re-consideration of rehabilitation plans, debt-equity swaps, and other forms of restructuring. See below for more details.

MacaoSuez has a 25 year concession to run the water supply for this ex-Portuguese colony.

MalaysiaSuez states that its Malaysian subsidiary has water distribution agreements with three states, covering 1.8 million consumers; however it treats the Malaysian companies as equity investments in its annual accounts, which implies that Suez does not have control of the operations.

One operation is a bulk water supply BOT in Kota Kinabula, Sabah state, which started in 1993 through the subsidiary Jetama Sdn. Bhd (Ondeo Services), one of three such BOTs set up by the Sabah state government. According to the ADB review, the contract is a success 5; however, the state has found it impossible to pay the price set by the agreements, as the total revenue collected from water users (Ringit 60-65m) is far less than the amounts it has to pay to the contract companies (Ringit 165m.).6 As a result the state is seeking to privatise the entire water distribution system, to a Malaysian company, Ranhill Utilities: the state chief minister said the contract was being scrutinised “to ensure that the clauses were not lop-sided….. the weaknesses of previous water privatisation deals should not be repeated.” 7

IndiaSuez won a contract for a bulk water supply scheme, Sonia Vihar, to supply Delhi with an extra 140m gallons per day. The scheme has been criticized and opposed by local groups because it will divert water away from existing irrigation use, and lead to over-charging of users to pay Suez.8 Suez has other contracts maintaining treatment plant in Mumbai and Kolkata.9

South KoreaSuez holds two bulk water supply BOTs in South Korea. In 2001, in Pusan, the second largest city, it won a BOT contract to build and manage the city’s wastewater treatment installations for 18 years. Ondeo holds 65%, and Korean partners hold the rest – Samsung Engineering 20%, and Khumo Industrial (15%).10 In 2002, it won a similar wastewater BOT in Yangju, on the outskirts of Seoul, for 24 years.11

China

3 The Jakarta Post, October 29, 2001, “Medan's Water Supply Project Questioned”; Jakarta Post. November 5, 2001 “Water project.”4 The Jakarta Post, October 8, 2001, “Ondeo Wins New Contract In Tangerang”5 Malaysia: Kota Kinabalu: Water Concession http://beyondboundaries.adb.org/ch6/malaysia_snapshot.htm 6 Bernama The Malaysian National News Agency. October 23, 2001, Proposed Review Of Pacts Will Go Beyond Water Supply Concessions7 Malaysia General News, January 11, 2004, “Sabah Water Privatisation Project To Be Finalised This Month”8 The Hindu, August 10, 2003, “Voluntary Groups Protest Against Privatisation Of Water”9 The Times of India, March 4, 2003, “Palta Waterworks All Set For Makeover”10 Suez press release 04/26/2001, “ONDEO selected to manage an urban wastewater contract in PUSAN, S Korea”11 Suez press release 01/07/2002, “Water: Ondeo (SUEZ) signs a €200 million urban wastewater contract in S Korea”

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http://beyondboundaries.adb.org/ch6/malaysia_snapshot.htm


Suez/Ondeo is working in China through Sino-French Water Development (SFWD), which is a 51-49 joint venture with the Hong Kong group New World. By November 2004 Suez claimed to have 4 concessions to run urban water distribution systems – in Tanggu, Sanya, Chongquing, and Tanzhou – and 14 other BOT operations. 12 Degremont was active in building plants in China under traditional construction contracts since 1970: Suez claims that over 20% of the population now consume drinking water treated by 140 plants built by Degremont.13

Table 1. Suez: current contracts in Asia-Pacific(Types: WD/C – water distribution, concession contract; WS/BOT = bulk water supply, build-operate-transfer contract; WWT/BOT = wastewater treatment, build-operate-transfer contract)

Country Company Type Suez %China Macao Water WD/C 42.5

China Ondeo (Baoding)

China Ondeo (Lianjang) WS/BOT

China Ondeo (Nanchang) WS/BOT

China Ondeo (Sanya) WD/C

China Ondeo (Siping) WS/BOT

China Ondeo (Tanzhou) c WD/C

China Ondeo (Zhengzhou) WS/BOT

China Ondeo (Zhongshan) WS/BOT

China Sino-French Water Development WS/BOT 50

India Sonia Vihar WS/BOT

Indonesia Ondeo Services (Serang) WS/BOT

Indonesia Palya WD/C 50

Indonesia TCP WD/C 75

Indonesia Tirta Lyonnaise 85

Malaysia Ondeo Malaysia/ Jetama Sdn. Bhd WS/BOT

Philippines Maynilad Water Services WD/C 0

South Korea Pushan WWT/BOT 65

South Korea Yangju WWT/BOT

2.1.1. Suez: Lost contractsTerminated contract: VietnamSuez won a BOT contract for the Thu Duc water treatment plant in Ho Chi Minh City, Vietnam, from 1997. This scheme was selling water to the public water authority at a price higher than was charged to end users; it was terminated in February 2003 (for further details see below). 14

Terminated contract: ChinaSuez and New World were also both shareholders in Shenyang Public Utility, a bulk water, energy and public transport multi-utility floated on the Hong Kong stock exchange, which held long-term concessions for bulk water supply, bus transport and electricity generation for the city of Shenyang: however, in 2002 it sold the bulk water interest 15 because costs had risen, due to drought, and demand had fallen due to the water authority’s demand-saving measures and their inability to pay the contracted price. 16

2.2. VeoliaVeolia www.veolia.com is a French-owned multinational, which also operates internationally in waste management, heating, and public transport. It was previously part of Vivendi, - which was itself previously

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http://www.veolia.com/


known as Generale des Eaux - which ran into serious problems after expansion into movies and music which almost destroyed the company. The environmental services elements of Vivendi were broken off and recreated as Veolia. Its global water operations of are about the same size as Suez.

Veolia’s overall company strategy is to reduce debts, and focus on its core activities of water, waste management, energy services and public transport. It is concentrating on business in Europe, and north America, but has no explicit plans at all for developing its business in South America or Africa. In Asia-Pacific, however, the Veolia CEO has said that the company will seek to grow in countries which provide conditions for profitable business - specifically China and Australia.17 However, at the end of 2003, Veolia still had less water business in the whole of Asia-Pacific (€391m.) than in Africa (€621m.) or the Americas (€2150m.).18

It is worth noting that Veolia is active in the region in other sectors, especially waste management (€391m.), where it has established businesses in India, as well as Australia and New Zealand; and some public transport contracts (€131m.). In total Veolia employed 13,363 in the region in 2003.

AustraliaIn 1995 Adelaide signed a $1.5bn contract turning over its waterworks to United Water, a joint venture of Veolia and Thames Water (47.5% each) and an Australian company (5%). It also holds contracts for BOT water treatment plants in Sydney and Noosa (Queensland), and a wastewater treatment plant in southern suburbs of Sydney.

The bidding process involved irregularities that led to two government investigations and an inquiry by a parliamentary committee: United Water had submitted its bid documents more than four hours after the deadline and after the other bids were opened and distributed.19 Fifteen months later Adelaide suffered a “big pong" over a three-month period in 1997, due to a failure to monitor one of the sewerage treatment plants.20 Between 1993 and 2000, prices for the basic water tariff increased by 59 per cent; over the same period, inflation was 11 per cent. Jobs were cut by 33%, from 2,707 to 1,790. United Water’s contract is secret.

ChinaVeolia sees China as a very important market, and expects China to account for 8-10 % of the company's total revenue within the next 10 years, an increase from the current 1.5%.21 It is building political connections to help it exploit the market, especially with Beijing: Henri Proglio, Chairman and CEO of Veolia Environnement, is a “permanent economic advisor to the Mayor of Beijing”, and participates in meetings of the city’s International Business Leaders Advisory Council, which provides “advice and proposals for the economic and social development of Beijing”22; and Veolia has formed a joint venture with Beijing municipality’s own infrastructure company Beijing Capital (see below). Veolia has also set up a partnership with Yale University (USA) and Tsinghua University “to create a training program for public service management in the fields of the environment and sustainable development”. The programme will target: “mayors and senior local government officials with responsibility for urban planning and infrastructure construction.” and will offer them “an intensive study trip to Europe to meet decision-makers and visit facilities”.23

By November 2004 Veolia had a total of eight contracts in China. They include operating concessions and contracts for water distribution companies; BOT contracts for bulk water supply and water treatment, selling the output to municipal water companies; and BOT contracts for sewerage treatment plants. The German company Berlinwasser, which is a joint venture between Veolia and Thames and Berlin city council, also remains active in China, and holds contracts in Nanching and Jinan.

The Shenzen contract was part of a sale by the city of its utilities, by open tender. The then chairwoman of Shenzhen Energy was tried in September 2003 for bribery and embezzlement.24 The Chengdu reservoir BOT has problems: the price of water set in the contract is higher than the municipality can afford to pay (see below).

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Veolia has formed joint ventures in China with various Asian partners: with Hong Kong partner Citic Pacific (at Zunyi); with Chinese infrastructure company Beijing Capital (see below) ; with Malaysian company, PPB/Kerry Public Business (in its Lugouqiao Sewage Treatment Plant BOT in Beijing);25 and with Malaysian company LGB (in Tianjin).26

IndiaIn 2000 Veolia was reported to have a management contract in Kolkata (Calcutta) 27 Veolia has expressed continuing interest in water in India 28 but holds no contracts (it does however have a solid waste disposal contract in Chennai).

IndonesiaUnited Water was awarded a 25 year bulk water BOT contract in Sidoarjo, Indonesia. No recent information is available on this contract, which is no longer listed on the United Water website.

JapanVeolia has no contracts in Japan, but has set up a joint venture company, Shinjuku, with Marubeni, the giant construction firm, to seek water and waste management contracts in Tokyo.

MalaysiaIn 1998 Veolia bought a 30% stake in Intan Utilities which operates the water facilities for the city of Ipoh, the capital of Perak state. It formerly operated in Selangor state through CGE Utilities, but that contract has now ended (see below). Veolia also claims to have projects with Johor and Sabah.

New Zealand Veolia’s Australian subsidiary, United Water, holds water and sewerage concessions in Papakura, Ruapehu, and Thames-Coromandel districts in New Zealand. In 2004 it also purchased the Moa Point wastewater treatment plant in Wellington, being sold by Anglian. 29

PhilippinesIn the Philippines, Vivendi won the water business in Fort Bonifacio (Manila) in 1998 and the Clark Economic Zone in 2000 through joint ventures with various local firms. With these acquisitions, Vivendi (formerly Generale des Eaux) planned to expand its Asia-Pacific operations via the Philippines.30 In 1999, Vivendi attempted to enter into the water distribution business in the premier city of Cebu but gave up the BOT project upon encountering strong opposition fro m the employees union.

In November 1998, Vivendi signed a 25-year concession with Fort Bonifacio Development Corp (FBDC) to construct and operate water and sewage treatment facilities within Fort Bonifacio, the new business district on the outskirts of Manila. FBDC is the developer of a 214-hectare, US$10 billion "Global City," a mixed-use residential, industrial and commercial complex. Under the agreement with FBDC, Vivendi will invest some $35 million in the water supply and sewerage system in Fort Bonifacio.31 This is Vivendi’s first contract in the Philippines and came after the bulk of Manila’s water business was farmed to its competitors in the 1997 MWSS privatization.32 Two years after, Vivendi has reportedly spent Euro40m completing the first phase of work, including the construction of one drinking water plant and another for wastewater treatment. 33 The high water rates charged by Bonifacio Vivendi Water Corp are partly to blame for the slow sales of condominium units and leases of commercial properties in Fort Bonifacio. Residents and locators complain that while it is true that Vivendi's water supply is almost mineral water, they do not need such high-quality water just to flush their toilets. 34

In April 2000, Vivendi won a 25-year concession to provide water and wastewater services for the Clark economic zone in the Philippines, a 4,400 hectare site that was once one of the biggest US Air Force bases in the world. Clark Water Corporation (CWC), a Veolia subsidiary, promised to invest Euro25m over the next three years to rehabilitate existing networks and extend facilities on what is now a duty free zone; total net sales from the contract are estimated at Euro350m.35 Today, business locators at the ecozone complain about high water costs.36

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South KoreaVeolia has a joint venture with Hunday Construction in the state of Chilgok (150,000 inhabitants), which was awarded a BOT contract in March 2001 for the operation of two existing wastewater treatment plants over 23 years and the design, financing and construction of a new plant.

