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The UK water companies have never had to compete for their regional monopolies. They were given 25-year concessions as part of their creation in 1989. In France, a critical audit report in 1997 stated that the industry was characterised by "organized competition" and the avoidance of competition through the "repeated use of negotiated procedure".3
Similar avoidance of competition has been practiced by the multinationals in developing countries. All the contracts in central and eastern Europe, for example, until 1998, were awarded without any competitive tender.
Czech Republic: multinational forces up prices VaK Jizn? ?echy, a subsidiary of the UK-based Anglian Water, increased water rates to households by 100.7% from 1994 to 1997, nearly double the national average. In 1999, following Anglian's acquisition of the majority of the equity shares, water rates to households increased by 39.8%, while sewerage rates to households increased by 66.6%, far higher than any other increase in the price of water in the country
Bolivia: water price riots In Cochabamba, Bolivia, the water company was privatised in 1999 to a consortium led by International Water, under a contract which guaranteed a return on capital of 16%. In December water bills went up by 35% on average and some by twice that. Residents were enraged, and demonstrations followed over the next 4 months (see interview page 12). The Bolivian government declared martial law, and in April a teenage boy was shot dead. The following week, the private water company was sacked ? but International Water is now suing for $12 million compensation for lost profits.
Nairobi In December 1999 a remarkable water contract was awarded to Sereuca Space, a joint venture between Vivendi and a local company. 14.9% of the Ksh12.7 billion ($169 million) collected over the period. The amount to be paid to Sereuca Space will be Ksh1.9 billion over the 10 years. By transferring responsibility for billing and collection to Saureca, the council is effectively ruling out any possibility of restructuring the water services on a commercial basis. Moreover, at the end of the 10-year arrangement the city council's water and sewerage department is supposed to reimburse the cost of the computer equipment and hardware to the contract ? at full cost, with no provision for depreciation.
Meanwhile, drought has reduced water supply to the city by more than 75% in August 2000.
Privatization is a good thing because free markets bring competative forces. When one company holds a monopoly, especially on something like water, a monopoly is not a good thing. Monopolies are not competative. The key to efficiency is creating an environment with fierce competition, and letting the most efficient players evolve and survive.
The Government's job in capitalism is to make sure nobody gets too much power so as to be able to exert undue influence on the market. You want individual players to be able to enter and exit the marketplace at any time. If the price of a good goes up too much, it will attract other producers into the market. That will drive the price down.
Not every good or service should be privatized. It is not a panecea in that sense. Water is a bad idea. It is critical to too many things, from health, agriculture to even national security. If private companies do provide services in providing it, they need to be heavily regulated. Too much is at stake.
Things like trash collection, street cleaning, and education are good places for Governments to let a myriad of private forces compete to give the most efficient solutions. Public utilities like water and power need to be heavily regulated in my opinion.
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