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Let’s put Coca-Cola in charge of water

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

South Africa is groaning under harsh water rationing measures. Government simply cannot supply as much water as we’d like to use, at home, in agriculture, or in factories. Perhaps it’s time to rethink why we rely on government at all.

I have seen some pretty remote, desperately poor places in my life. But no matter what kind of dry, distant, derelict dump you’re in, you can always bet that purveyors of soft drinks and beer got there before you. You might not be able to get abundant, safe drinking water, but you can always fall back on an ice cold lager or Coca-Cola, at prices even the poor can afford.

Compared to the demonstrable success of the free market in getting such drinks to everyone, everywhere (except the socialist paradise of Venezuela), government water services are pretty dismal in many places.

Any service, when provided by the government, ends up being rationed. Rich governments sometimes manage to create services that look acceptable, but there are extraordinarily few public water systems that don’t lose money. In poor countries, there is more pressure to keep prices artificially low, so shortages inevitably arise. To make ends meet, quality deteriorates, and rations are imposed.

Sometimes, when things get really bad (think Eskom circa 2008), the government blesses us with the worst of all possible worlds: low quality, rationed quantities (or long queues), and price hikes that don’t really solve any of these problems. Have you ever heard a private company advertise to ask you to buy less of their product? Or charge you more for buying larger quantities? Eskom does both, and so does our public water service. This is true no matter what government service is at issue: electricity, water, police services, courts, official paperwork, healthcare, public transport, the lot.

Recently, South Africa has been subject to water restrictions in many regions, including our largest cities, since 2015. Let’s focus on Cape Town as an example, because it has imposed the most severe water restrictions of which I’m aware. It now limits each resident to 87 litres of water per day. This is equivalent to one bath, two five-minute showers, a single load of washing, or half a dozen flushes of an average old-fashioned toilet. If you want to drink water or cook with it, that has to come from savings elsewhere. Forget trying to grow your own veggies. Extremely heavy fines await those caught using more than their monthly quota.

Of course, there is a drought that accounts for this. There always is. The Western Cape’s Water and Sanitation Service (WCWSS) would have you believe that: “The days of plentiful water supply have past (sic). Good rainfall years should be considered anomalous as opposed to drought years.”

However, this is a red herring at best, and quite possibly entirely false. The present drought, which started in 2015, is largely attributable to El Niño, a regular weather phenomenon, not to permanent climate change.

Annual rainfall in Cape Town since 2015 has been among the lowest on record since 1977, according to the Climate Systems Analysis Group at UCT. The years 2000 and 1994 were in the same ballpark, although those droughts were shorter. By contrast, however, 2013 was the third-highest rainfall year in the last four decades. The media was all excited about that.

Unfortunately, the UCT group does not make its data available online, and its charts (other than the year-by-year cumulative chart) are quite unreadable, so it is hard to tell whether there is a significant long-term downward trend in rainfall in the Cape Town area. The data shows little change in global drought over the past 60 years, and South Africa’s 10 worst droughts in the last century occurred in 1926, 1933, 1945, 1949, 1952, 1970, 1983, 1992, 2003 and 2015, which hardly points to an accelerating trend.

Either way, declaring good rainfall years to be anomalous when 2007, 2008, 2009, 2013 and 2014 were at or above the 40-year mean seems rather rich. Out of 11 years, five or six of those years are supposed to be below average. According to WCWSS, the Western Cape’s drinking water reservoirs and dams were 100% full in 2007, 2008, 2009, 2012, 2013 and 2014. That’s six of the last 11 years, which hardly seems like a harbinger of disaster.

This raises the question of why every drought, between every rainy spell, results in water restrictions. Perhaps the government simply has not built enough storage capacity to tide us over the lean years. Water consumption in Cape Town has “flatlined” since 2000, so the problem does not lie with consumers. Why existing infrastructure cannot cope seems quite mysterious, especially since the total supply was increased by 84-million cubic metres to 404Mm3 in 2007. Future expansion of water supply is being planned from 2020 onwards, but it will not be able to keep up with a high-growth consumption scenario.

The same scenario plays itself out in other municipal regions. The capacity of dams and reservoirs is simply inadequate to cope with a two- or three-year drought. Compounding the problem is that water pipes are old and leaky, which means about a third of all water is lost between the source and the consumer.

As I wrote in a research piece for Good Governance Africa a few years ago (an archived copy is available here), South Africa has a lot more water than is commonly thought. There are vast freshwater aquifers below the surface of most of the country – including the arid Karoo – which remain largely untapped. We abstract about 20% of the flow of our rivers, and lose another 14% to evaporation, and 20% or so is needed as an ecological reserve. This leaves nearly half of our surface water resources unexploited. Of course, not all of it is exploitable, but we have lots of headroom. Moreover, water scarcity is usually a regional problem, yet there is limited infrastructure available to pipe water from regions where a surplus is available to dry regions, when they need it.