Veolia has a joint venture with Samsung Engineering, in the municipality of Inchon (2.4m inhabitants), the third largest city in South Korea. The company was awarded a BOT contract in March 2001 for the construction and 20-year operation of two wastewater treatment plants.

Table 2. Veolia: current contracts in Asia-Pacific(Types: WD/C – water distribution, concession contract; WS/BOT = bulk water supply, build-operate-transfer contract; WWT/BOT = wastewater treatment, build-operate-transfer contract)Country Location Company Type Veolia%Australia Adelaide United Water WD/C 47.5China Chengdu CGE-Marubeni WS/BOTChina Hohhot, Inner

MongoliaWT/ BOT

China Lugouqiao, Beijing WWT/BOTChina Nanchang WWT/BOTChina Qingdao, Shandong WWT/BOTChina Shanghai Waterworks Pudong

Co. LtdWD/C

China Shenzhen Water Group WD/C 45%China Tianjin Veolia Water (Tianjin) WS/BOTChina Weinan,Shaanxi WS/BOTChina Xian South Water Works WS/BOTChina Zunyi WD/C 25%Indonesia Sidoarjo Sidoarjo water WD/CMalaysia Veolia (Malaysia)New Zealand Moa Point WWT/BOTNew Zealand Papakura Water WD/CPhilippines Bonifacio Vivendi Water Corp WS/BOT, WWT/BOTPhilippines Clarke CWC WD/CSouth Korea Inchon Vivendi (Inchon) WWT/BOTSouth Korea Chilgok Vivendi (Chilgok) WWT/BOT

2.2.1. Veolia: lost contractsLost contract: China The Xian Water contract in China, which was held by Berlinwasser, a joint subsidiary of Veolia and Thames water, was ended in 2002.

Lost contract: MalaysiaVeolia had a water supply BOT contract from 1987 to operate 26 water treatment plants in Selangor state, through its subsidiary CGE Utilities (a joint venture with the Malaysian company Ranhill , which owned 45%). However, in 2003 the contract was terminated by the Malaysian company holding the concession in Selangor.37

Failed negotiation: TaiwanVeolia failed to persuade Taiwan to accept a non-competitive proposal for a water treatment plant.

Abandoned proposal: Philippines (Cebu)In January 1999, Vivendi (Generale des Eaux) and local partner Aboitiz Equity Ventures (AEV) submitted an unsolicited P9.2-billion BOT proposal to rehabilitate and expand the water distribution system in Cebu City, a premier city in the central Philippines, run by the Metro Cebu Water District (MCWD). In May

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2002, the Aboitiz Group dropped the proposal saying they believed the MCWD privatization might not proceed as planned. The MCWD employees union was vehemently opposed to the proposed BOT contract.38

2.3. Thames WaterThames Water is the UK’s largest water company. It was privatized in 1989, and taken over by the German-based energy group RWE in September 2000. RWE has 132,000 employees and annual net sales exceeding €46 billion,39 and is one of Europe’s largest industrial corporations. Until 1997, German municipalities held a majority of votes in RWE, and they still own 35% of the company.

According to some reports, RWE, the German energy group which owns Thames, has told Thames to sell its international operations outside Europe. If this is true, then the operations in Thailand and Indonesia could also be sold, and possibly the 50% stake in United Water (Adelaide, Australia). 40

AustraliaThames owns 47.5% of United Water, which holds a water and sewerage concession for Adelaide, South Australia (fro details, see above under Veolia).Thames also has a 25-year contract with the Central Highlands Regional Water Authority to treat and distribute drinking water to 120,000 people in Ballarat and nearby towns. It also has a 10-year wastewater treatment contract in Maffra, worth $11m.

IndonesiaThames holds the concession for east Jakarta, since 1998, awarded under the Suharto regime. Thames was originally in partnership with a company owned by Suharto’s son-in-law. There have been major financial problems, and a price increase of 40% at the end of 2003, supported by the UK embassy but opposed by Indonesian consumers. See below for more details.

JapanThames has no contracts in Japan but is working in partnership with Mitsui, the construction company, to develop long-term relationships with local water and wastewater authorities in Japan.

MalaysiaThames has a technical services agreement with the water concessionaire for the state of Johor, SAJ Holdings Bhd, since SAJ gained the 30-year concession in 1999. 41 Thames’ role includes implementing a water loss reduction programme and setting up a training and research centre.42 Thames is now providing similar support to Timatch Water, who operate water treatment works in Sabah state.

ThailandIn August 1995 Thames Water was awarded a 25-year BOT contract in Pathum Thani, Thailand. The consortium included (as of June 2003) Thames Water and Thai construction giant Ch Karnchang with 38.6% and 28.5% respectively, together with local firms Berli Jucker and Thai Capital Rice. The consortium operates as the Pathum Thani Water Co. Since 1995 the company has experienced some problems, being able to supply only half the 220,000 cubic metres per day it had agreed with the local water authority..43

In July 2001 Thames formed another joint venture with Ch Karnchang, TWCK Company, which won a 30-year BOT contract worth 7.171 bln baht with the Provincial Waterworks Authority of Thailand to create a 320Ml-a-day water treatment plant, trunk mains, reservoirs and local mains distribution system. It will serve a domestic and industrial population of 400,000 in Nakhon Pathom and Samut Sakhon.44

Thai Tap Water Supply Co, a 50:50 joint venture between Thames and Ch Karnchang formed in 2000, is a 30-year BOT. The $235m West Bangkok water supply project received $56.45m of loans from the IFC.45 It was expected to take 3 years to complete the construction phase. Thai Tap Water Supply Co has a take-or-pay contract with the Provincial Water Authority, for 300m litres of water per day from the fifth year of operation, slightly less in the earlier years.46

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Table 3. Thames: current contracts in Asia-Pacific(Types: WD/C – water distribution, concession contract; WS/BOT = bulk water supply, build-operate-transfer contract; WWT/BOT = wastewater treatment, build-operate-transfer contract)

Country Company Type Thames%Australia United Water WD/C 47.5

Australia Ballarat WS/BOT

Indonesia TPJ WD/C

Thailand Pathum Thani WS/BOT 38.6

Thailand TWCK WS/BOT

Thailand Thai Tap Water Supply Co WS/BOT

2.3.1. Thames: lost contractsLost contract: ChinaThames has exited its water treatment plant concession in Da Chang Shanghai, which was originally underwritten by a guarantee from the Shanghai City Council for a minimum 15% rate of return. When the Chinese government declared such guarantees of profitability illegal and unenforceable, Thames Water withdrew, and the plant will now be operated by the municipality. 47

Lost contract: MalaysiaThames was also forced to leave its water supply operation in Kelantan (Malaysia) in 1999. It was privatised in 1995, via Kelantan Waters Sdn Bhd, a 70:30 joint venture between Thames Water and Yayasan Kelantan Darulnaim. The JV was granted a 25-year concession contract worth RM1 billion. By 1998, Kelantan Waters had debts in excess of RM100 million; consumers were forced to deal with low water pressure, supply disruptions and unhygienic water supply; and the federal government had to step in with a RM600-million soft loan. In 1999, the Kelantan state government bought back Thames Water's 70% stake in Kelantan Waters for RM50 million. Though profitable, Kelantan has one of the lowest rates of water connections, with only 57.5% receiving piped water to their homes; and non-revenue water (NRW) stood at 40% in 2003, above the national average of 37%.48

2.4. SAURSAUR is the third largest water multinational in France, and the fourth largest in the world. Its main operations are in France and Africa, where it holds a long-running concession for the Cote d’Ivoire’s water services. Its parent company, Bouygues, a construction multinational, has been trying to sell SAUR for a long time and has now formally offered it for sale. As at November 2004, there was no interest from any other water company, only from financial groups.49 Its former UK business, South-East Water, was sold in 2003 to the Australian financial investor Macquarie (see below).50 In January 2002 SAUR International’s chief executive J. Talbot made a presentation to the World Bank water division, titled: “Is the water business really a business?”. He rejected the “belief that any business must be good business and that the private sector has unlimited funds…The scale of the need far out-reaches the financial and risk taking capacities of the private sector.” He concluded by insisting that subsidies and soft loans are essential to sustain the private sector’s interest. 51 SAUR remains active internationally: in November 2004 it won an operating contract for the water company in Yerevan, capital of Armenia.52

In Asia, SAUR holds one contract in China and one in Vietnam.

ChinaSFSW (Shanghaï Fengxian Saur Water), a joint venture between Saur and the city of Harbin’s Water Company, has a BOT contract for a water treatment plant in Harbin for a duration of 28 years, providing 225,000 m3/day in the Fengxian district, situated southwest of Shanghai.53

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VietnamSaur has a contract from the Quang Ninh Water Supply Company (QNWSC, Quang Ninh province Water Company)to rehabilitate and extend the drinking water network for the cities of Ha-Long, Campha and the districts of Viet Hing and Hoang Bo. 54

2.5. United UtilitiesUnited Utilities (UU) is a UK-based water company which has had a number of contracts in Asia-Pacific. UU was originally a 50-50 partner with the USA company Bechtel in International Water Ltd (IWL): it sold its stake in IWL to the Italian group Edison, but continued to act as operating partner on IWL concessions (see below). Its international activities are now concentrated on the former joint ventures with IWL in eastern Europe, and in the Philippines.

AustraliaUU operates 12 water treatment plants in Australia.

PhilippinesUU is the remaining multinational involved in Manila Water, the concession for east Manila, which also involves local company Ayala. An official audit showed that in 1999 alone, Manila Water’s return-on-rate-base was 41%, well above the 12% ceiling allowed for public utilities. The other international partner, IWL, has now sold its stake, and the latest proposal is to float it on the stock exchange, which would mean a complete exit for UU. In June 2004, International Finance Corporation (IFC), the World Bank’s private sector arm, invested in the firm to take a 9.2% stake; IFC's equity investment in Manila Water is its first in the water sector in East Asia.55

2.5.1. United Utilities: lost contractsMalaysia: exited sewerage contractUU was originally a partner in the Indah Water Konsortium (IWK), which was awarded a USD$2.4 billion 28 year BOT contract to renew and operate the sewerage system in Malaysia. UU exited the consortium in 1996, before the contract became a failure (for details see below).

Thailand: exited sewerage construction contractUU won a contract in 1993 to construct a new sewerage system in Bangkok, including a wastewater treatment plant. By 1997 however the company found that it could not afford to continue with the contract: UU claimed that extra requirements were being added, the Thai authorities claimed that the company was not delivering what was contracted for. UU abandoned the contract and wrote off a total of £90m. 56 UU continue to pursue claims for compensation through international arbitration.57 Is this World Bank procedure?

2.6. Biwater/CascalCascal is an international water company which is 50-50 owned by Biwater, a private British company, and Nuon, a Dutch municipal company. The international water activities originated in expansion by Biwater in the 1980s and 90s, and Nuon became an investor in order to advance its ambitions to be a multinational operator. Biwater’s main ventures– Nelspruit (South Africa), Dar-es-Salaam (Tanzania), Subic Bay (Philippines), Batam Island (Indonesia), Panama, Belize, Mexico – have provoked criticism for the way the contracts were obtained, or for the way they have been operated, or both; they have also been criticized for their behaviour on contracts which they never started – Zimbabwe, Bangalore. Biwater also has a long record of using government connections to obtain, and retain, excessively favourable terms, starting with its rural supply contract in Malaysia, and the recovery of compensation from Nigeria for a failed project. More

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details of this company history are set out in earlier PSIRU reports 58, and the recent War on Want report on the Dar-es-Salaam contract 59.

Cascal (or Biwater as it still often calls itself) is actively seeking construction and operating contracts in all parts of the world.

