"The Economics of Private Sector Participation in Water and Sanitation"

16 January 2002
9am – 6pm


St. Antony’s College
The Dahrendorf Room
University of Oxford


School of Geography and the Environment


The Oxford Centre for Water Research
The Oxford Centre for International Development (Queen Elizabeth House)
The Latin American Centre
The Oxford Centre for Brazilian Studies
The Development Planning Unit, University College London


* A transcription of most papers presented will be available for downloading in this site.

The workshop’s objectives

The workshop forms part of the first phase of the project, which focuses on one of the key aspects of the research: identifying and evaluating the theoretical foundations of the programmes promoting private participation in WSS in developing countries since the 1980s. The meeting brought together water experts, academics, and representatives of the government, the private sector, the labour movement, and NGOs, to discuss the economic arguments about private sector participation in the provision of these services.

While the reasons officially stated for the promotion of private participation by governments and multilateral institutions are legitimate and important (improving efficiency, making the systems economically and financially self-sufficient, extending the services to the poor, etc.), there are also other policy goals, such as those related to social equity, democratic accountability, and environmental sustainability, that have a similar degree of significance and legitimacy. We believe that there is a need to develop a better understanding of how private participation actually relates to these policy goals, and how this is reflected in the economic arguments put forward in this terrain.

Also, we consider that the standard economic arguments put forward to promote private participation in the provision of WSS in developing countries do not pay attention to how economic activities are embedded in the social structures. Therefore, they do not help us to understand what the requirements for success are in particular contexts. These aspects are often neglected in the conceptual frameworks used by economists and other water experts who are in charge of designing and implementing programmes for private sector participation in WSS.

Moreover, we aim to analyse, and assess the significance of, the interactions between the requirements of global financial and other institutions and the structural contexts and the barriers to and conditions for improvement in WSS, pointing up both positive and negative features. The presentations addressed some of the key economic arguments used to support private participation in WSS, and examined them against recent and current experiences.

Morning Session

Valpy Fitzgerald

Lecturer in Development Economics
Queen Elizabeth House
Oxford University

Paper title: "Infrastructure Provision and Global Finance: Risks, Returns and Regulators"


Dr Fitzgerald welcomed workshop participants to St. Antony’s college. He then highlighted the contemporary drought in finance for infrastructure projects in the developing world – a stark contrast from the 1990s. Difficulties have emerged in passing from an initial period of mergers and acquisitions into an investment phase. Problems he cited were: the non-liquidity of investments in infrastructure investments in the developing world (bonds, once bought, are difficult to resell); the regulatory risk; and the absence of municipal markets in developing countries, which could, potentially, offer a major source of investment. The richer nations’ interest in “ethical” investments offered a further potential source of finance capital.

Chris Bolt.

Chris Bolt

Group Director, Regulation and Public Policy,
Lattice Group plc

Paper title: "Private sector investment in infrastructure networks: lessons from UK experience"


Chris Bolt spoke about the UK experience, and analysed what may be considered the successes and failures pointing to an emerging lack of legitimacy in the “RPI-X” mode of regulation prevalent in the UK. Though costs had fallen and investment had been opened up to infrastructure projects, Bolt argued that problems were now been encountered in certain areas. He outlined important principles for regulation and emphasised the need for clarity and a strategic vision for regulatory agencies.

Peter Hemmings

Director, Knowledge Management
Thames Water plc

Paper title: "Private Sector Participation: some aspects from Thames Water"


David Hall

Public Services International Research Unit (PSIRU)
University of Greenwich

Paper title: "Economic problems with privatised water concessions in developing and transition countries"


David Hall spoke of the failings of many private sector infrastructure projects in the developing world. He emphasised the power asymmetries in negotiations between poorer countries and large multinationals hoping to privatise and also the worrying monopolisation of the water sector by a tiny number of vast multinationals. In trying to map the joint ventures undertaken by the largest two (Ondeo and Vivendi) Hall further emphasised this dominance (and the resulting lack of real competition) when bidding for water contracts. Corruption was also highlighted as a worrying growth area in the monopolistic race for contracts.

Afternoon Session

Richard Franceys

Richard Franceys

Senior Lecturer in Water and Sanitation Management
Institute of Water and Environment
Cranfield University

Paper title: "Public Private Community Partnerships for the Poor"


Richard Franceys spoke of the need to move beyond simple public private partnerships in the water sector and build a genuinely participatory development. He stressed that PPPs were relatively good at serving high to middle class consumers but had hit a performance ceiling and therefore failed to serve the poorest. Citing examples in Buenos Aires and Manila, where NGOs and community organisations were involved in the delivery of water to poor communities, he outlined how simple technologies could be safely used to service poor communities. He stressed the fact that the poor were more than willing to pay for water but could rarely afford the connection fees charged. By involving CBOs and NGOs in the construction process this could alleviate such problems.