Waste water treatment in South Africa is also in crisis. According to the Department of Water Affairs and Forestry, 30% of all water treatment plants are in a critical state, according to the department’s “Green Drop” regulations, and another 20% are classified as poor. Using a slightly different measure, 43% of plants are at high or critical risk, in terms of technical skills, effluent failure or exceeding capacity. Sewerage treatment plant failure is one of the greatest contributors to poor water quality in our rivers.

Another serious problem in South Africa is the extensive use of non-metered, non-revenue water, especially in townships. This not only makes it hard to pay the costs of maintaining water infrastructure, but also places hurdles in the way of any solution that would involve converting unmetered water supply into metered, revenue-generating supply.

To improve any or all of these aspects of water supply requires large amounts of capital and competent administration. The capacity in government to fix these problems is limited, at best.

This is why we ought to be thinking of privatising water supply. The name of Coca-Cola was invoked somewhat facetiously, but there are plenty of companies worldwide that specialise in water supply and water treatment. French companies Veolia and Suez are the world’s largest. The top 10 is rounded out by ITT Corporation (US), United Utilities (UK), Severn Trent (UK), Thames Water (UK), American Water Works Company (US), GE Water (US), Kurita Water Industries (Japan) and Nalco Company (US).

Of course, privatising a monopoly infrastructure sector such as water is no easy matter. Existing pipes and other infrastructure are not easily or practically duplicated, and most regulatory regimes for private water supply involve price caps and performance-related incentives. Often, direct competition is not possible, and success is premised on a good regulatory environment and effective benchmarking.

Water is one of the most privatised utility sectors in the developed world, with 80% private sector participation, according to the World Bank. Only telecoms has more private sector involvement (83%). Railways and electricity distribution lag far behind, at 65% and 43% respectively. In developing countries, however, private sector participation in the water sector is only 35%. This shows considerable room for growth.

Water privatisation has had mixed results worldwide, and corruption often appears to be a more important indicator of success than ownership. There have been few outright failures, however. The studies of water privatisation cited by the World Bank show results ranging from no significant difference to significant improvement by various measures. A study limited to Argentina, Bolivia and Brazil found that at least “private sector participation did not harm the poor”.

Some countries have seen positive results in terms of efficiency, access to running water, price, or a combination of these. Chile is often cited as a success story, as are Colombia, Morocco, Armenia, Ghana, Guinea, and the Philippines, even though not all the privatisation projects survived. In England, water tariffs increased, which made privatisation unpopular, but it did bring about increased investment in infrastructure, better compliance with stringent drinking water standards, higher river water quality, improved water pressure, fewer supply interruptions, significantly lower leakage, and far fewer written complaints.

These examples show that although water privatisation is far from a sure bet, improvements can certainly be had in many important criteria of water service delivery, as long as we learn lessons from the successes.

A few local-scale cases of water privatisation exist in South Africa, most notably in Mbombela (Nelspruit) in Mpumalanga, and iLembe District Municipality (also known as the Dolphin Coast) in KwaZulu-Natal. The Mbombela case has been particularly successful.

There have long been knee-jerk reactions to water privatisation, calling it “corporate theft of our water resources” and claiming that it violates humanity’s right to water. For some perverse reason, critics think it’s okay to profit from providing food, shelter and clothing for humanity, but it isn’t okay to profit from providing them with water.

As one might expect, these claims are at best distortions of the truth. True, in some cases (but not all), water prices rose after privatisation. But in most cases, those prices reflected improved access to and quality of water. Effectively, the cost of water for people who previously did not have access to piped drinking water decreased dramatically, because they no longer had to buy water from vendors, or haul it for miles to their homes. So those who previously enjoyed low-quality subsidised water saw price increases that resulted in higher quality for themselves and expanded access to water for others. Ronald Bailey at Reason magazine once excellently debunked some of the persistent myths peddled by anti-privatisation activists.

In a seminal editorial in the Journal of Water Resources Planning and Management, Gary H. Wolff made a telling point: “Unfortunately, the greatest current problems in the water sector exist where government is weak and unable to either provide adequate services directly or to regulate private companies.”

He concludes: “We do not need to decide if private or public ‘players’ are superior, in the abstract. We need to implement and enforce the ‘rules of the game’ under which private or public utilities or operators are ef?cient and responsive to social needs and desires.”

I’m not entirely convinced by this line of reasoning, however. Certainly, it is inevitable that a private water industry will be heavily regulated, government will remain involved in standard-setting, and any project to privatise some or all water supply and treatment functions will take many years to produce results. How this process is handled will be crucial to the success of any water privatisation project. But that does not mean there aren’t reasons to expect private companies to be better at supplying or treating water than the public sector.

A paper by researchers from Chile and the United States, published in Natural Resources Forum, a United Nations Sustainable Development Journal (full text behind paywall), argues that addressing the world’s water and sanitation problems will require the participation of the private sector. In particular, the authors write, the private sector is able to better mobilise the required capital and is likely to be more efficient than public sector water and sanitation services.

Given government’s poor performance at delivering water, especially during periods of drought, looking into private sector alternatives is looking quite attractive. They can hardly do worse. DM


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