MalaysiaBiwater has a contract for construction of second stage of the US$ 80-million Sungai Selangor Water Supply Scheme (Phase 3) at Bukit Badong in joint venture with local company Rohas-Euco Communications.60 Biwater also made a bid for the privatization of Selangor state water company PUAS in 2003: they bid via a joint venture company KL City Water, previously known as Antah Biwater. 61

In 1986 a huge contract M$1,400m (£489million) worth involving 174 rural water supply schemes was awarded to Antah Biwater, without competitive tendering. Antah Biwater was 49% owned by Biwater, and 51 percent owned by the Negeri Sembilan royal family’s Antah Holdings Berhad 62 This contract was later the subject of disputes between Biwater and the Malaysian government, with Biwater claiming extra payments and deferral of deadlines. The UK government was massively important in obtaining the contract: a total of £62m aid was made available for the project from the UK government, then the largest amount of aid ever given by the UK to a single project; and the UK prime minister at the time, Mrs Thatcher, played a personal role in negotiating the contract, by making it a bargaining issue in her meeting with the Malaysian government the previous year: “'It was so impressive,' said one former Malaysian minister. 'Mrs Thatcher did all the talking. She stood up and offered aid to build the rural water supply project. It was to be built by Biwater, a British firm. We could have done it ourselves, but the money was offered - and we accepted.' " 63

IndonesiaBiwater’s concession in Indonesia at Batam Bay had operating problems, was the subject of complaints, and was unable to meet the island's requirements, according to a report published in 1998.64

PhilippinesIn 1996, UK-based Biwater won the 25-year concession to manage the water services in Subic Freeport and adjoining Olongapo City, in what would be the first waterworks utility privatization not only in the Philippines but in the whole of Asia. Subic Water’s shareholders are: Biwater (30%), Philippine construction firm DM Consunji Inc (40%), Subic Bay Metropolitan Authority (20%) and Olongapo City (10%).65 The P2.3-billion project to build infrastructure and improve existing sewerage systems at the former US naval base assured shareholders of an internal rate of return of 22.4 percent and profit of 20 percent.66 Immediately after privatization, however, disputes over regulation and the implementation of rate increases caused considerable problems. Taiwanese investors had threatened to pull out because of the “absurd” rate hikes.67 Local residents complain about non-transparent decision-making by the regulatory board.68 In the freeport, water rates went up by 465% in 1996-2001;69 in 2003 and 2004, rates increased by 28% and 15%, respectively.70 After eight years of operation, Subic Water has failed to meet the projected targets in capital expenditures71 and reduction of the 44% non-revenue water. Subic Water continues to accumulate huge financial losses, due in large part to exorbitant foreign consultant’s fees72 and a so-called “technology transfer” fee which critics allege are overpriced second hand booster pumps imported from abroad which reportedly are no longer functioning well.73 In 2001, the regulatory body recommended a cap on consultants’ fees and waiver of payment of technology transfer fees. It also ordered Subic Water's partners to infuse additional cash equity; given the water utility's losses, however, this option seems unlikely, and any new investment will have to come from tariff increases.74

2.6.1. Biwater: lost contracts in Asia-PacificIndia: contract not implemented:Bangalore cancelled a planned contract with Biwater for a bulk water supply scheme from the Cauvery river for Bangalore after investigation of financial irregularities.75

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Philippines: Baguio concession cancelledBiwater lost a water concession in Baguio, Philippines, before it even started. The concession was awarded in 1997, but "Biwater asked to increase its winning rate bid of P8.40/cu. m. because of the continuing currency crisis.": Baguio responded by cancelling the concession.76

2.7. Multinationals no longer active in Asia-Pacific2.7.1. IWLIWL, which was a joint venture between the construction multinationals Bechtel (USA) and Edison (Italy) was a leading member of the consortium running Manila Water in the Philippines. But in 2003 the company sold its shares to its partners, the Philippine firm Ayala and the UK company United Utilities.77 This was part of a general withdrawal from the water business: IWL also sold its stakes in east European water ventures Tallinn (Estonia), Sofia (Bulgaria), and Aqua (Poland) to United Utilities (UU), its joint venture partner in these places, and the European Bank for Reconstruction and Development (EBRD).78 IWL now only retains a concession in Ecuador, whose profits are protected by a World Bank insurance guarantee.

2.7.2. AnglianAnglian Water has also decided to withdraw from all its international activities (including those in Australia, Chile and Czech republic) and focus on the UK alone, following a financial crisis in 2003. Anglian’s only venture in Asia-Pacific was the Moa Point sewerage treatment plant in Wellington, New Zealand. In July 2004 this was sold to United Water, the Australian joint subsidiary of Veolia and Thames Water.79 Anglian had been prosecuted in the previous two years for illegal discharges into the bay.80

3. Private companies based in Asia-Pacific: activity in water sectorThere are a number of private companies based in Asian countries which are involved in water supply and sanitation services. In some cases, they are active outside their own home countries. Some of the international activity consists of investments in water companies outside Asia, and most of the international activity in Asia consists of BOT contracts constructing treatment plants. Some of the companies’ activity in their own countries, and most of the international work, is carried out in some form of partnership with the established water multinationals – Suez, Veolia and Thames.

The most active companies are based in Hong Kong and Malaysia. Cheung Kong Infrastructure (CKI), which is very active in energy, now has no water operations in Asia, but equity stakes in water supply companies in Australia and the UK, where it has bought Cambridge Water (from Spanish energy company Union Fenosa), which is not active outside the UK. The other HK-based companies are active as partners of the multinationals: Citic Pacific and China Everbright with Veolia, New World with Suez, and the China Water Company with Thames.

The Malaysian private companies have obtained an unusually high share of privatized water within their own country. Outside Malaysia they also operate in partnership with the multinationals: Pilecon with Suez (on the now terminated Thu Duc BOT contract in Vietnam), PPB/Kerry utilities with Veolia (in a Beijing sewerage treatment project). Despite stated ambitions, only Salcon appears to have own contracts in China without partnering one of the established multinationals: a recent review of the international activity of the Malaysian companies commented “the big boys appear to be still waiting”. 81 The Malaysian energy company YTL has bought Wessex Water in the UK (from Enron), but has so far shown no sign of becoming active in water in Asia.

A similar pattern emerges in other countries. Even a giant Japanese company such as Marubeni operates so far in partnership with Veolia (in both China and Japan). The Philippine companies Ayala and Benpres also entered the market as partners of the multinationals in the contracts in Manila: it is now possible that they will continue as private operators even after the multinationals leave, and even seek to grow that business within the Philippines, but there are no signs as yet of international activity by these groups. The Singapore’s public sector water operator, the PUB, has formed an international venture, which has so far

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won one contract in China to build and operate a waste treatment facility for a chemical industry complex. In Australia, the only international expansion by an Australian-owned company into water has been the investments by Macquarie, which are financial rather than operational, and all outside Asia.

The Asian companies thus still appear to operate primarily as local partners of the multinationals, rather than growing water companies in their own right. In some cases such as Malaysia they have captured some market share in their home countries, but the majority of international activity in Asia is in partnership with the multinationals. The exceptional autonomous activity consists of investments in the UK and Australia by HKI and YTL (and the water investments of Macquarie).

3.1. Hong Kong companies

Cheung Kong Infrastructure (CKI) is part of the Cheung Kong Group, which also has major energy interests. It was involved in some water and wastewater contracts in mainland China, but had to withdraw from a contract in Shantou, reportedly because the municipality “failed to honour contractual obligations on its infrastructure projects” 82. CKI no longer has any active water work in mainland China or anywhere else in Asia. In 2004 it decided to expand in water in a different way, by buying stakes in existing water companies in OECD countries. It has bought Cambridge Water, one of the small water supply companies in the UK, which it expects to yield a return of 11%-13%: CKI says that it “expects the acquisition to represent a platform for future investment and diversification in the United Kingdom market.”: and it has also bought a 49.5% stake in Aqua Tower, a private company with 25 year BOT concessions to run four water treatment plants supplying the Grampians water authority in Victoria, Australia.83

Citic Pacific has formed a joint venture with Veolia in Zunyi, Guizhou, where it states it expects a 15% return on capital (compared with 8% on water projects in Beijing). 84 Citic is a longstanding partner of Veolia in solid waste management in Hong Kong (and more recently in Shanghai). 85

NWS Holdings, part of New World Development, plans to invest in 10 mainland water-treatment projects through its joint venture with Suez, Sino French Water Development Co Ltd. NWS Holdings already runs 16 water plants on the mainland, mostly along relatively prosperous coastal regions such as Shandong, Shanghai and Guangdong. NWS claims returns of over 10%. 86

China Everbright has a 60% share in a HK$ 331.76 million joint venture sewerage treatment BOT in Qingdao, Shandong province. The company will be managed by Veolia and China Everbright, and be solely responsible for treating and processing sewage in the Qingdao municipal area for 26 years.

Hong Kong-based China Water Co serves 4m people in eastern China, including the cities of Shenyang and Changchun. In August 2002 Thames Water spent $72m on a 48.8% stake in China Water. As the largest shareholder in the company, Thames said it would provide operational and technical expertise to help the firm expand in China. It added that it would use its investment to target private investment opportunities where "the lack of well-developed water services is a key constraint on economic growth". 87

3.2. Chinese companiesBeijing Capital, a municipally-backed private infrastructure investment company, has formed a 51:49 joint venture with Veolia. Beijing Capital already holds the water supply system of Beijing, and reportedly plans to operate elsewhere in China, including in Nanjing and Xiamen, and to seek a flotation outside China to raise foreign capital. 88 However, Guangdong Investment has said that it has stopped pursuing acquisitions of water projects because “we no longer find their return attractive."89

3.3. Japanese companiesMarubeni partnered Veolia in a water company, Shinjuku, in central Tokyo, which intends to undertake water, sewerage and garbage in Tokyo. Marubeni also partners Veolia in some contracts in China. In 2000

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Mitsubishi set up a subsidiary Japan Water. In 2002 it won a maintenance contract for the wastewater treatment plant in Hiroshima.

3.4. Malaysian companiesBecause of the country’s privatization policies, Malaysia is one country in Asia which has created a number of national water companies active in water supply or distribution. Some have become active outside Malaysia, almost entirely in China; some remain active only on the Malaysian market.

Those active outside their own country include Pilecon (in partnership with Suez on the now terminated Thu Duc plant); PPB/Kerry Utilities (involved in a Beijing sewerage treatment joint venture with Veolia); PBA, which has a 26% stake in a water treatment BOT in Pinang, and a 29-year water supply concession in Yi Chun City of the Xiangji Province; Salcon , which has a 50-year concession to operate and manage water treatment in Changle, Shandong province, and a bulk water supply contract with the Linyi Municipality, Shandong. 90

Puncak Niaga (involved in water supply in Selangor), Ranhill Utilities (the holding company of SAJ Holdings Sdn Bhd which provides water supply services for the whole of Johor, and is expected to takes over Sabah state's water supply management), and Taliworks Corp (which operates treatment plant facilities in Kedah and Negri Sembilan) 91 are three of the biggest companies active in water in Malaysia, but appear to have no water ventures outside Malaysia – Taliworks has contracts in China, but in solid waste management.92 Malaysian companies are also expected to take an 80% stake in a $600m bulk water transfer scheme in Zimbabwe, a massive engineering project known as the Matabeleland Zambezi Water Project (MZWP): the project has not yet started and finance has still not been confirmed.93

YTL, the Malaysian energy company, has bought control of the English company Wessex Water, which has no activities in Asia or anywhere else outside the UK.

4. Country reportsThis section covers Asian countries where there has been significant experience of water privatisation or significant moves towards it.

4.1. BangladeshBangladesh has been under considerable pressure to introduce water privatization, but this has so far been largely resisted. In Dhaka, as an alternative to World Bank sponsored privatization, the trade union offered to take over part of the city to show what could be done.

The Dhaka Water and Sanitation Authority (DWASA) was created in 1963 as a public sector utility to cater for potable water, sewerage and storm water drainage of Dhaka, the capital of Bangladesh. By the 1990s DWASA was financially and operationally inefficient, with high system loss. The World Bank (IDA) proposed a new loan, conditional on institutional reform, a privatization study, and experimental privatization of revenue billing, collection, and other activities. The unions countered with proposals to test the supposed virtues of privatisation, and finally the IDA, DWASA , government representatives and trade unions agreed to test one Revenue Zone under the private sector and another under an employees’ cooperative, for a trial period of one year.

The Employees Co-operative (EC) clearly out performed both DWASA and the private contractors. In the EC zone, revenue increased substantially, and ‘unaccounted for water’ was reduced. The EC’s success was based on buying integrity by doubling the salaries paid by DWASA; and exploiting the experience and knowledge of the workforce through participative decision making. Consumer satisfaction also went up. The privatised EPC failed because of lack of past experience, a top heavy management, and a failure to draw on

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grass roots knowledge. DWASA’s zones continued to fail because of bureaucracy, poor pay, attendant corruption and inefficiency.

The poor and slum dwellers also benefited from the EC, because the workers made normal household connections which DWASA rules normally prohibited. Under these rules, water could be supplied (at nominal cost) to very poor households, but only if they officially owned land in DWASA’s area – since the majority did not, they had to resort to buying water from private vendors at more than 10 times the normal price. The EC connected many of these households, and collected charges at the normal household rate, bringing higher revenue to DWASA and cheaper and more reliable water to the poor. 94

The ADB survey offers a more grudging acknowledgement: “Part of the distribution, billing, and collection has been outsourced to the union, whose members may be rewarded based on revenue gained. This has been relatively successful but is limited to operations in high-income areas.”

