Water Governance

Legal Issues

By Jacqueline Medalye

Public governance

Today, various forms of governance exist in the water sector. Public water provision is the most widely used governance structure under which the government takes on all of the responsibilities and challenges of water and wastewater services. The provision of water has long been considered an essential public good, and hence a core governmental responsibility. Worldwide, 85 percent of drinking water provision lies in public hands. In developed countries the public sector is the normal mode of management of water supply and sanitization services. The USA, Canada, Japan, Australia, New Zealand, and most European Union member states choose public sector management. Only the United Kingdom and France are the exceptions in which water and wastewater services are provided by the private sector or mixed management.

Under a public governance structure decisions and management of infrastructure, capital investment, commercial risk, and operations and maintenance are taken on by a public entity for an indefinite period of time. Fully public management of water often takes place through national or municipal government agencies, districts, or departments dedicated to providing water services for a designated service area. Public managers make decisions, and public funds may be provided from general government revenues, loans, or charges. Governments are responsible for oversight, setting standards, and facilitating public communication and participation.

Another form of public management involves cooperatives and user associations. These management arrangements tend to be decentralized and join local uses together to provide public management and oversight. Usually customers have decision-making power through elections for different water authorities. The system is often externally audited annually. A key element of most cooperatives is that a basic water requirement should be provided to all members at affordable rates. (…)

Public-private governance

Private-sector participation in public water companies has a long history. In this model, ownership of water systems can be split among private and public shareholders in a corporate utility. Majority ownership, however, is usually maintained within the public sector, while private ownership is often legally restricted, for example, to 20 percent or less of the total shares outstanding. Such organizations typically have a corporate structure, a managing director to guide operations, and a Board of Directors. This model is found in the Netherlands, Poland, Chile, and the Philippines.

Public-private partnerships are dominated by large multinational companies lead by Suez and Veolia. Other major players in the private sector include Thames Water, Aguas de Barcelona, and Saur International. (…)

Private governance

Private governance is the opposite of government agency provision. It is extremely rare and is often modeled under a divesture system whereby the government transfers the water business to the private sector. This model has only been adopted in a small number of cases such as England and Wales (full divestiture) and Chile (partial divestiture). In developing countries divesture accounted for only 8 percent of all worldwide private participation from 1990-2001, and accounted for a total of 16 projects during the same period. Usually, the transfer occurs through sale of the shares or water rights of the public entity. As such, infrastructure, capital investment, commercial risk, and operations and management become the responsibility of the private provider. (…)

Recommendations for public-private partnerships: Maintain Strong Government Regulation and Oversight

The “social good” dimensions of water cannot be fully protected if ownership of water sources is entirely private. Permanent and unequivocal public ownership of water sources gives the public the strongest single point of leverage in ensuring that an acceptable balance between social and economic concerns is achieved. Thus, governments should retain or establish public ownership or control of water sources. Moreover, governments and water-service providers should monitor water quality. Governments should define and enforce laws and regulations. Clearly defined roles, responsibilities, and risk-sharing frameworks among partners, written in the contract, should be the prerequisite of any form of private governance.

Government agencies or independent agencies should monitor, and publish information on water quality. Where governments are weak, formal and explicit mechanisms to protect water quality must be even stronger. All contracts must explicitly lay out the responsibilities of each partner. The contracts must protect the public interest which requires provisions of ensuring the quality of service and a regulatory regime that is transparent, accessible, and accountable to the public. Good contracts will include explicit performance criteria and standards, with oversight by government regulatory agencies and non-governmental organizations. Moreover, contracts and regulatory institutions must have clear dispute resolution procedures in place prior to engaging a private partner. It is necessary to develop practical procedures that build upon local institutions and practices which are free of corruption. During the bidding process all competing firms should be treated equally.

Contract reviews by an independent body should be a requirement of all partnerships, thus avoiding acceptance of weak and unfavorable contracts. Thus, ambiguous contract language or inappropriate reviews of contracts can be avoided, and only sound contracts will be put in place. Finally, negotiations over private participation should be open, transparent, and include all affected stakeholders. Numerous political and financial problems for water customers and private companies have resulted from arrangements that were perceived as corrupt or not in the best interests of the public. Stakeholder participation is widely recognized as the best way of avoiding these problems. Broad participation by affected parties ensures that diverse values and varying viewpoints are articulated and incorporated into the process. It also provides a sense of ownership and stewardship over the process and resulting decisions. (…)

Resources

Further Reading

Alexander, N. 2002. “Who Governs Water Resources in Developing Countries? A Critique of the World Bank’s Approach to Water Resource Management”. News and Notices for IMF and World Bank Watchers. Vol.2.
Blokland, M., O. Braadbaart, and K. Schwartz (editors). 1999. Private Business, Public Owners: Government Shareholdings in Water Enterprises. Ministry of Housing, Spatial Planning and the Environment, The Hague, the Netherlands.
Borkey, P. 2003. “Water Partnerships: Striking a Balance”. Observer No. 236, pp. 13- 15
Budds, J. and McGranaha G. 2003. “Are the Debates on Water Privatization Missing the Point? Experiences from Africa, Asia and Latin America”. Environment and Urbanization. Vol 15, pp, 87-113
Duda, A. 2003. “Integrated Management of Land and Water Resources Based on a Collective Approach to Fragmented International Conventions”. The Royal Society. pp. 2051-2062
Franceys, R. and Weitz, A. 2003. “Private Sector Participation in Water Supply and Sanitation”. Waterlines. Vol. 21, 2-4
Gleick, P.H. 1999. “The human right to water.” Water Policy, Vol. 1, pp. 487-503.
Hall, D. 2001. Water in Public Hands. Public Services International Research Unit. London, UK.
Komives, K. 2001. “Designing pro-poor water and sewer concessions: Early lessons from Bolivia.” Water Policy. Vol. 3, No. 1, pp. 61-80.
Orwin, A. 1999. The Privatization of Water and Wastewater Utilities: An International Survey. (Environment Probe, Canada)
Rodrigues, R. 2004. “The Debate on Privatization of Water Utilities: A Commentary”. Water Resources Development, Vo. 21 pp. 107-112
Totajada, C. and Biswas, A (editors). 2003. Water Pricing and Public-Private Partnerships in the Americas. Inter-American Development Bank. Washington, D.C.
Webb, P. and Iskandarani, M. 2001. “The Poor Pay Much More for Water and Use Much Less, Often Contaminated”. Newas Newsletter: Water and Sanitation Update.