Developing World Thirsty For Water Rights

Commentary, David Seymour, Water

At the recent World Water Forum in Istanbul, experts gathered to try to find solutions for the billion people who struggle to get clean water to drink. Simply just getting the fresh water can take hours, leaving little time for other needs. Absent clean water, disease is endemic.

Two recent South American case studies reveal failure and success in getting people water in the developing world; both show how well-defined water rights and less political interference in water markets make the difference.

The failed water privatization in the Bolivian city of Cochabamba has become a poster child for those who argue that privatization threatens poor people’s access to water. In reality, both public and private water management have failed spectacularly in Cochabamba because of corruption and a lack of secure property rights.

In 1997, just 60 per cent of Cochabamba’s population was connected to a municipal water supply. The unconnected were mainly in poor suburbs and had to buy water piecemeal at three times the “connected” price. When the city considered a private contract to inject investment and development into its water infrastructure, political interference undermined a proposal to use a hydro dam as a supply.

Contracting a private consortium in 1999 to develop a more expensive source required exclusive rights to use and supply water in the area as sweeteners. The consortium then increased prices by an average of 35 per cent to recoup investment costs. Furious citizens took to the streets and drove the private consortium out of town. In 2000, the private contract was cancelled and privatization was over.

The World Bank has since described the Cochabamba project as a “forecasted failure.” A decade of public ownership, however, has done no better. Connection rates today are only marginally better than in 1997, and infrastructure investment is as chronic as ever.

If the poor legal and institutional framework is the problem in Bolivia, then arid Chile shows what a good framework can mean.

Chile’s 1981 water code decoupled water rights from land ownership and made them tradable. There is no political interference in these trades; only a willing buyer and a willing seller are required. The framework has survived different ideological governments because it works.

Selling water to the highest bidder horrifies many people, a sentiment The New York Times recently tapped into when it lamented the lack of available water in Quillagua, a town whose population peaked at 800 in 1940. The Times said the town’s fortunes had dwindled because its water had been diverted elsewhere. But it failed to appreciate that water is scarce almost everywhere in Chile, and that diverting it from areas of lower to greater need is what a healthy market should do.

Urban connection rates are near universal there, while rural connection, at 72 per cent, is high by South American standards. Because they now must pay the market price like everyone else, thirsty industries that previously hogged water by lobbying for it have economized their usage. Low-income households get a special water grant.

Unlike Bolivia, the Chilean framework has allowed private and public water companies to succeed. All 13 regional water companies have gradually been either privatized or had their services contracted out for 30-year concessions. During that process, public/private comparisons found private companies offer similar prices plus greater infrastructure investment and better infrastructure performance.

Reliable and affordable clean water is an urgent need for a billion people. Although private companies have marginally outperformed public ones in Chile, privatization is a sideshow. The challenge is creating a marketplace with secure water rights where infrastructure investment is safe and willing buyers and sellers can decide water’s most valuable uses.