4.2. CambodiaThe Phnom Penh Water Supply Authority (PPWSA) is said by the ADB report to be “one of the better run utilities in the Asian region”. It has improved performance since the early 1990s, in terms of extension of connections, financial efficiency, ending of corrupt practices and leakage (NRW is reported to be 26%, just above the average for England and Wales). All connections have been metered, and revenue has risen from covering half of the costs to covering total costs; the public participate in reporting leaks.

However, it has still not succeeded in addressing the problem of peri-urban settlements, which is reflected in figures over the percentage connected: PPWSA states that 450,000 people have connections, and claims that over 80% are connected in the four official urban districts: but the population of Phnom Penh is over 1 million, so the effective connection rate remains at about 50%.95

The World Bank, through the PPIAF, is actively promoting private sector based solutions in Cambodia, despite this demonstrably successful public utility in the capital.96

4.3. Indonesia (Jakarta)Indonesia has a new Water Resources Law passed by the Indonesian Parliament in February 2004. Groups who rallied against the law argue that it could lead to a domination of the water market by the private sector and thus result in higher prices, thereby limiting people’s access to water. In June 2004, a people’s coalition on water filed a case in the newly-formed Constitutional Court for a Judicial Review of the law; they argue that turning over government’s responsibility in water services to the private sector is against the Indonesian Constitution Barely three months after the controversial water law was approved, the government is now set to privatize state-run regional water companies and “revive over 300 ailing regional water companies across the country”. The ADB, WB and other donors had pledged to fund the program. 97 The new water law is a condition of a US$300-million program loan from the World Bank, known as WATSAL, or Water Resources Sector Adjustment Loan, which aims to promote PSP in Indonesia’s water sector. Aside from WB, ADB has also been working directly with several regional water municipal companies in Indonesia to prepare a policy framework for PSP. 98

Jakarta is already experiencing the effects of a failed water privatization, when in 1998 – and following the example of Manila – the Jakarta Water Supply Enterprise (Pam Jaya) entered into separate 25-year concession contracts with PT Pam Lyonnaise Jaya (Palyja) and PT Thames Pam Jaya (TPJ). Since February 1998, the two private operators have been responsible for the management, operation, and maintenance of the city’s water supply system including the provision of capital investment, billing, and collection.99 The concession contracts were negotiated directly with Suez Lyonnaise des Eaux and Thames Water; originally the concessionaires were joined by local partners, but after the change in government the Indonesian partners relinquished their shareholdings.100 In April 1999, it was reported that Jakarta water workers have taken strike action to demand equal pay for all water workers.101 The workers organised themselves into a trade

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union, SP PAM Jaya, and also demanded an end to the privatised water concessions in the city; they urged city residents to support them by refusing to pay water charges.

In 2003, the ADB reported that “the private operator concessions in Jakarta have not been too successful in investments and efficiency improvements.”102 Seven years into the privatization, consumers complain of poor service and frequent water disruptions, leaving Jakarta citizens with no water for days.103 Without any significant improvement in the service, water rates were quietly raised by 30% in January 2004. Water rates have already increased thrice in the past – by 15 percent in February 1998, by 35 percent in April 2001, and by 40 percent in April 2003. A consumer’s group filed a class action suit in April 2003.104

4.4. JapanJapan has some of the most efficient water utilities in the world. In the ADB’s survey of water in Asian cities, the city of Osaka was described as providing “an excellent water service”, and its level of non-revenue water, at 7%, is outstandingly low, by international standards. This performance is now threatened by policies of the Japanese government and proposals from the state-owned Development Bank of Japan (DBJ).

The Japanese government has over the last few years adopted a series of policies to facilitate private operation of public services. These include a law promoting Public Finance Initiatives (PFI), a new Water Act in 2002 which enabled delegation of water services management, and new laws enabling local governments to outsource municipal services more generally. The DBJ launched a new financial mechanism in 2003 designed to provide low interest funds for private companies to invest in acquiring and running municipal assets, with the DBJ itself prepared to become an equity investor holding a stake of up to 50%. In October 2003 the DBJ made a specific proposal to Zentsuji city (pop 36,000) for a feasibility study. Zentsuji faces problems of a deteriorating pipe network, together with a municipal shortage of finance – in common with many municipalities in Japan (and elsewhere). The city is considering the plan: meanwhile Shikoku Electric Power, the local electricity utility, has set up a water subsidiary.105

In practice municipalities have been slow to respond to the various pressures for more privatization: opposition by the unions reinforces this reluctance.

4.5. MalaysiaKey elements of Malaysia’s water policy include universal servicing, federal funding of capital works, universal metering and user tariffs, and corporatisation/privatisation of state water supply authorities (SWA) operations to bumiputra or Malaysian nationals. By 1996, 57 water treatment plants with a total capacity of 3.8 million m³ per day had been placed in the hands of the private sector; nevertheless, the major problem in Malaysia's water sector, the high level of NRW, has not been addressed.

From mostly BOT projects in the early 1990s, government policy is shifting to PSP in the whole system, from source to consumer. In March 2004, the government decided to review all water projects pending its studies and the creation of the National Water Services Commission to overseas the development of water resources in the country. A National Water Policy is due by year-end and will chart the future of the water industry.

Malaysia’s policy has attracted much attention due to the unusual extent of involvement of Malaysian-owned private sector companies. Despite generalized claims, this has not so far resulted in a significant amount of independent international activity by Malaysian companies (see above) – nor can the policy itself be described as a success. An overview by a leading business paper in July 2004 opened by stating:

“A sorry state of affairs. That about sums up the country's water service privatisation efforts so far. Privatisation of the Malaysian water service sector began in 1987 but Malaysians are still complaining about the quality of water when they turn on their taps. Low water pressure and water disruptions, at times unannounced, are also a common grouse. Our distribution systems have yet to be fixed. Money spent to treat and produce raw water is being flushed down the drain

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literally as the treated water gets lost along the distribution lines. The national average for non-revenue water (NRW) - revenue losses suffered by the government or the private entity that result from worn pipes, pilfering or theft, and inaccurate billing - was 37% at end-2003. In Sabah, for example, where there are three private entities operating and maintaining its water treatment plants, NRW is at a high 62%. What went wrong?”106

The short answer is that the proliferation of privatized bulk water BOTs are placing a huge financial burden on the distribution companies, which are thus unable to invest in other aspects such as reducing leakage; and the profits sought by the companies are socially unaffordable. The government has already had to renationalize the privatized utility in Kelantan, buying it back from Thames Water in 2000. The problems can be seen with the water utility operator for Kuala Lumpur, Selangor Water Management Corporation Ltd. (or PUAS Bhd), previously the Selangor Water Supply Department, which became a corporation in March 2002. Three companies have 20-25 year concession agreements to sell treated water to PUAS, at a set price, which distributes this water to consumer. While the private companies made annual profits (in 2001) from their water businesses that ranged from $10 million to $47 million, PUAS has faced annual deficits of around $100 million. PUAS' wants the price of the bulk water from the private BOTs reduced: the government at present however is considering privatising PUAS, effectively by selling it to the BOTs.; either way the government is likely to have to bail out the accumulated debts of PUAS, and water prices will rise sharply.107

By contrast, there is an effective public water utility Perbadanan Bekalan Air Pulau Pinang (PBA), which has the lowest non-revenue water in Malaysia (18 percent), the lowest water tariffs in Malaysia, and generates a surplus.108

4.6. Nepal The Nepal Water Supply Corporation (NWSC) is a government corporation set up in 1990 and is responsible for water supply and sewerage for Greater Kathmandu and 11 other towns. In 1997, the Government decided to privatize management of the water supply in the Kathmandu Valley under a management lease contract. In 1998, a National Water Supply and Sanitation Sector Policy was crafted which supports PSP in the operation and management of water supply and sanitation services in Kathmandu Valley towns.109 Similarly, the Kathmandu Valley Water Supply and Sanitation Strategy was drawn which includes full cost recovery for urban water supplies and integration of sanitation with water supply. A regulatory commission is being prepared as a precursor to the introduction of PSP in water supply management.110 Back in 1997, the World Bank agreed to provide financial support to the PSP process but pulled out in mid-2002 after two unsuccessful attempts to prequalify contractors for a 10-year management lease contract ended with only one prequalified each time. ADB then requested that joint ventures of water utilities from developed countries and international consultants with experience in developing countries be allowed to bid. 111

ADB is now helping prepare a 5-year management contract. PSP is also a precondition for the Bank’s support to the controversial US$464-million Melamchi Water Supply Project, approved in December 2000 with co-financing from JBIC and other donors.112 Due for completion in September 2006, the Melamchi project involves the construction of a 26-kilometer tunnel primarily to divert 170 million litres of water daily from the Melamchi River. The NWSC would gradually escalate the price to at least five times more by the time Melamchi water starts flowing in the pipe-networks in Kathmandu.113

NGOs and local communities lead the opposition against the Melamchi water project on issues ranging from water tariffs to increased national debt at the expense of cheaper and more local options. This includes addressing leakages and non-revenue water is estimated at 40-70%. The Melamchi project cost is equivalent to 70 % of the overall government investment for water and sanitation projects for over 10 years, while only 6% of total population benefits.114 In May 2004, local groups and a national federation of water and energy users and communities filed a complaint at ADB's inspection panel, citing violations of the Bank's own policies by its management and project officials, vis-a-vis access to information, environmental impact assessment, land acquisition and resettlement, and gross denial of water rights and interests of affected indigenous peoples and other stakeholders communities.115

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4.7. PhilippinesThe Philippines is among the first countries in the region embrace private sector participation in its water sector; note that the first privatization of a waterworks utility in Asia was in Subic Freeport in 1996. This predated the largest water privatization in the world which was in Manila in 1997. Former Philippine President Fidel Ramos wanted to “blaze trails” in infrastructure privatization which others could follow. Two BOT laws in the early nineties aimed to enhance private sector participation in basic infrastructure such as water utilities. The 1992 Local Government Code likewise gave local government units (LGUs) the muscle to improve their roles in the provision of water supply. The 1995 Water Crisis Act was used to fast-track PSP in the water sector.

The 1997 privatization of Manila’s Metropolitan Waterworks and Sewerage System (MWSS) was the biggest privatization of a water utility in the world. The west and east zone concessions were won by Maynilad Water Services and Manila Water Company, respectively. Maynilad is a joint venture between Suez and local partners Benpres controlled by the Lopez family. Manila Water is a consortium of local oligarch family Ayala with UK’s United Utilities, US-based Bechtel, and Japan’s Mitsubishi Corporation. The private operators promised to provide 24-hour water service and universal connection; reduce system losses, plug leaks and maintain the pipe network; and bring in some us$7.5b in new investments. These were not met.

Instead of promised lower rates, Maynilad’s tariff increased by 400%, rising from PhP4.96 in 1997 to PhP19 per cubic meter in 2003; an additional 36% rate hike may push through by January 2005. Manila Water’s rate increase is roughly 700%, from PhP2.32 in 1997 to PhP15.65 per cubic meter in 2003. Citing financial losses, Maynilad – since March 2001 -- stopped paying monthly concession fees to the government; the arrears is now nearly PhP8 billion. Maynilad's non-payment forced the MWSS to incur more debts which continue to accumulate and totalled US$240m by end-2003.

In December 2002 – when Maynilad failed to win approval for tariff increases it sought – it decided to pre-terminate its 25-year concession. Maynilad alleged that government failed to comply with the terms of the concession agreement; the case went into international arbitration. While the case was pending, the government entered into secret negotiations with Maynilad and announced a controversial debt-to-equity swap in March 2004. A strong public outcry forced government to cancel the deal. A new rehabilitation plan is now being worked out, with similar bail-out terms for Maynilad. The Lopez family will relinquish its 60% control in Maynilad, but will walk away debt-free. Suez will reduce by half its shareholding in Maynilad, to 20%. Maynilad, which is bankrupt, is hurting not just Suez’ balance sheets but also its reputation as a technical operator. After all, Suez was expected to bring to bear its considerable international experience in water management to cut manila’s massive water losses. If Maynilad’s rehabilitation plan is approved, government – and ultimately consumers and taxpayers – will be left to pick up the pieces of a world-class privatization fiasco. Privatization failed to deliver the promised benefits of improved, more efficient, more accessible water and sanitation services. It also left the MWSS with heavier debt burdens than before.

