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G8 Summit: Corporate Welfare or Water for all?

by Corporate Europe ObservatoryCorporate Europe Observatory
May 29th, 2003

The EU Water Fund, to be presented at the G8 summit in Evian, seems more about corporate welfare than helping the world's poorest. The EU plan builds on controversial proposals by former IMF director Michel Camdessus, to use aid money to subsidise the expansion of private water corporations. Confidential documents obtained by CEO show how the European Commission has worked in tandem with Suez and other giant water corporations in developing its international water initiatives.

Water will be top of the agenda when the heads of state of the G-8 countries meet June 1-3 at their annual summit, in the French lake resort Evian. Summit host Jacques Chirac is preparing a ''Global Water Plan'' and European Commission President Romano Prodi will launch the EU Water Fund. Both initiatives are announced as direct follow-up from the World Water Forum in Kyoto (March 2003), which failed to reach agreement on the central question of how to finance improved access to drinking water and sanitation for the world's poorest. Additionally both rely heavily on the controversial report written for the Kyoto conference by a panel chaired by former IMF director Michel Camdessus. [1] The Camdessus report, among other things, recommended using public funding and development aid to facilitate investments by the private sector. [2] This would effectively mean subsidising the privatisation of water delivery, despite the growing evidence that the water needs of the poor should not be left in the hands of transnational water corporations. [3] The proposals caused deep splits and a deadlock in government talks at the Kyoto conference, but the EU seems determined to steamroll ahead.

Pro-private Water Fund

In early April the European Commission released a first proposal for a new 1 billion euro fund for water investments in the 77 developing countries in Africa, the Caribbean, and the Pacific (ACP), all former colonies of European Union member states. [4] The fund ''should be able to give a very flexible answer to a variety of situations, providing the missing link in the financing of sustainable projects/activities.'' The need for a fund of this kind is obvious, but the EU proposal seems heavily influenced by the Camdessus report. [5] While mostly shrouded in ambiguous wording, the Fund proposal clearly suggests providing public finance to private water corporations wanting to run water delivery in the South. The EU paper concretely proposes to provide ''financial instruments facilitating the intervention of EU operators, such as guarantees, risk insurance, soft loans, etc.'' [6] The paper refers to the ''lack of trust between the different actors (public, private and NGOs)'' at the World Water Forum, but rather hypocritically fails to mention that the European Commission in Kyoto was not a neutral observer, but rather a fierce defender of private sector expansion. [7]

Development NGOs have criticized the EU's Water Fund proposal for the hastiness and lack of civil society consultation in the process, arguing that the EU is trying to avoid an open debate about the role of the private sector. ''I see this initiative as an entry point to privatize water'', said Rebecca Muna from the Tanzanian Coalition on Debt and Development. ''Why can't they ask us what we want, to deal with our problems, then finance it?'', she asked. [8] Eurostep, a coalition of development NGO's, points out that it is far from clear where the promised 1 billion euro will come from. The limited budget of the European Development Fund (EDF), from where the Commission hopes to find the money, has already been earmarked for initiatives against AIDS, tuberculosis and malaria, for assistance to crisis-hit coffee-growers and numerous other important purposes. NGOs also criticize the fact that the fund will be managed by a new external agency, leaving little role for the governments of the ACP countries in prioritizing the spending.

The Water Fund's unfortunate bias towards the private sector reflects the reality of current European Union spending on water in developing countries. According to a study by Public Services International's Research Unit (PSIRU), the EU is pouring public money into ''the bureaucracy of privatization''. Three-quarters of the 220 million euro spent in 2001 went to 'water resources policy and administration', largely with a pro-privatisation focus, while only a small part was spent on concrete water projects. [9]

The Camdessus Connection

The Water Fund builds on the EU Water Initiative (EUWI), launched at the UN's Rio+10 summit in Johannesburg, in September 2002. The EU pledged to re-channel over 1,4 billion euro from various EU development aid funds into public-private partnerships for water delivery in Africa and the former Soviet Union (Newly Independent States). Since then, Latin America has also been added as a potential recipient of funds. The EUWI's emphasis on expanding the role of private sector water suppliers fit seamlessly with the hype around public-private partnerships that dominated the Johannesburg summit. [10] In Johannesburg, the Water Initiative was received with strong criticism from water justice activists who pointed out that subsidizing greater private sector involvement is by no means the most effective way to bring clean water to the poorest. Proposals to instead use the EUWI budgets to revitalise public water utilities seem not to have had any impact.

