Former Ofwat boss attacks "excess profits" in SouthPrivate sector companies working in water have made excessive profits in some of the poorest countries in the world by exploiting the twin evils of corruption and lack of knowledge.
Alan Booker, former deputy director of Ofwat (the regulator in the privatized water industry in the United Kingdom), draws this conclusion based on his review of the working of water utility contracts in different parts of the world.
Through the lack of knowledge of host governments in the developing world the contracts are often biased towards the contractor, Booker wrote in a column "Talk Back" in the May 1999 issue of Water and Environment International.
"The examples are drawn from Latin America in particular," he adds in a short reply by e-mail to a few questions.
In general such contracts have been negotiated with institutions incapable of supervising the performance and behaviour of the contractors.
European companies in particular have developed robust marketing techniques, often playing on the endemic corruption in the host country and the influence greed can have. Even where the contractor is known to be generating levels of profit of around 50 percent greater than comparable contracts in Europe, it is impossible for the host country to share in outperformance, because of the terms of the concession contracts which last 25 years or longer.
Booker has found a number of examples of clients becoming so dissatisfied that they started court proceedings. This legal action rarely solves the problems of unsatisfactory contracts. Booker sees some signs that the situation is changing, however. There are moves to ensure changes in the nature of concessions contracts to enable the creation of incentives for improved efficiency and the sharing of efficiencies with customers through price reduction. "The multilateral banks are promoting the establishment of regulatory institutions and incentive regulation." This can help create appropriate institutional structures, including regulatory bodies and regimes, as well as helping with carrying out transactions.
Advice is being provided by new independent advisory and consulting firms. "Companies such as Stone & Webster, the Anglo-American international management consultants are being appointed to give independent advice," Mr. Booker added.
This better informed approach to creating public- private partnerships is now capable of producing fairer deals for host countries. "Regrettably many long term concession contracts which are already in place in the water and wastewater sector will continue to be an economic drag on some of the poorest and most vulnerable economies in the world."
SOURCE: October, 1999, International Water and Sanitation Centre, NetherlandBack to Project Reports
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