As early as 1994, WB-funded studies identified local water districts viable for pilot privatization, including those in the country’s premier cities of Davao, Cagayan de Oro, Zamboanga, and Metro Cebu. Another WB-Miyazawa study in 2003 proposed that the country’s water districts be classified into “credit-worthy” institutions that could then be turned over to the private sector; Executive Order 279 signed by President Macapagal-Arroyo in February 2004 instituted this measure. Critics argue that exposing highly profitable water utilities to private capital investments and ownership with resultant tariffs based on “full cost-recovery” would be ultimately passed on to consumers. Various WB, ADB, Japan and other donor funds had been released to assist LGU-managed water utilities to operate on commercial basis in secondary towns and cities in the Philippines. In 2006, the Japan Bank for International Cooperation (JBIC), with USAID, will set up a 10- billion yen (90 million dollars) public-private fund for maintenance of water supply and sewerage in the Philippines.116 The fund will be the first in Asia and will leverage finances and credit guarantees from Japanese and American financial institutions for the inflow of private funds to water supply and sewerage business.

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Despite the failure of the Manila water privatization, the government is still bent on promoting PSP in the water sector. In Cebu, an unsolicited take-or-pay bulk water supply project proposed by an Ayala-led consortium (Ayala is the “more successful” private concessionaire in Manila) is already in final stages of project approval. The water district union has opposed theP1.8-billion BOO project, citing onerous terms of the contract which would likely lead to a “backdoor method” of privatization. In the remote mountain town of Butong, Ronda in Cebu island, community residents pay a staggering P150 for every cubic meter of water they consume and have to pay first from a solar-powered, prepaid water supply system installed by a Philippine subsidiary of US-based WorldWater. In Baguio in northern Philippines, attempts to bid out a $70 million bulk water supply project to the private sector have already twice failed twice. In August 2004, losing bidder Benguet Corporation filed a formal protest challenging grounds for its disqualification. The company wanted to convert its idle open mining pit into a large water reservoir to supply drinking water to residents of Baguio City. Benguet Corp., a giant mining company, has moved into the water development

12 Suez press release, 09/14/2004, “SUEZ Environnement wins a 35-year water concession for Tanggu, China” http://www.suez.com/finance/english/actualites/detail.php?id=1262&pg=year&anneeteq=2004 13 Suez press release, 09/14/2004, “SUEZ Environnement wins a 35-year water concession for Tanggu, China” http://www.suez.com/finance/english/actualites/detail.php?id=1262&pg=year&anneeteq=2004 14 Global News Wire - Asia Africa Intelligence Wire - Vietnam News Briefs, 11 July 2003 “Infrastructure: Malaysian Firm Interested In Hcm City's Half-Completed Water Project”15 AFX – Asia, June 14, 2002, “Shenyang Public to sell 99.37 pct stake in Shenyang Water for 900 mln yuan” 16 AFX – Asia, April 22, 2002, “Shenyang Public Utility result reflects lower unit contributions, provisions”17 Veolia Annual Report 2003 p.4 http://www.veoliaenvironnement.com/library/ve/file/1/0CE6353s8UDuwsUQ9HONhIZ7.pdf 18 Veolia Annual Report 2003 p.26 http://www.veoliaenvironnement.com/library/ve/file/1/0CE6353s8UDuwsUQ9HONhIZ7.pdf19 William Birnbauer, The Age (Melbourne), 7 May 2003, “Tapping Australia's Water” (PSIRU Source ID: 7910)20 William Birnbauer, The Age (Melbourne), 7 May 2003, “Tapping Australia's Water” (PSIRU Source ID: 7910)21 AFX European Focus, 19 May 2004, “France's Veolia targets 8-10 pct of total revenue from China within 10 yrs”22 Veolia Environnement’s growth in China 10/09/2003 http://www.veoliaenvironnement.com/en/services/agir/index.htm?garde=/en/services/agir/journaliste/garde.asp23 Veolia Environnement’s growth in China 10/09/2003 http://www.veoliaenvironnement.com/en/services/agir/index.htm?garde=/en/services/agir/journaliste/garde.asp 24 South China Morning Post, December 23, 2003, “Veolia takes charge at Shenzhen Water”25 Asia Pulse, October 18, 2004, “French, Malaysian, Chinese firms link in sewage treatment plant”26 The Edge, 17 May 2004, “Taliworks moves into waste management”27 FT Energy Newsletters - Global Water Report, April 28, 2000, “French giants slug it out”28 The Times of India, June 9, 2003, “Can Privatisation Plug India's Leaking Bucket?”29 See http://www.uwi.com.au/ 30 FT Energy Newsletters - Global Water Report, April 28, 2000, “French giants slug it out”31 BusinessWorld (Philippines), “Vivendi inks various deals with local utility firms”, November 2, 1998; Bernama (Malaysian National News Agency), “European firm clinches water supply deal” November 9, 1998; New Straits Times (Malaysia), “Vivendi/GdE get water supply deal in Fort Boni” November 10, 1998; BusinessWorld (Philippines) “World-class water system for Fort Boni” February 15, 1999; ASIA PULSE, “Vivendi signs us$ 35 mln Philippines water, transport pact”, May 11, 199932 The company will spend some FFr200m designing and building the water and sewage networks; the concession, for 25 years, was expected to generate turnover of some FFr120m a year. In: Financial Times Energy Newsletters - Global Water Report, “French capture Fort Bonifacio” November 6, 199833 Financial Times Energy Newsletters - Global Water Report, “Ramos, reform and fishpens”, April 28, 200034 Bonifacio Vivendi Water Corp is owned by the Bases Conversion Development Authority (BCDA), Vivendi, FBDC and Philippine Water Holdings. In April 2003, over 51 percent shares in FBDC was bought by the Ayala-Greenfield group; the Global City is part of the east zone concession of Ayala's Manila Water. The water firms slashed their water rates when the sale was completed. In: Manila Standard, “Vivendi water cuts water rates in Boni” April 24, 200335 Financial Times Energy Newsletters - Global Water Report, “Ramos, reform and fishpens”, April 28, 200036 A comparative water tariff study in ecozones in October 2003 shows that Clark has an average tariff of P11.32 per cubic meter for domestic use and P25.43 for commercial use. In Subic freeport, average tariff of water is P24.46 per cubic meter on domestic use and P28.81 for commercial use while in Baguio Export Processing Zone, P19.59 per cubic meter for domestic and P51.31 for commercial. On the other hand, Mactan Export Processing Zone has P12.30 per cubic meter for domestic and P70.31 per cubic meter for commercial. Water rate in Clark is also lower than the rates of

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http://www.uwi.com.au/

http://www.veoliaenvironnement.com/en/services/agir/index.htm?garde=/en/services/agir/journaliste/garde.asp

http://www.veoliaenvironnement.com/en/services/agir/index.htm?garde=/en/services/agir/journaliste/garde.asp

http://www.veoliaenvironnement.com/library/ve/file/1/0CE6353s8UDuwsUQ9HONhIZ7.pdf

http://www.veoliaenvironnement.com/library/ve/file/1/0CE6353s8UDuwsUQ9HONhIZ7.pdf

http://www.suez.com/finance/english/actualites/detail.php?id=1262&pg=year&anneeteq=2004

http://www.suez.com/finance/english/actualites/detail.php?id=1262&pg=year&anneeteq=2004


business, with business interests in Bukidnon, Subic Water District, Metro Roxas Water District, San Pedro (Laguna) Water District, Masinloc (Zambales), among others.

4.8. SingaporeSingapore’s water and sewerage services are run by the state-owned Public Utilities Board, widely regarded as a model of efficiency. The main challenge facing the PUB is the lack of water resources, which is being addressed through demand management, renegotiating water supply agreements with Malaysia, supplying industrial users with treated used water (NEWater), desalination and other measures. A BOT has been signed with a Singaporean contractor for a desalination plant due to start operating in 2005: this is also expected to boost the export capacity of the contractor. 117

The PUB also owns an international consultancy, contracting and operating subsidiary, Singapore Utilities International Pte Ltd (SUI). SUI has a 20% stake in a joint venture which won a 30-year BOT concession for a wastewater treatment plant for a chemical industry zone in Nanjing, China.118

water districts in nearby Angeles City and City of San Fernando. In: Rhay G. Navales, Sun Star (Philippines) “CDC: CSEZ has lowest water rates” October 09, 200437 The Edge, Singapore. 07/06/2004, “Tapping into new sources”38 “Philippines-Cebu Efforts to privatize Cebu's state-run water district”, Cebu Monthly Factsheet, August 1, 1997; “Aboitiz, French water firm plan BOT project for Cebu”, BusinessWorld (Philippines), January 26, 1999; “Aboitiz equity eyeing Cebu water system rehabilitation”, Marites S. Villamor, BusinessWorld, March 30, 2000; “Generale des Eaux water project gets Cebu govt approval in Philippines”, AFX News, May 14, 1999; “Parties still at odds over Cebu water development”, BusinessWorld, May 19, 2000, Marites S. Villamor; “Business BOI identifies investment leads worth p170b”, Gil C. Cabacungan Jr., Philippine Daily Inquirer, December 26, 2000; “US outfit Bechtel readies plans for Cebu water projects”, BusinessWorld, July 3, 2001, Marites S. Villamor; “Cebu water agency to put up sewage system via BOT”, BusinessWorld, July 6, 2001; “Aboitiz drops plan to rehabilitate Cebu water distribution system”, BusinessWorld, May 28, 2002, Marites S. Villamor.39 RWE Annual Report 200240 AFX.COM, 09/08/2004 - RWE could sell Thames Water following UK regulator decision - report. .41 Malaysia Economic News, 27 September 1999, “Thames Water will not be LOSB's partner” (PSIRU Source ID: 7943)42 SAJ Holdings website, 9 June 2003, Ranhill Utilities stockmarket prospectus, http://www.saj.com.my/rubhd/Part1.pdf (PSIRU Source ID: 7938)43 Bangkok Post, 3 August 2001, “WATER: Shareholders dismayed by Pathum Thani venture; Company says illegal wells are to blame” (PSIRU Source ID: 7944)44 Paul Newton, Utility Week, 16 March 2001, “Water Thames builds on its tie-ups in Thailand” (PSIRU Source ID: 7945)45 IFC database, accessed via IFC website 9 June 200346 Direction des Relations Economiques Extérieures (DREE), ministère de l'Economie, des Finances et de l'Industrie, France, 9 June 2003, “Thai Tap Water Supply Co”, http://www.dree.org/bm/Lettre/Archives/Thai%20Tap%20Water.cfm (PSIRU Source ID: 7948)47 Global Water Report 196. 01/06/2004, “Thames Water quits Da Chang contract.”48 The Edge Singapore, June 7, 2004, “The water dilemma by Evelyn Fernandez”49 La Tribune, November 9, 2004, “Firm offers for SAUR unveiled”50 Asia Pulse, October 2, 2003, “Macquarie Bank Acquires UK Water Utility”51 ‘Is the Water Business Really a Business?’ Mr J.F.Talbot, CEO Saur International World Bank Water and Sanitation Lecture Series 13th February 2002 http://www.worldbank.org/wbi/B-SPAN/docs/SAUR.pdf 52 BBC Monitoring International Reports 13 July 2004, “Armenia gets 23m dollars from World Bank to improve water supplies”53 http://www.saur.fr/en/particular/groupe_saur/intern_asie.html 54 Le Figaro, 23 March 2003, « Le Figaro Economie; Alors que Suez arrête certains contrats; Les ' utilities ' européennes jettent leur dévolu sur l'Asie »55 Reuters / ABS-CBN News “IFC invests US$ 15 million in Manila Water Company”, 1 June 2004 http://www.abs-cbnnews.com/FlashNewsStory.aspx?FlashOID=1764556 Regulatory News Service, 28 Feb 97, “United Utilities PLC - Reassessment of Contract”57 United Utilities Annual Report 2004 p.858 ‘Biwater: a profile’ 1998 www.psiru.org/profiles/BiwPro.doc ; BiwaterII 1998 : www.psiru.org/profiles/BiwPro2.doc; and ‘Biwater: supplement’ 2000 www.psiru.org/profiles/BiwProSupp.doc

