CUPE and Private Water Management

Commentary, Water, David Seymour

The Canadian Union of Public Employees, whose potential losses from water and sewerage facilities being moved outside the public sector should be obvious, claims that Public Private Partnerships (P3s) routinely end in failure, sacrifice public services for private profits, and pursue the interests of private firms rather than the public. The broader debate deserves a more objective assessment of these claims.

Some P3s certainly have led to cancellation, delays or cost over-runs, but this is inconclusive by itself. Many projects where government has been the chief owner and manager have also failed (fast ferries anyone?). The real question is: do P3s fail more often than traditional government procurement? The University of Melbourne in Australia (where P3s are common practice) recently compared a representative sample of 67 projects and found decisively that traditional procurement experiences such failures more often than do P3s.

Unsurprisingly, private investors expect a project to give a return on capital equal to or greater than what they expected from alternative investments. Governments should consider this test too, and once the cost of capital is considered in terms of broader economic opportunity cost public and private funding starts to look more comparable. However, private partners are motivated to operate even more efficiently by the possibility of retaining cost savings. With regard to public projects being run in the interest of private firms, it is always the role of government to ensure that projects deliver results in the public interest regardless of whether they are publicly or privately owned.

There is no reason to believe that governments will get better results from their own departments than a private partner but, other things being equal, the separation between purchaser and provider and competition amongst providers that P3s entail should lead to greater transparency and accountability.

Indeed, two recent case studies from South America have writ all of these principles large. The Bolivian city of Cochabamba’s “water wars” of 2000 have been blamed on privatization, but public ownership has been equally disastrous too. Nine years of public ownership later, only half the town is connected to municipal supplies –the same as in 2000. Cochabamba shows that when government is not committed to the public interest at the highest levels, public ownership, per se, is no protection for the public.

Meanwhile, a look at Chile over the past 30 years has shown what robust water markets and an open mind about public and private provision can bring.

Water rights in Chile are fully tradable commodities and these trades are not subject to political vetting as they are in most parts of the world. All 13 regional water companies are either privately owned or managed on 30-year contracts.

Urban Chile has near universal water connections, while its rural connection rate of 72 per cent is among the highest in South America. Chile’s water authority found private management to result in equal or better prices, greater infrastructure investment and better performance.

Evidence and theory find P3s to be more reliable, cost effective, and accountable than traditional government procurement. And that is CUPE’s real problem.