Instead, the project entered its ''design phase'', which lasted until the Kyoto World Water Forum in March. Working groups started drafting action programs and financial strategies for the various issues and regions covered in the Initiative. [11] After Kyoto, the implementation phase was supposed to start, but there are signs that progress has been slower than expected. The EU presents the EUWI as a bottom-up process based on multistakeholder dialogues, but in fact only a rather narrow range of NGOs (mainly WaterAid, Green Cross and WWF) have had a say. The lack of critical input shows clearly in the papers coming out of the EUWI working groups.

In an extensive analysis of the EUWI papers, Professor David Hall of the Public Services International Research Unit (PSIRU) criticises the EU's ''complete failure to develop policy on the basis of evidence.'' [12] While the fundamental premise of the EUWI is that the role of the private water industry needs to be expanded, the policy papers provide no evidence, nor engage in a discussion about the merits of this assumption. The EU funding, PSIRU concludes, could have a far larger impact by supporting the upgrading of public-run drinking water and sanitation infrastructure. The privatisation conditionality of the Water Initiative is in fact simply a new form of tied aid, ensuring that the money ends up facilitating the further growth of EU-based water TNCs. [13]

The EU papers ignore important lessons from the dramatic developments in the global water industry the last year, such as water giant Suez announcing its withdrawal from concessions in Manila and Buenos Aires due to disappointing earnings. [14] In the case of Manila, Suez claims that, following the erosion of its earnings by currency fluctuations, its only choice was to leave. The real reason, the Bantay-Tubig NGO coalition points out, is the company's inefficiency and failure to deliver on the promises it made in order to win the concession. [15] The company doubled its rates from 2001 to 2002, but cancelled the contract when the government regulator did not agree in full to a new dramatic rate increase. Suez leaves debts of over 530 million US$ and is moreover demanding 303 million US$ compensation from the government. [16]] While Suez as recently as during the Rio+10 summit boasted about its ability to provide water for the poorest (using Manila and Buenos Aires as 'proof'), the company's new policy is to be 'ready to depart' if a privatised water system does not deliver the expected revenues. [17] Suez is now demanding guaranteed returns from investment as well as protection from 'political risk', to be provided by governments, development aid agencies, as well as international financial institutions like the World Bank. [18] Both the Camdessus report and the EU Water Initiative endorse the calls for providing corporate welfare to the water TNCs.

The Water Initiative's close resemblance to the Camdessus Panel recommendations is not just a matter of ideological common ground. Work on the EU Water Initiative and the Camdessus Panel took place at the same time and major efforts were made to ''ensure coordination between the two initiatives''. For instance, EUWI participants were briefed by Michel Camdessus on the preliminary findings of his panel, while the panel received draft papers on the plans for financing the EUWI. [19] The similarity in message is further enhanced by overlapping membership and the involvement of 'experts' from neoliberal water think-tanks in the EUWI. For instance, James Wimpenny is both on the EUWI finance panel and co-author of the Camdessus report. [20] Alan Hall of pro-industry think-tank the Global Water Partnership was responsible for coordinating the work of the EUWI working group on Financing. [21]

Engaging the Water TNCs

While the European Commission makes great effort to publicise the role of multi-stakeholder dialogues in the EU Water Initiative, it is far less transparent about its determination to involve large European water corporations. Confidential documents obtained by Corporate Europe Observatory reveal how the European Commission has from the early stages had close consultations with major water TNCs about the EUWI. [22] The efforts to engage large private water corporations were initiated not by the traditionally corporate-biased Trade and Industry directorates, but by the Commission directorates for Environment and Development, as well as Commission President Prodi himself.

Both before and after the Rio+10 summit, large EU-based water corporations such as Suez, Thames Water and Vivendi were deeply engaged in discussions on the EUWI with Commission representatives at all levels. Suez and Thames Water were the most active and participated in most of the EUWI working groups. [23] The leading role of Suez is attributable not only to its status as the world's largest water corporation: it also knows its way in the Brussels corridors of power. The company's main spokesperson vis-a-vis the European Commission is Ives Thibault de Silguy, Suez board member and Director General for International Affairs. Before moving to Suez in 2000, de Silguy was a European Commissioner himself, a classic case of revolving doors between politics and business. [24]

The European Commission was aware of the political sensitivity around working directly with corporations like Suez. A preparatory briefing note for a July 9th 2002 meeting between de Silguy and Environment Commissioner Margot Wallstrm stated: ''Private sector involvement is often criticised and the discussion on privatization and liberalization in the water sector needs more focus and clarity The Commission would prefer that the private sector would establish a co-ordinating mechanism via EUREAU rather than dealing with individual corporations.'' [25] An exception was clearly made for the largest of the global water corporations, particularly for Suez, which has played a major role in the further development of the EUWI. [26] Water industry federation EUREAU, by the way, also includes public water utilities, but is increasingly to be dominated by private water corporations. The briefing note explains that the goal of the meeting was to ''get commitment from Suez to become an active partner in the EUWI''. [27] The Commission had little doubt about Suez's willingness to engage. As the briefing note explained, ''[Suez] have a key interest in strengthening their environmental profile because of strong critique from the NGO side on their role in the privatization and liberalization of water markets.''