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http://www.psiru.org/profiles/Biwpro2.doc

http://www.psiru.org/profiles/Biwpro.doc

http://www.abs-cbnnews.com/FlashNewsStory.aspx?FlashOID=17645

http://www.abs-cbnnews.com/FlashNewsStory.aspx?FlashOID=17645

http://www.saur.fr/en/particular/groupe_saur/intern_asie.html

http://www.worldbank.org/wbi/B-SPAN/docs/SAUR.pdf


4.9. Sri LankaFor some time now, Greater Colombo has been eyed by financial institutions and contractors as the “prime candidate to lead South Asia into PSP in water supplies.”119 The National Policy on Private Sector Participation in Water Supply and Sanitation was drafted in October 1999 and approved in 2001. Earlier in 1993, ADB formulated a national water sector profile and reform action plan for Sri Lanka; a 2001 loan supported the drafting of a new water policy. With World Bank support, the government identified in 2001 several urban water supply schemes for PSP in Greater Negambo and the Kalutara to Galle Coastal Strip as pilot projects for immediate implementation. The lease-concession hybrid model will be used;120 capital investment fund and an operational investment fund are proposed to cushion the effect of higher tariffs. 121 In December 2003, a coalition of NGOs and public sector trade unions challenged in the Supreme Court a

59 ‘Turning off the taps: Donor conditionality and water privatisation in Dar es Salaam, Tanzania’ Action Aid 2004 www.actionaid.org.uk/wps/ content/documents/TurningofftheTAps.pdf 60 Water & Waste Water International, October 2003, “Biwater awarded Malaysian project.”61 AFX.COM, August 11, 2003, “UK's Biwater, Holland's Nuon bid for big Malaysian water privatisation project”62 The Independent (London), 26 February 1994, “UK cash aided princes' firm; 49m pounds given without proper checks on water supply scheme backed by Malaysian royal family”63 Observer 27 Feb 199464 Antara - The Indonesian National News Agency, 9 October 1998: "It is still not possible for Batam to export water to Singapore supplied through Johor, Malaysia, as the water supply of the island is still needed for its own consumption. Head of the clean and waste water management service of the Batam Authority Slamet Effendi said here Friday that clean water for the industrial and commercial centres in Batam is supplied by five rain water reservoirs. They are the Baloi reservoir with a volume of 200,000 M3, Sei Ladi 2,800,000 M3, Sei Harapan 4,800,000 M3, Nongsa 700,000 M3 and Muka Kuning 13,400,000 M3. Duri Angkang, another reservoir with a volume of 62,000,000 M3 is not yet operational for technical reasons. The water volume of the reservoirs reaches 89,900,000 M3 with an installed capacity of 3,850 liters/second. The currently available capacity stands at 850 liters/second. He said that the El Nino weather phenomenon has affected the water supply in the reservoirs, and the water surface of the Muka Kuning reservoir has even dropped to four meters. In the face of complaints from the customers, especially from industrial and commercial centres on the island, only a couple of miles south of Singapore, PT Adhya Tirta Batam (ATB), concessionnaire of clean water production in Batam, in association with the Batam Authority, built a 5-km pipeline to channel water from the Duri Angkang to the Muka Kuning reservoirs. He said that the Batam Authority was seeking an alternative way of maintaining the water supply, rather than merely depending on rainfall. ATB, with PT Bangun Cipta Contractors and Biwater International Ltd, each holding 45 percent of its shares, and PT Syabata Cemerlang 10 percent, holds a concession from the Batam Authority covering a period 25 years, with a total investment of Rp37,5 billion."65 Business Times, Malaysia, “Biwater in Subic Bay utilities venture”, 25/11/1996; Asia Pulse, “$14.4 mln loan for Subic Water privatization”, February 25, 1997.66 Patricia L. Adversario, BusinessWorld (Philippines), “Subic Water: Privatization scheme faces tough test”, February 6-7, 2002.67 PSIRU Source Reference: 3749 “Taiwan companies refuse to pay 'absurd' prices charged by Biwater subsidiary”, June 1998; CHINA NEWS “Companies threaten Subic pullout”, May 21, 1999; CHINA NEWS, “Water back on at Subic, but cost row continues”, May 22, 1999; Asia Pulse, “Water supply restored at Subic Taiwanese industrial park”, May 24, 1999; China News, “Subic water proposal rejected”, May 28, 1999; CHINA NEWS, “Taiwan investors drowning under inflated water rate”, June 15, 1999; Financial Times Energy Newsletters - Global Water Report, “Ramos, reform and fishpens”, April 28, 2000; Manila Standard, “Taiwanese firms complain of rising water rates”, October 18, 2002; Gil C. Cabacungan Jr, Philippine Daily Inquirer, “DTI to intervene in Subic Water concession issue”, October 18, 2002; Cecille S. Visto, BusinessWorld, “Taiwanese lobby spurs water rate hike review”, 5 December 2002; Philippine Daily Inquirer, “SBMA sees end of dispute between locators, water supplier”, 20 December 2002; BusinessWorld (Philippines), “Subic water rates row”, 20 December 2002; Manila Standard, “Water rates in Subic seen dipping”, December 20, 2002.68 Manila Standard (Philippines), “Water rate sparks rally”, August 19, 1999; “Subicwater Co. hit on rate hike”, April 28, 2004 http://www.globalpinoy.com/news/provincial/04282004/prov1.htm69 Patricia L. Adversario, BusinessWorld (Philippines), “Subic Water: Privatization scheme faces tough test” February 6-7, 2002.70 “Subicwater Co. hit on rate hike” April 28, 2004 http://www.globalpinoy.com/news/provincial/04282004/prov1.htm71 In a 2001 report, the regulatory body noted Subic Water’s failure to meet the projected targets laid out in the franchise agreement; after four years of operation, capital expenditures reached only 31% of the projected capital expenditure of

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controversial Water Services Reform Bill introduced by parliament, saying it will deprive the poor of access to freshwater. The Supreme Court effectively blocked the bill, saying that its provisions came under the 13th amendment and therefore must be approved by all provincial councils.122

4.10. ThailandThailand's water system is managed by two bodies -- the Metropolitan Waterworks Authority (MWA) for tap water in Bangkok and vicinity, and the Provincial Waterworks Authority (PWA) for tap water in 73 provinces. Due to the 1997 Asian financial crisis, Thailand committed to an IMF- led bailout program (with WB and ADB) which pushed the country to privatize its state-owned enterprises, including MWA and PWA.

P913.9 million. In: Patricia L. Adversario, BusinessWorld (Philippines), “Subic Water: Privatization scheme faces tough test” February 6-7, 2002. 72 A 2001 report of the regulatory body noted the high fees paid to consultants; these management services fees are based on a services agreement between Subic Water and Cascal B. V. Based on the agreement, Subic Water needs to pay Cascal an average of P19.7 million a year. This includes direct consultants fees, about P6 million; indirect consultants fees, P2.56 million; and technology transfer fees, about P11.14 million. In: Patricia L. Adversario, BusinessWorld (Philippines) “Subic Water: Privatization scheme faces tough test” February 6-7, 2002.73 “Subic water Co. hit on rate hike” April 28, 2004 http://www.globalpinoy.com/news/provincial/04282004/prov1.htm74 Moreover, major shareholder DMCI had long been planning to sell its stake in Subic Water to pay off company debts and focus on its core business of construction. In: Shirley L. Flores, BusinessWorld (Philippines), “DMCI planning to sell land assets, Subic Water stake” April 14, 1999; Ma. Elizabeth L. Sanchez, BusinessWorld (Philippines), “Property firm DMCI slates assets sale to repay debts” July 8, 1999; BusinessWorld (Philippines), “DMCI Holdings to sell stake in AG&P and Semirara Coal”, August 17, 2000 75 The Hindu, October 25, 2001, “A lesson for others”76 BusinessWorld (Philippines), 28 August 1998: "… BWD general manager Teresita de Guzman said her office voided the contract with the Biwater Consortium, which won the bid last year to provide the city with 50,000 cubic meters of water daily for five years starting on the year 2000. …. Ms. De Guzman said Biwater asked BWD to increase its winning rate bid of P8.40/cu. m. because of the continuing currency crisis."77 Cathy Rose A. Garcia, BusinessWorld (Philippines), 29 August 2003, “Ayala to buy out foreign partner in Manila Water Company” (PSIRU Source ID: 8258)78 Utility Week, 29 August 2003, “Bank to fund United's push eastward” (PSIRU Source ID: 8259)79 The Dominion Post (Wellington, New Zealand), July 10, 2004, Moa Pt sewage plant has new operator80 The Dominion Post (Wellington, New Zealand), September 1, 2004 No prosecutions over sewage discharges81 The Edge Singapore, June 7, 2004: Tapping into new sources82 South China Morning Post, June 30, 2004 Competition dilutes returns83 Cheung Kong Infrastructure Holdings Limited Interim Report 2004 http://www.cki.com.hk/english/PDF_file/interimReport/2004/2004_ir.pdf 84 South China Morning Post, June 30, 2004, “Competition dilutes returns”85 AFX European Focus, June 25, 2004, “Citic Pacific water concession JV in China to yield 15 pct return” 86 AFX – Asia, November 27, 2003, “HK-listed NWS Holdings in talks to invest in 10 China water projects”87 China Economic Review Global News Wire, 23 August 2002, “Infrastructure news: water: Thames takes stake in eastern supplier” (PSIRU Source ID: 7907)88 South China Morning Post, February 28, 2004, “Beijing Capital looks abroad for expansion funds”89 South China Morning Post, June 30, 2004, “Competition dilutes returns”90 The Edge Singapore. June 7, 2004, “Tapping into new sources”91 Malaysia General News. January 11, 2004, “Sabah water privatisation project to be finalised this month”92 The Edge Singapore, June 7, 2004, “Tapping into new sources”93 Zimbabwe Independent - AAGM, September 10, 2004, “MAT water project hits another snag”; Comtex News Network September 29, 2004, “A Long, Winding Pipe Dream”94 Experimental Alternate Option To Privatization Of Water Industry In Dhaka – Bangladesh . M.Z.Hoque, Bangladesh. Paper Presented In 3rd World Water Forum - March 16-23, 2003, Kyoto, Japan www.tni.org/altreg/water/hoque.pdf 95 “Water in Asian Cities - Utilities Performance and Civil Society Views”, By Charles Andrews and Cesar Yniguez (eds), Asian Development Bank, January 2004, p57. http://www.adb.org/Documents/Books/Water_for_All_Series/Water_Asian_Cities/default.asp

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http://www.tni.org/altreg/water/hoque.pdf

http://www.cki.com.hk/english/PDF_file/interimReport/2004/2004_ir.pdf



The MWA operates one of the world's largest waterworks operations. According to ADB, MWA has addressed the two key issues of water utilities in Asia, namely governance and tariffs, and as a consequence “it provides good service to the people in its service area”. 123 With its sizeable operation, high gross-profit margins and relatively small debt, the Bt100-billion tap water monopoly was expected to enjoy a successful privatisation.124

In June 1998, Thailand had taken the first step towards the nationwide privatisation of water services with the approval of a corporatisation plan for MWA and PWA.125 With World Bank funding, the US firm Tasman Asia was contracted by the finance ministry in December 2000 to draft a national master plan that has three main components: Privatisation of the MWA, PWA and the Wastewater Management Organisation; establishing an independent regulatory framework; and setting up a water-tariff structure.126 Privatisation of MWA and PWA was initially slated for 2003.127

