Ghana: Privatisation of water continues

Press statement

Ladies and Gentlemen of the Press,

The National Coalition against Privatisation of Water has called this media interaction to discuss latest developments in the World Bank and Government of Ghana water privatisation programme.

The Management Contract - Private Gain, Public Pain

The Government has announced the award of the so-called Management Service Contracts by which transnational business corporations propose to take over Ghana Water Company?s operations. Last Tuesday, 22nd November 2005, a contract was signed with a consortium made up of a Dutch company, Vitens, and Rand Water of South Africa.

Before this latest version of privatisation, i.e. the management contract, they told us that privatisation will bring hundreds of millions of private investment into the water sector. We know now that that was a lie. The truth is that hundreds of millions of our public money , money belonging to you and I, is being handed over to the monopoly control of multinational companies worth billions. In other words, the poor and thirsty of Ghana are being forced to invest their scarce finances in companies that are already so rich and big that their national markets have become playgrounds that are too small for them.

The entire thinking behind the,Management Contract for Urban Water pretends that this contradiction does not exist. This pretence is a fraudulent one. But the real truth of what the management contract is all about is in the actual provisions of the contract.

Expatriate Luxury and Misery for Ghanaian Workers

A management fee of about 10million (10 Million Euros) or about ¢108 billion (108 billion cedis) will be paid to a maximum of 13 expatriate staff (i.e. General Manager plus 10-12 ?specialists?). But of Ghanaian water workers are being thrown out of work in a process that has created angry cries of cheating, lack of transparency and has left behind in the water sector a rump of aggrieved, demoralised workers with uncertain futures who are suddenly expected to work miracles to transform the water sector, just because a new foreign master has arrived to crack the whip.

According to the unsigned copy of the contract that has been made public, this multi-billion payment entitles the privatised management to (clause 3.1.2):
i. Conclude contracts with customers for the supply of potable water
ii. Issue bills on delivery of potable water and discharge of sewerage
iii. Receive payments from customers; and
iv. Disconnect customers for non-payment (and for other grounds)

The operator will inherit a functional water system and close to 2,900 experienced staff who will then continue in their existing functions of operating the water system?s technical services, operating commercial services (connection, invoicing, metering, collection and disconnection) and operating administrative and accounting services. The transferred or seconded GWCL staff will also carry out the operators plan to repair, replace and rehabilitate the existing system with public funds.

For their reward, these workers, whose numbers have been reduced by 1,200 in recent weeks, will face a new round of mass lay-offs within 18 months, and share in the amount of severance money that has already been trumpeted as having been allocated to the earlier batch of 1,200 laid-off workers (clauses 7.1.2 and 7.1.3)

Income Tax Free

In contrast, the private management’s inheritance comes with the handsome fee of 10 million euros, for which the Operator, its sub-contractors and their foreign personnel shall be exempted from paying Taxes. (clause 6.7.1.).

Debt Overhang

GWCL Debts: This inheritance does not include responsibility or liability for the debts that currently saddles our water sector. Perhaps the promoters of the privatisation believe that it is not fair to burden the innocent multinationals with the financial fallout of our genetic national incompetence and mismanagement. It is only fair to give our caring foreign friends the most skilled human resources and the assets whose development and maintenance has contributed to the debt.

One of the primary causes of the serious debt overhang of the water sector is its dependence on foreign exchange. The disinvestment in the water sector over the years and its control by powerful elites, as if it were private property for their private profit, meant that it was never possible to develop an integrated water industry in which inputs are produced locally, creating jobs, generating economies of scale, supporting industries and saving foreign exchange. The whole operation was import and foreign exchange dependent, although its only revenue was and will continue to be in cedis (perhaps only until the day that those who are creating a global water market under their control will start exporting water while citizens go thirsty). Any shock in the exchange rate made any foreign purchases or credits suddenly unpayable.

This is what happened in the late 1990?s in Ghana. It is what will happen again and again when our primary agricultural export prices collapse and our currency is devalued.