The cornerstone for the co-operation had been laid in February 2002, when de Silguy and Suez president Grard Mestrallet had a private meeting with Commission President Prodi to discuss the Suez commitment to Corporate Social Responsibility (CSR). Mestrallet used the occasion to boast about Suez projects in shanty towns of Buenos Aires, Casablanca and Johor Bahru (Malaysia). The Suez president argued that these examples prove that the world's poorest can pay for privatized water, when ''bills are presented on a regular basis''. [28] ''If not paid, the water supply was cut off,'' Mestrallet clarified. ''Mestrallet's message was that Suez can provide water for the poorest, but needs a helping hand from the European Commission. ''Suez hoped that the Commission would, through its development policy, assist in the promotion of programmes dedicated to the provision of drinking water and sanitation,'' Commission officials noted. Prodi reaffirmed that the Commission will indeed encourage the kind of partnerships advocated by Suez and he invited Mestrallet to join the EUWI. [29]

Apart from the Water Initiative and the Water Fund, the EU is also using the WTO negotiations on services liberalisation (GATS) to pursue the market expansion interests of large EU-based water corporations. [30] The European Commission consulted intensively with Suez, Thames Water and other corporate water giants when drafting up its demands to 72 countries to open up their markets to private water companies. [31]

Lessons from Kyoto

At the World Water Forum in Kyoto, activists successfully challenged the flawed assumption that water privatization helps the poorest in getting access to clean water. Their testimonies from communities around the world brought a sense of reality into the Forum debates which even the most sophisticated corporate greenwash could not smooth over. [32] In Kyoto, the activists' critique derailed proposals by the Camdessus panel to use public funds to support greater involvement of private water corporations in developing countries, effectively subsidising privatisation. Post-Kyoto, the European Union refuses to re-assess its corporate-centred approach to the global water crisis. Rather than moving on with implementing the pro-privatisation approach of the Camdessus report, as the EU Water Fund seems intended to do, it is time for a radical rethinking of the EU's policies towards the water sector in the South.

The EU clearly needs a more open and constructive approach towards the role of publicly-run water utilities, which supply up to 95% of those with access to water today. Public-public partnerships between utilities in North and South hold great potential for experience-sharing in order to make water management more effective and responsive to people's needs. This not only means transfer of expertise from the North to the South. An international seminar held in parallel to the World Water Forum in Kyoto showed that models of participatory water management are being developed in cities around the world, including Dhaka (Bangladesh), Karachi (Pakistan), Tamale (Ghana) and Recife (Brazil). [33] ''Through social control, democracy and transparency, people push us to be more efficient'', Carlos Todeschini of the Porto Alegre Water and Sanitation Department (DMAE) explained. In all their diversity, the success of all these models is based on the active involvement of the local population, whether in prioritising investment decisions, democratic control enabling people to hold the water utility accountable to their needs or through citizens engagement in reducing water losses and other technical problems. Participatory water management has proved a viable alternative both to privatisation and to traditional public models suffering from bureaucratisation.

In many communities in the South, lack of public finances, combined with debt crises, is an overwhelming obstacle to introducing participatory models of water supply. International financial support is therefore urgently needed. Instead of providing corporate welfare for European water TNCs, the EU Water Fund should be transformed into an instrument for assisting the further development of these innovative models, going beyond both privatisation and traditional public models suffering from bureaucratisation.

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Notes

1. ''France is expected to include support for this document within the Global Water Plan President Jacques Chirac will present to the G8 leaders in Evian''. ''G8 Environment Heads Focus on water, Energy, Africa'', Environment News Service, April 29 2003.

2. While corporate welfare for the water TNCs was the central recommendation, the ''Financing Water for All'' report contains a wide range of other recommendations, many of which are not necessarily pro-privatisation.

3. For a collection of recent examples of water privatisation failures, see ''The Water Barons - How a few powerful companies are privatising your water'', Center for Public Integrity, March 2003.

4.''European Commission Proposes [euro]1 Billion Fund To Boost Water Quality in Developing Nations'', International Environment Daily, May 5 2003.