96 Private Versus Public Provision of Water in CAMBODIA: What Are the Results? PPIAF 2004 http://wbln0018.worldbank.org/ppiaf/activity.nsf/files/CAMBODIA.pdf/$FILE/CAMBODIA.pdf 97 “Water sector privatization looms, NGOs warn of risks”, Muninggar Sri Saraswati, Jakarta, June 4, 200498 INFID Issue Brief – “Water: IFIs Influence over Indonesia Water Law”, by Nadia Hadad, October 200499 “Water in Asian Cities - Utilities Performance and Civil Society Views”, By Charles Andrews and Cesar Yniguez (eds), Asian Development Bank, January 2004, pp. 44-45. http://www.adb.org/Documents/Books/Water_for_All_Series/Water_Asian_Cities/default.asp100 “Asian Water Supplies – Reaching the Urban Poor”, By Arthur C. Mcintosh Asian Development Bank and International Water Association, August 2003, p. 90. http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf101 “Jakarta water workers strike over pay and privatization”, PSIRU news item April 1999.102 “Asian Water Supplies – Reaching the Urban Poor”, By Arthur C. Mcintosh, Asian Development Bank and International Water Association, August 2003, p. 148. http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf103 The City Water Regulatory Body said that 17 percent of the 30 percent hike would be used to pay off PAM Jaya's Rp 900 billion (US$106 million) debt to the international operators, a cumulative result of the difference between the water rate paid by customers and the water charges that PAM Jaya pays TPJ and Palyja. In: The Jakarta Post, August 30, 2004, “Customers kept in dark about water disruptions” http://www.thejakartapost.com/detailcity.asp?fileid=20040830.G01&irec=0104 The Jakarta Post, “City administration quietly raises water rates by 30 percent”, January 6, 2004105 “Developments in the privatisation of waterworks in Japan”. Jichiro. August 2004.106 The Edge Malaysia, July 5, 2004 Big Money: Water woes continue107 The Edge Malaysia, July 5, 2004 Big Money: Water woes continue108 Reclaiming Public water, TNI/CEO 2004. TNI Briefing Series 2004/7. http://www.waterjustice.org/article.php?subSectionID=2&articleID=81 109 “Water in Asian Cities - Utilities Performance and Civil Society Views”, Charles Andrews and Cesar Yniguez (eds), Asian Development Bank, January 2004, pp. 40-41. http://www.adb.org/Documents/Books/Water_for_All_Series/Water_Asian_Cities/default.asp110 “Asian Water Supplies – Reaching the Urban Poor”, by Arthur C. McIntosh. Asian Development Bank and International Water Association, August 2003. p. 149http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf111 “Asian Water Supplies – Reaching the Urban Poor, by Arthur C. McIntosh”. Asian Development Bank and International Water Association, August 2003 p. 90.112 “Asian Water Supplies – Reaching the Urban Poor, by Arthur C. McIntosh”. Asian Development Bank and International Water Association, August 2003 p. 149.113 “Nepal's good and bad water stories feature at World Summit”, The Rising Nepal (English Daily), 29 August 2002.114 From: Water Aid-Nepal http://wateraidnepal.org.np, Presented by Deepen Bhadhur Bista, Water and Energy Users' Federation-Nepal (WAFED), July 2003 ([email protected] Website: www.wafed-nepal.org)115 Request for the investigation of policy non-compliance in Melamchi Water Supply Project (MWSP), Inspection claim filed at Office of the Special Project Facilitator, Asian Development Bank, by Water and Energy Users’





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http://www.waterjustice.org/article.php?subSectionID=2&articleID=81

http://www.waterjustice.org/article.php?subSectionID=2&articleID=81

http://www.thejakartapost.com/detailcity.asp?fileid=20040830.G01&irec=0

http://www.thejakartapost.com/detailcity.asp?fileid=20040830.G01&irec=0




http://wbln0018.worldbank.org/ppiaf/activity.nsf/files/CAMBODIA.pdf/$FILE/CAMBODIA.pdf


In the end, the government decided to reject the consultants’ advice, and instead will offer shares of MWA as a company to the public through the stock exchange, but with the government holding a majority of those shares. 128 Since late 2002, however, several attempts to list MWA and PWA as with other SOEs were thwarted by resistance from state workers.129 Faced with thousands of striking workers protesting government’s privatization policy in early 2004, current Prime Minister Thaksin’s plans suffered a serious drawback. Recently, Thaksin again reasserted plans to privatise SOEs over the next couple of years.130

5. Development banks and donors The policies of the World Bank and the ADB have consistently supported water privatisation and been the main driving force. However, the policy has not succeeded in attracting investment, nor in providing reliable profitability. The World Bank has now acknowledged in its 2003 infrastructure review that this policy has failed to bring the investments expected to extend drinking water services, and the water multinationals have also adopted a policy of disinvestment since 2003. At the same time, the UN millennium development goals have set challenging political targets for extension of connections. The banks therefore might be expected to adjust their lending policies to reflect these new economic and political realities. Since the public sector still operates water supply systems for well over 90% of people with water, supporting public sector entities must become a core part of the development bank’s policies on water.

However, the banks continue to be driven by policies favouring the private sector. In the case of the World bank, this is partly because there are parts of the WB whose function is to finance and promote the private sector, so they cannot do anything else. The largest of these is the IFC, which only invests in private sector operations – including the Manila privatizations. Another WB unit is the PPIAF (Public Private Infrastructure Advisory Facility), which is also dedicated to finding opportunities for private investment. The PPIAF produces its own country framework reports for this purpose, and has produced such CFRs covering the water sector in Cambodia (despite the outstanding performance of the public utility in Phnom Penh), Vietnam, India and Bangladesh. In Sri Lanka, in September 2002, the PPIAF started a project to “Provide a legal framework for the water and sanitation sector allowing necessary private sector participation (PSP) reforms to move ahead.” 131 This activity continues vigorously: in India at present, the PPIAF is spending $692,500 on consultants to for the “Development of a Pilot Private Sector Participation Model for Distribution of Drinking Water” – a project that was initiated at the end of June 2004.132

6. Issues and trends

6.1. The risks of water supply BOTsA number of bulk water supply installations have been built in the last decade, to increase the amount of water available for human consumption. These involve either building a reservoir to capture new water sources, or building a new treatment plant to purify water for the taps. In all parts of the world, many of these have been built under Build-Operate-Transfer (BOT) contracts, whereby a private company invests the money to build the reservoir or treatment plant, and then recoups the cost by operating the plant and selling the water under a long-term 25 or 30 year agreement with the water authority. Under these agreements, the water authorities promise to buy the water produced by the reservoir or plant at a price which is set to ensure the profit of the private company: and such agreements are normally guaranteed by national governments.

Federation (WAFED) – Nepal, Melamchi Local Concern Group, and Federation of Community Forest Users Nepal (FECOFUN), 1 May 2004.116 Masakado Ishizawa, Nikkei Shinbun, “JBIC's new fund for water supply and sanitation projects in the Philippines, the first case in Asia”, Oct 12, 2004





.







One problem with these contracts is that the price at which the water is sold is crucial to the company’s profits. There is thus a great incentive for the company to fix the price as high as possible. Companies may use tactics such as corruption, or exaggeration of the forecast demand for water, or exaggeration of construction costs, to obtain a better deal. Such contracts may result in public authorities having to pay too much for their water, or promising to buy more water than they really need – or in governments having to use public money to subsidise the companies profits for the duration of the contracts.

A number of BOTs in Asia have experienced such problems.

The Thu Duc treatment plant in Ho Chi Minh City, Vietnam, was built under a USD$154m BOT contract from 1997 by a subsidiary of the French multinational Suez-Degremont, the world’s largest water group, and Malaysian construction company Pilecon Engineering Berhad. It involved taking water from the Dong Nai River. Under the contract, once the plant began operating in 1999, it sold water at 20 cents per cubic metre, although the price charged to consumers was only 11cents: the balance had to be subsidised by the city council. In February 2003 Suez abandoned the contract, reportedly because of disputes over the interpretation of the contract. 133 Since then, the Ho Chi Minh city council has rejected proposals for further development from Singaporean and Malaysian firms, reportedly because it now prefers “to choose a Vietnamese company for the project, as this will help save on construction costs and ensure fair water prices”. It has also rejected proposals from the city water company to increase prices from 11 cents to 20-26 cents per cubic metre, stating that “a hike in water prices is necessary to raise capital for water works but only moderate hikes will be accepted”.134

Veolia’s water BOT near Chengdu, China, has produced similar problems since it started operating in 2002, though the BOT has not yet been terminated.135 The contract requires the municipal water operator, which has supplies of its own for 900,000 cubic metres per day, to buy 400,000 m³ per day on a “take or pay” basis. However, the present daily requirement of Chengdu is only about 1 million m³ per day, so the water is unnecessary as well as too expensive: the water company has had to close some of its own facilities, and is under severe financial pressure unless prices to consumers rise. The explanation offered for this problem is that “It came about partly because of overestimation of population growth…..[and because] after completion of the BOT water quality improved, but the price of water increased, too, which reduced demand”. The ADB survey comments that the contract is causing concern: “ Demand has been overestimated. The city is left not wanting any more water at the moment, but it is forced under the take or pay contract to buy 400,000 m³ per day. This clearly shows that governments take a risk with take or pay BOTs.” The Chengdu project was financed by the ADB, which provided USD$48 m. out of the total investment of USD $106.5 m.136

In China, Thames Water abandoned its Da Chang BOT in Shanghai after the Chinese government declared that the municipal guarantee of a 16% profit was invalid. The plant had been operating for 9 years, but the reaction of Thames to the loss of the guarantee implies that the price charged under the formula was bound to fall sharply once the guarantee was removed.137 The bulk water supply contract of Shenyang Public Utility, in which Suez held a stake, was ended in 2002 because demand was lower than forecast and the public water authority could not afford to pay. 138 The contract at Xian held by Berlinwasser appears to have been terminated for the same reasons.

There have been a series of similar problems in Malaysia.

There have been similar problems with such BOTs elsewhere in the world. Suez recently lost a BOT contract in Bogota, Colombia, where the city council calculated that Suez was charging 10 times too much for the operating costs, and that it was worth paying USD$80m to buy out the contract139 A Thames Water bulk water reservoir BOT in Turkey is currently under investigation for corruption in the contract-making, 140

after the contract price for the water made it unaffordable to the water authorities expected to use it.

There should be a serious re-appraisal of the economics of existing water supply BOTs, and a moratorium on further developments, while the lessons of this experience are explored. Otherwise long-term economic liabilities may be accumulated which damage the ability of water utilities to function.

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6.2. Asian public sector water operatorsThe recent ADB survey of 18 cities in Asia confirms that public sector water services can deliver a service at least as well as companies with a private sector owner. According to the survey data, the private sector concessions of Manila and Jakarta are performing significantly worse than most public sector operators on four indicators of coverage, investment, and leakage: 141

- The percentage of households connected to water supply in Manila and Jakarta is lower than all other cities except one (Ulanbaator);

- the percentage with access to sewerage in Manila and Jakarta is lower than in any of the other cities except one (Vientiane)

- Capital expenditure (US dollars per connection) in Manila and Jakarta is much lower than in cities such as Delhi and Dhaka, even though these latter have lower per capita income; and are dealing with urban

- Manila is worst, and Jakarta fourth worst, for the levels of non-revenue water (leakage and unpaid consumption): Delhi and Colombo are second and third.

On six indicators (unit production costs, percentage of expenses covered by revenue, cost to consumers of constant level of usage per month, 24 hour supply, tariff level, connection fee) their performance is middling, not outstanding. The private cities perform relatively well on two indicators: revenue collection efficiency, and minimizing the number of staff per 1000 connections.

The ratings of the various cities calls into question the continuing enthusiasm of the ADB and a number of governments for privatization in some form or other. The measures above are relevant for most of the stated public policy objectives in water – especially extensions of the percentage connected, which are central to the Millennium Development Goals – yet in Asia cities where water supply is run by the public sector score at least as well as private cities. This confirms other evidence, for example a comparison of public and private water operations in Latin America, which found that private operators, despite all the financial and other support they had received, were no more likely to have extended services than cities without private operators. 142

Cities such as Osaka and Phnom Penh, run by effective public sector water operators, can clearly provide lessons for other water undertakings in Asia.