Cecilia Ugaz

Cecilia Ugaz

Fellow, Poverty and Social Policy Team,
Institute of Development Studies
University of Sussex

Paper title: "Liberalisation of Utilities Markets and Children’s Right to Basic Services: Some Evidence from Latin America"


Cecilia Ugaz spoke of the privatisation experiences of Peru, Bolivia and Argentina. Privatisation had resulted from huge dissatisfaction with the levels of services and the vicious cycle of under-investment. However, Dr. Ugaz expressed concern over whether the needs of the poor were really being met through the current models and emphasised the crucial need for improved regulation. Further concerns were that, often, private monopolies had replaced public ones and the ongoing financial crises have led to continuing problems of under-investment. Dr. Ugaz stressed the need for an active role for governments in ensuring better regulation, improved services for the poor and in order to act against monopolistic control.

Graham Taylor

Graham Taylor

Senior Lecturer in Sociology
Employment Studies Research Unit (ESRU)
School of Sociology
University of the West of England, Bristol

Paper title: "Regulating Change in the Water Industry: The Role of OFWAT in the Redefinition of Public Service"


Graham Taylor offered a perspective from someone who had worked in the water sector before working in academia analysing the historical contradictions in the water sector from the 1820s to the 1990s. After a historical overview of the shifting structure of the UK water sector from a classical liberal model, through a Keynesian managerial one to the present neoliberal model, he went on to look at the contemporary role of OFWAT. Perceptions of OFWAT were that it was overpoliticized and too interventionist between periodic reviews. Taylor highlighted that, in many ways, this was an irresolvable contradiction within the neoliberal model.

Peter Vass

Centre for the Study of Regulated Industries (CRI)
School of Management
University of Bath

Paper title: "Competition and Restructuring in the UK Water Industry".


Peter Vass reviewed some of the most recent trends in the UK water sector. He highlighted the important work that had been conducted recently on regulation and emphasised the need to address market failure in the areas of: monopoly power abuse; environmental costs; and social disadvantage. He then went on to review the shift from an equity to a mutual model by Welsh Water. Though many remained unconvinced by the benefits of an equity model, he also expressed concerns that the new customer-owners of the mutual would not have the right ability to “incentivise” the company. This could lead to a drift back to the inefficiencies of the past.

Sumithra Gayathri Dhanarajan

Policy Adviser - Private Sector
Policy Department
Oxfam Great Britain
*Ms Dhanarajan could not attend the workshop in person but she sumitted her paper for circulation.

Paper title: "The General Agreement on Trade in Services: Development Tool or Development Wound?"


Sumi Dhanarajan stressed that services had become big business and this size and scope has meant that inclusion in the WTO framework (by liberalising the global trade in services) was inevitable. She expressed concern that beneath the rhetoric, GATS is geared against developing countries. The GATS 2000 negotiations were driven by the needs of European service industries and, again, biased against many poorer countries. Post-GATS 2000 she emphasised the need for careful scrutiny of proposals in order to prioritise elements that can be used to help the poor.

The Speakers:

Valpy Fitzgerald is Lecturer in Development Economics at Queen Elizabeth House, Oxford University’s centre for development Studies. His main research interests are the linkages between industrial countries and the rest of the world; economic integration; relief and development. Some of his recent publications are Hamlet Without the Prince: Structural Adjustment, Firm Behaviour and Private Investment in Semi-Industrialised Economies (1995), The Impact of NAFTA on the Latin American Economies (1996), International Capital Markets and Open Economy Macroeconomics (1996), Intervention Versus Regulation: The Role of the IMF in Crisis Prevention and Management (1996), Global Capital Market Volatility and the Developing Countries: Lessons from the East Asian Crisis (1999), Trade, Investment and the NAFTA: The Economics of Neighbourhood (1999), International Investment Treaties and Developing Countries (1999), The Development Dimension of the New International Financial Architecture (1999).

Chris Bolt became Group Director, Regulation and Public Policy for the Lattice Group plc in November 2001. He was Regulation and Corporate Affairs Director at Transco plc, the regulated subsidiary of Lattice Group plc, which owns and operates the majority of Great Britain’s gas transportation system. He has particular responsibility for developing regulatory policy and managing relationships with the industry regulator, Ofgem. A major current priority is development of Transco’s proposals for the next price control starting in April 2002. He joined Transco in July 1999. Before that, he was a Civil Servant, and worked in a number of Government departments, including HM Treasury. From 1988 to 1989, he was part of the DoE team responsible for privatising the water industry and establishing its initial regulatory regime, and then joined Ofwat, the independent regulator for the water industry, on its establishment as Head of Economic Regulation. He joined the Office of the Rail Regulator in a similar role in 1994, and served as Rail Regulator from December 1998 to July 1999.

Peter Hemmings has 34 years experience in the Water and Waste Water Industry. His career, following university, started with the major capital works expansion in the 60’s and 70’s involving design and site management of London’s major treatment works, tunnels and reservoirs. Following a decade of Operational Management of London’s major treatment works Peter progressed through Project Management of Phase 1 of the London Tunnel Ring Main in 1987 to become Engineering Manager of a £350m p.a. Capital Programme in 1996. Following a strong interest in international work Peter has spent two years as International Business Services Director and has recently been appointed Thames first Director, Knowledge Management.