Foreign Exchange Dependency Deepens

But privatisation makes us even more dependent on foreign exchange. It makes us more vulnerable to the fundamental un-sustainability of an industry that requires foreign exchange for its most basic technical and financial operations but is entirely reliant on cedis for its revenue. Multinationals have every interest in sourcing inputs from their subsidiaries abroad. They have no interest in developing an integrated domestic water industry that weans itself from foreign exchange dependence. And no matter how bad this has been, there never was the additional burden, until now, of paying the water sector management millions of precious foreign exchange, tax free!

No doubt our clever friends in the Project Management Unit will reply: but all the foreign exchange for the management fee has been provided and pre-financed by the World Bank. Except that is not true for the last years of the contract when there is a shift to paying for privatisation from the cedi revenues (25% of the contract fee in year 5). And the World Bank grant is part of a package of donor funding that is expected to continue to provide continued credit, to be repaid, to fund our water sector in coming years. Even today, it is the cedi revenues that will pay for all the extra ?incentive compensation? (schedule 5B of the management contract) the operator expects to get on top of the multimillion euro base fee.

Incentive to Hike Tariffs Revenue and Prices

In the same way that the promoters of privatisation want us to believe that private management does not add to our foreign exchange burdens and to the un-sustainability of the water sector, they also tell us that it will have no impact on tariffs.

Technically, it is true that the private operator cannot unilaterally raise tariffs. It can only apply to the PURC for a tariff adjustment. But this is primarily a paper procedure. In the first place, the political problem of tariff adjustment has been taken care of by the introduction, on the insistence of the IMF and multinational water companies, of an automatic tariff adjustment formula. The tariff is automatically adjusted when various indicators change, many of which like prevailing interest rates and exchange rates- have absolutely nothing to do with the level of efficiency or inefficiency of the water sector. This guarantees that tariffs are always set at a level that has built-in prices to ensure not only full cost-recovery but also a profit margin to attract private companies who would like to repatriate their profits abroad in hard currency.

Furthermore, we must remember that the management operator has every interest in maximising tariff revenue. They gain twice from this. First, they will be paid extra for increasing revenue. Secondly, it is this same revenue from which other performance bonuses will be paid. But also a full quarter of the operators? fee from year 5 (and inevitably an even bigger proportion in subsequent years), worth ?500,000 (five hundred thousand euros) or ¢5.4 billion in today’s values. Meanwhile, one of the major performance indicators for the operator is to reduce the numbers of non-paying water users. The logic is that a dwindling number of payers must provide a growing source of revenue. The only way to achieve this is to raise tariffs.

Expanding Access to Poor

Although this is one of the stated objectives for the management contract it is clear from the foregoing, increasing foreign exchange expenditure, rising tariffs etc that there is no serious commitment to it. Indeed, while there are clear targets for say reduction of non-revenue water (by at least 5% a year) there is absolutely no target for expanding services to the poor. The irony is that one of the ways to increase non-revenue water is to cut off those who are too poor to pay for water and therefore consume it without increasing the company?s business revenue!

Moreover, the operator is not expected to expand the areas that are currently serviced by GWCL (clause 3.1.1). Any planned expansion of the service area must be negotiated between the Ghanaian authorities and the Operator and for an additional fee. All the claims that the poor will be served are completely unfounded. No wonder the usually diplomatic Public Utilities Regulatory Commission, referring to the improvements promised by privatisation, has been forced to conclude: ?it is not expected that these improvements will impact heavily on those who are currently deprived of direct access to service. (page iv. Social Policy and Strategy for Water Regulation, PURC, February 2005)

Rural Communities Neglected

No one needs to be surprised by this. As we have said repeatedly, if the main aim of privatisation was to serve the needy then it would have been targeted first and foremost at the most deprived rural communities. But serving the needy was never the real objective of privatisation. That is why the rural communities who are so poor that they are not even deemed to constitute a viable water market have been cut off completely from the blessings and joys of privatisation and have been consigned to the cruel ghetto of low-level local privatisation, occasional donor and voluntary charity and wilful government neglect.

So if the private management is bringing no investment, is increasing foreign exchange dependence, is increasing the pressure for higher tariffs and will not serve the poor then what is its exact contribution going to be to deserve to take from us millions we can ill-afford?
Perhaps the Big Foreign Chief Manager and his twelve specialists apostles will do something to repair, rehabilitate and renew the system in a way that our Ghanaian minds cannot even begin to imagine?

PRESS STATEMENT