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Table 4. ADB water indicators for 18 cities (Jakarta, Manila private concessions highlighted in blue: averages in yellow)

Chengdu Colombo Delhi Dhaka HoChiMinh HongKong Jakarta Karachi Kathmandu

Average(18)

Production/Population (m3/d/c) 0.38 0.48 0.30 0.22 0.37 0.38 0.27 0.34 0.11 0.40WaterCoverage (%) 83 69 69 72 84 100 51 58 83 79

Sewerage Access (%) 85 33 60 30 12 100 2 50 22 5124hourAvailability (%) 100 60 1 0 75 100 92 0 0 67

Consumption/Capita (l/c/d) 138 119 110 115 167 187 77 197 68 165NonrevenueWater (%) 18 55 53 40 38 25 51 30 37 34

AverageTariff (US$) 0.14 0.22 0.07 0.06 0.18 0.35 0.29 0.07 0.09 0.24ConnectionsMetered (%) 98.5 70.0 32.7 50.7 100.0 100.0 98.8 0.3 38.0 76.5

WorkingRatio 0.5 0.52 2.45 0.89 1.13 2.41 0.8 1 1.04 1.05Staff/1,000Connections (ratio) 33.8 7.6 19.9 11.6 3.5 2.3 5.3 6.4 15.2 8.3

NewConnectionFee (US$) 1* 129 2 29 53 146 13 3 21 212RevenueCollection Efficiency (%) 100 94.8 70.4 82 100 99.8 98 54 70 87.7

CapitalExpend/Connection (US$) 176 8 78 140 72 115 47 7 17 88

KualaLumpur

Manila Osaka PhnomPen

Seoul Shanghai Tashkent

Ulaanbaatar

Vientiane Average(18)

117 “Managing Singapore's Water Resources”, September 22, 2004 http://www.rsi.com.sg/english/assignment/view/2004092220125/1/.html118 Singapore PUB Annual Report 2003 http://www.pub.gov.sg/downloads/pdf/03Pg28-30.pdf 119 “Asian Water Supplies – Reaching the Urban Poor”, By Arthur C. Mcintosh Asian Development Bank and International Water Association, August 2003, p.141 http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf120 “Water in Asian Cities - Utilities Performance and Civil Society Views”, By Charles Andrews and Cesar Yniguez (eds), Asian Development Bank, January 2004, p. 35. http://www.adb.org/Documents/Books/Water_for_All_Series/Water_Asian_Cities/default.asp121 “Asian Water Supplies – Reaching the Urban Poor”, By Arthur C. Mcintosh Asian Development Bank and International Water Association, August 2003, p.141 http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf122 “Sri Lanka: protests against water privatisation”, http://www.irc.nl/content/view/full/7621(Updated: 19 December 2003)128 “Asian Water Supplies – Reaching the Urban Poor”, by Arthur C. McIntosh. Asian Development Bank and International Water Association, August 2003. http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf129 In 1999, the MWA was supposed to launch its first early retirement program to trim about 400 employees from the ranks of middle management; similarly, PWA planned to set up an early-retirement programme in which remaining staff would be transferred to work with private regional operators. In: Pichaya Changsorn, The Nation (Thailand), “MWA plans to privatise, list on SET”, 6 November 2000; Watcharapong Thongrung, The Nation (Thailand), “Govt likely to grant water concessions”, 20 July 1999130 Thailand’s last privatisation was of the Airports of Thailand Plc, when the government sold the shares in early 2004. Since then, the privatisation process has come to a standstill as state-owned enterprise employees have protested against the plans proposed by the government. In: Business Day (Thailand), “PM reasserts plans to privatise state firms”, 11 September 2004131 PPIAF Activity ID A111202-S-WTS-RF-LK Legal framework for Private Sector Participation (PSP) in the Water and Sanitation Sector (Sri Lanka) http://wbln0018.worldbank.org/ppiaf/activity.nsf/ec7ea449fb52a22285256b6600721d34/63cec5b206e4a89885256c6f0059fd81?OpenDocument

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http://www.irc.nl/content/view/full/7621




http://www.pub.gov.sg/downloads/pdf/03Pg28-30.pdf

http://www.rsi.com.sg/english/assignment/view/2004092220125/1/.html


hProduction/Population (m3/d/c) 0.44 0.56 0.53 0.23 0.39 0.47 1.04 0.44 0.27 0.40

WaterCoverage (%) 100 58 100 84 100 100 99 49 63 79SewerageAccess (%) 80 7 100 41 98 68 85 48 0 51

24hourAvailability (%) 100 88 100 100 100 100 100 48 50 67Consumption/Capita (l/c/d) 132 127 263 104 205 251 328 278 110 165

NonrevenueWater (%) 43 62 7 26 25 17 27 36 28 34AverageTariff (US$) 0.30 0.14 1.37 0.24 0.49 0.10 0.01 0.19 0.04 0.24

ConnectionsMetered (%) 100.0 100.0 100.0 100.0 99.8 100.0 8.3 80.3 100.0 76.5WorkingRatio 1.34 1.22 1.08 0.46 0.57 1.08 0.47 0.83 1.1 1.05

Staff/1,000Connections (ratio) 1.4 4.4 1.7 5.4 1.4 5.7 5.6 823.3 10.5 8.3NewConnectionFee (US$) 13 107 1506 87 850 83 32 454 74 212

RevenueCollection Efficiency (%) 95 97.3 87.2 99.7 93 93.5 76.8 90 76.8 87.7CapitalExpend/Connection (US$) 173 18 224 203 100 38 3 1,978 47 88

Source: Water in Asian Cities. ADB. January 2004

132 PPIAF Activity ID A042403-L-WTS-PT-IN approved 29 June 2004 http://wbln0018.worldbank.org/ppiaf/activity.nsf/ec7ea449fb52a22285256b6600721d34/00b3741829f597a685256d12004c4b2a?OpenDocument

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6.3. Leakage and the multinationalsUnaccounted for water, or non-revenue water (NRW), including leakage and water used but not paid for, ranges between 30% and 60% in most cities in the ADB survey. This is sometimes seen as a simple indicator of how poorly Asian public water companies have been performing. However, these levels are rarely compared with European experience, and specifically with England, where water has been privatized for 15 years.

Leakage rates in England average 23%, according to official figures: the area covered by the leading UK-based multinational, Thames Water, averages 33%,143 with close to 40% in London, and in some places close to 60%.144 The average NRW figure for the 18 Asian cities is almost identical to Thames water’s leakage rate in England. But given that the NRW figures for Asian cities include water supplied but not paid for, which is a negligible element in the UK, the average percentage figure for leakage alone in Asian cities is almost certainly much better than Thames’, and may be comparable with the average for England as a whole.

This appears to be the case with Colombo, where the ADB case study report breaks down the figures for non-revenue water. These show that the NRW figure for Greater Colombo of 35% is made up of 23% leakage and 12% illegal connections and other forms of non-payment; in the inner city of Colombo itself, the ‘staggering’ figure of non-revenue losses of 55% includes leakage of only 25% - the rest is water that is unpaid but not consumed.

Table 5. Colombo: lower leakage than London Leakage Other factors inc illegal

connections, unpaid billsNon-revenue

waterGreater Colombo 23 12 35City of Colombo (inner city) 25 28 53London (entire Thames Water area) 33 0 33London (north London) 40Sources: Water in Asian Cities 145; author’s calculations from OFWAT data; OFWAT letter to Guardian

It may therefore be questioned whether leakage levels are to be explained by reference to specifically Asian factors, and also whether there is a clear rationale for commissioning European multinationals to address leakage problems in Asia.

The question is highlighted by a recent contract in Bangalore, whose NRW is said to be 35%: the city has contracted a pilot project to curb leakage to a team led by Thames Water, whose average leakage level in the UK is nearly as high as Bangalore’s NRW (and therefore certainly above Bangalore’s figure for leakage alone).146

The irony is increased by the fact that the project is financed by a Japanese development bank, given that the leakage levels in Japan, under public sector management (as in Osaka, where NRW is 7%) appear to be considerably lower than those achieved by the English private companies. Consideration of a public-public partnership with a Japanese water operator would perhaps be a more promising option if Bangalore wants to reduce leakage levels.

6.4. Problems and terminations: failure rate in AsiaThere have been a number of failures in water privatization in Asia. The table below shows those contracts which have been terminated and returned to the public sector, sold by multinationals exiting, or subject to major renegotiations. This represents an extremely high failure rate for private concessions and long-term BOT contracts, and may get worse if Suez finally leave their contracts in Manila and Jakarta, and Thames leaves its Jakarta contract, as they have both threatened to do.

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In the light of this, any future consideration of a private concession or BOT should factor in the high risk of premature termination and renegotiation with their associated costs.

Table 6. Terminated contracts, exits and major renegotiationsMNC Operatio

nCountry Type Star

t date

End date

Status Comment

Suez Thu Duc Vietnam WS/BOT 1997 2003 terminated Exited in dispute over contract terms

Thames Da Chang, Shanghai

China WS/BOT 1997 2004 terminated Ended concession when guarantees cancelled

Thames/Veolia Xian Water

China WS/BOT 2001 terminated Sold to muncipality

Thames Kelantan Waters

Malaysia WS/BOT 1996 2002 terminated Sold to municipality

United Utilities Indah Water

Malaysia WW 1997 1997 terminated Nationalised

Cheung Kong Shantou China WS/BOT? 2002 terminated Exited in dispute over contract terms

United Utilities/NW Water

Bangkok Thailand Construction

1993 terminated Exited sewerage construction contract

Suez Shenyang China WS/BOT terminated Sold to municipality

Anglian Moa Point Wellington

New Zealand

WWT/BOT MNC exit Sold to United Water (Veolia/Thames)

IWL Manila Water

Philippines

WD/C 1997 2004 MNC exit, renegotiation

Sold % stake to other partners

Suez Maynilad water

Philippines

WD 1997 Renegotiation, threatenedexit

Suez Jakarta Indonesia WD 1998 Renegotiation, threatenedexit

Thames Jakarta Indonesia WD 1998 Renegotiation, threatenedexit

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7. Notes

123 In 2001, it had an annual turnover of about $281 million and a net income after all expenses (including debt servicing) of about $62 million. The number of MWA staff per 1,000 connections is a “relatively efficient” 3.6. NRW throughout the MWA service area is about 37% of production. In: “Asian Water Supplies – Reaching the Urban Poor”, by Arthur C. McIntosh. Asian Development Bank and International Water Association, August 2003. http://www.adb.org/Documents/Books/Asian_Water_Supplies/asian_water_supplies.pdf124Water utilities are seen as offering lucrative returns on investments. In 2000, the total value of the Thai water industry was estimated at Bt100 billion; there are 100 water supply system projects nationwide, of which between 20 and 30 projects are very large, requiring investment of more than Bt3 billion.. In Nareerat Wiriyapong, The Nation (Thailand), “East Water waiting for privatisation plan”, April 17, 2000; Pichaya Changsorn, The Nation (Thailand), “MWA plans to privatise, list on SET”, November 6, 2000125 FT Energy Newsletters - Global Water Report, “First steps toward privatisation”, 26 June 1998126 Watcharapong Thongrung, The Nation (Thailand), “Privatisation of water sector set for February”, December 21, 2000127 Bangkok Post privatisation/consultant's report: “Waterworks system needs huge reforms; 38 million people still without access”, July 20, 2001; Business Day (Thailand), “Waterworks privatisation gets green light”, 24 July 2001133 Global News Wire - Asia Africa Intelligence Wire - Vietnam News Briefs, 11 July 2003, “Infrastructure: Malaysian Firm Interested In Hcm City's Half-Completed Water Project”134 Global News Wire - Asia Africa Intelligence Wire - Vietnam News Briefs, 11 July 2003, “Infrastructure: Malaysian Firm Interested In Hcm City's Half-Completed Water Project”135 Asian Water Supplies – Reaching the Urban Poor Appendix 1: City Water Profiles and Summary Findings, By Arthur C. Mcintosh Asian Development Bank and International Water Association, August 2003, p. 141 http://www.adb.org/Documents/Books/Asian_Water_Supplies/appendixes.pdf136 “Privatization Of Water Supplies In Ten Asian Cities A Study”, By A. C. Mcintosh And C.E. YniguezFor The Asian Development Bank. January, 2000 p.3137 Associated Press, June 2, 2004, “RWE Thames Water Exits Shanghai Project”138 AFX-Asia, April 22, 2002, “Shenyang Public Utility result reflects lower unit contributions, provisions”139 Business News Americas-English, November 12, 2003, “Money sole motive behind BAS shove”140 Turkish Daily News, 13 November 2003. Parliament Discusses Yuvacik Dam Corruption Allegations141 Water in Asian Cities - Utilities Performance and Civil Society Views. ADB. January 2004 http://www.adb.org/Documents/Books/Water_for_All_Series/Water_Asian_Cities/regional_profiles.pdf142 “Has private participation in water and sewerage improved coverage? Empirical evidence from Latin America.” George Clarke et al AEI/Brookings Jint Center for regulatory Studies Working Paper 04-02 January 2004 http://www.aei-brookings.org/admin/authorpdfs/page.php?id=325143 Calculated from Table 16a “Water delivered component data – 2002-03 actuals”, in OFWAT, Security of supply, leakage and the efficient use of water 2002–2003 report, p. 52 (http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/leakage_02-03.pdf/$FILE/leakage_02-03.pdf). 144 Letter from Bill Emery (OFWAT), The Guardian, 8 December 2003 ‘Liquid assets’. http://www.guardian.co.uk/letters/story/0,3604,1102041,00.html 145 Water in Asian Cities - Utilities Performance and Civil Society Views. ADB. January 2004, Appendix 1 p.182 146 Global News Wire - Asia Africa Intelligence Wire Business Line, 8 December 2003, “Bangalore water board upbeat on project to plug leakage”

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http://www.guardian.co.uk/letters/story/0,3604,1102041,00.html

http://www.ofwat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/leakage_02-03.pdf/$FILE/leakage_02-03.pdf


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