5. The paper refers to the ''inflexibility of existing instruments'' of finance identified in the Camdessus report and suggests the fund ''is to be a catalyst on the one hand and 'the lender of the last resort' on the other hand''. ''An EU Water Fund'', Non paper, April 2003.

6. This support for European water corporations is to come from the Investment Facility within the EU-ACP's European Development Fund, which is managed by the European Investment Bank.

7.''Water Privatizers on the Defensive'', New Internationalist, http://www.newint.org

8''Prodi under pressure over water aid'', European Voice,15-21 May 2003. NGO Statement 'Towards the Establishment of a European Water Fund' (drafted by Both Ends).

9. ''Investing in the bureaucracy of privatisation - a critique of the EU water initiative papers'', unpublished PSIRU working paper (available at request from PSIRU).

10. See for instance ''WSSD: A Little More Conversation, A Little Less Action'', CEO Issue Briefing October 2002.

11. There are EUWI working groups for instance on African water supply and sanitation, on financial strategy, on research, etc.

12. ''Investing in the bureaucracy of privatization - a critique of the EU water initiative papers'', unpublished PSIRU working paper (available at request from PSIRU).

13. ''Investing in the bureaucracy of privatization - a critique of the EU water initiative papers'', unpublished PSIRU working paper (available at request from PSIRU).

14. See for instance: ''European Water TNCs: Towards Global Domination?'', CEO Info Brief, March 2003

15. ''Maynilad' Contract Termination comes With a Demand of P21 Billions'', Bantay-TubigPress Release

16. The compensation claim is being examined by the International Chamber of Commerce's international court of arbitration.

17. An example of Suez' greenwash offensive in the run-up to Johannesburg is the series of sponsored sections in the International Herald Tribune, for instance on August 31st 2002.

18. For a good analysis of the implications of Suez's new policies see, ''Water Multinationals - no longer business as usual'', David Hall, PSIRU, University of Greenwich, March 2003.

19. The EUWI participants attended the Camdessus briefing at the Organisation for Economic Cooperation and Development (OECD) in Paris, December 2002. ''Presentation by Michel Camdessus to the OECD-DAC Committee, OECD, Paris, 17th December 2002.

20. Correspondence with David Hall, PSIRU, May 12th 2003.

21. Alan Hall moreover co-drafted the corporate-controlled World Water Council's paper on governance and water, presented at the World Water Forum in Kyoto and acted as an advisor for the ''World Water Actions'' report.

22. The documents were obtained through an access-to-documents procedure, using the EU's Regulation 1049/2001.

23.Suez for instance sent representatives to the EUWI working groups on Integrated Water Resource Management (IWRM), Water Supply and Sanitation; Financing; and Central Asia/NIS. Email from Jacques Labre (Suez) to Friedrich Barth, European Commission, DG Environment, June 11 2002, on file with Corporate Europe Observatory (CEO).

24. De Silguy held the finance portfolio in Jacques Santer's European Commission, 1994 - 1999.

25. ''Briefing for the meeting of Commissioner Wallstrm with Mr. Silguy/Suez, 9th July 2002'', document on file with Corporate Europe Observatory (CEO).

26. Suez submitted numerous comments on draft EUWI papers, for instance on August 16 2002, where a Suez representative complaints about the presence of ''at least two unpalatable remarks about the private sector'' in the pre-Johannesburg draft proposal. At another occasion, Suez argued against the inclusion of public-public partnerships in the Water Initiative, asking ''where has such a scheme been implemented with two public partners?''. Documents on file with Corporate Europe Observatory (CEO).

27. ''Briefing for the meeting of Commissioner Wallstrm with Mr. Silguy/Suez, 9th July 2002'', document on file with Corporate Europe Observatory (CEO).

28. ''The President of Suez Gerard Mestrallet has recently (October 2001) published an article in Le Monde and has committed Suez to play a key role in solving the water crisis and has promoted more partnerships.'' The Mestrallet article, an open letter, was the kick-off for an intense PR campaign to position Suez as front-runner among companies committed to Corporate Social Responsibility (CSR). Minutes of meeting between the President of the European Commission and representatives of the company Suez, February 14 2003, by Patrick Murphy, DG Environment, February 15 2002, document on file with Corporate Europe Observatory (CEO).

29. Idem.

30. ''WTO and Water: The EU's Crusade for Corporate Expansion'', CEO Info Brief, March 2003.

31. ''Privatizating Water: What the European Commission Doesn't Want You to Know" , Center for Public integrity, Special Report

32. ''Water Privatizers on the Defensive'', New Internationalist.

33. The transcript of the seminar ''Advancing Alternatives to Water Privatisation''(Kyoto, 22 March 2003) is available at TNI