David Hall is Director of Public Services International Research Unit (PSIRU) at the University of Greenwich. PSIRU monitors privatisation in utilities and public services worldwide, with the results published at Public Services International Research Unit, and specialises in water, energy and healthcare. He has written a number of reports on water privatisation and restructuring. Before joining PSIRU he worked at the Public Services Privatisation Research Unit, which developed a database on privatisation for the UK trade unions. He had previously worked for trade union research units, and as a lecturer in higher education. He has written books on public expenditure and labour law.

Richard Franceys specializes in management and institutional development for the water supply and sanitation sector. Among other research and consultancy work he has carried out studies on public-private partnerships in Cyprus and Ghana, on contracting - out of water and sanitation services in India, Uganda and Mexico, on private sector participation in Sri Lanka and India, on institutional and management development for the National Water and Sewerage Corporation in Uganda, and offered a management development program for senior public health officials in India. He has collaborated, among other organizations, with UNICEF, WWF, UNEP, DFID, and has written several books on water supply, sanitation and urban services for the poor. He is currently a member of the Central Customer Services Committee of OFWAT, the UK water regulator, and Team Leader of an Asian Development Bank study on Public Private Community Partnerships to serve the Poor.

Cecilia Ugaz is an economist who works on institutional development, poverty alleviation and fiscal/redistributive issues. The main focus of her research is private/public partnerships in social and infrastructure service provision. She has recently conducted research combining micro and macro/institutional analysis to assess the effect of infrastructure privatisation on poverty in Latin America. She has also studied the behaviour of the labour markets during the transition from centrally planned to market economies in Eastern and Central Europe. She has published, among other, Fair Deal for Consumers? The Impact of Infrastructure Reforms in Latin America (forthcoming, ed. with Catherine Waddams Price), "The Role of the State in the Provision of Social Services: Decentralization and Regulation", in New Patterns of Social Provision in Low Income Countries (G. Mwabu et al., eds, Oxford University Press, 2001), and Social Provision in Low Income Countries: New Patterns and Emerging Trends, (ed. with Germano Mwabu and Gordon White, Oxford University Press, 2001).

Graham Taylor is Senior Lecturer in Sociology in the Faculty of Economics and Social Science, University of the West of England in Bristol. He is currently engaged on a study exploring the impact of European and Monetary Union on European public services and the response of European public service trade unions. Further interests focus on the political economy of labour with a particular emphasis on the relationship between labour and money, labour and the state, and labour and subjectivity. Recent publications include State Regulation and the Politics of Public Service: The Case of the Water Industry (Cassell, 1999), Money and the Human Condition (Macmillan, 1998), and Globalization, Modernity and Social Change: Hotspots of Transition (Palgrave, 2002).

Peter Vass is Director of the Centre for the Study of Regulated Industries (CRI), School of Management, University of Bath. He is a qualified accountant, member of the Chartered Institute of Public Finance and Accounting (CIPFA). As Director of the Centre for the study of Regulated Industries (CRI), his primary research interest is the theory and practice of incentive regulation applied to privatised utilities and network industries. Current research is directed towards corporate governance, consumer representation and accounting for regulation. He was appointed special adviser to the House of Commons Trade and Industry Committee for the 1996/97 Inquiries into Energy Regulation and Telecommunications. He also edits and contributes a chapter to the annual CRI Regulatory Review including the "Millennium edition" 2000/2001. Recent research reports include Accounting Requirements for Regulated Industries and Common Carriage and Access Pricing: a Comparative Review.

Sumithra Gayathri Dhanarajan is a Barrister-at-Law specialised in the protection of Human Rights. She served as a Human Rights Officer at the Malaysian Bar Council (1994) and as a Senior Legal Officer in the Secretariat for Legislative Councillors of the the Democratic Party of Hong Kong (1995-1997). She has a MA in Understanding & Securing Human Rights from the Institute of Commonwealth Studies, University of London, UK (1998). She has been a Business Standards Adviser at the Campaigns Department of Oxfam Great Britain between 1998 and 2000 and a Policy Adviser on Private Sector issues at Oxfam’s Policy Department since February 2000. In this latter position she has been working on Oxfam’s policy on water services in relation to the General Agreement on Trade in Services (GATS).


General Coordination: José Esteban Castro
Logistic Assistance: Martin Langsam, University of Oxford
Alexander Loftus, University of Oxford

We are also very grateful to Alan Knight (St Antony's College), Laurence Whitehead (Nuffield College, Oxford), Valpy Fitzgerald (St Antony's College, Oxford), David Johnstone (Independent consultant), Jessica Budds (St Antony's College, Oxford), Neil Summerton (Oxford Centre for Water Research), and Ben Page (St Peter's College, Oxford) for their collaboration.

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