The world’s towns and cities are growing rapidly. By 2050, 70 per cent of the world’s population, some 6.4 billion people, are expected to live in towns and cities, almost doubling the current urban population. Water utilities struggle to keep pace with this rapid urbanization with urban utility water coverage in many low and middle income countries declining in recent years as they fail to keep pace with growth. Governments and utilities face the constant challenge of balancing the need for water services to be financially self-sufficient with the critical need for poor households to have access to consistent (as opposed to intermittant) service. Lack of wastewater treatment and proper sanitation facilities have a significant impact on the urban environment and the health of citizens. Many countries are also struggling with the availability of water.
Evolution of urban water PPPs in the water sector
The role of the private sector in delivering urban water and sanitation services has developed since the early 1990s, when there was significant optimism that the private sector could turn round poorly performing public utilities. While the number of people served by the private sector has steadily grown to 160 million by 2007, a number of high profile failures of PPP contracts has led to a more nuanced approach with PPPs drawing on the private sector’s ability to improve quality and efficiency in specific areas of service delivery and to extend access, alongside the government’s capacity to raise finance and subsidize expansion to the poor.
A broad review demonstrates that PPPs are more likely to bring about improvements in operational efficiency and quality of service, such as reducing losses, labor productivity and bill collection than to mobilize private capital. The risk of unaffordable consumer tariffs is often cited as a reason against the implementation of PPPs; however, studies have shown that there is no statistically significant difference in water tariffs between comparable public and private utilities.
During the 1990s, a few European operators dominated the management of water utilities under public-private partnership (PPP) arrangements. Indeed, by 2001 just six accounted for 85 percent of the population served under PPP contracts in developing countries. While this situation was a natural consequence of private operation of water utilities being a new phenomenon in most countries, it also raised concern that this was an oligopolistic market. Recent years have seen a big change, however, with growing participation by new private operators from emerging-market and developing countries.
A comprehensive review of water PPPs in the developing world found that the population served by these new players steadily increased between 2002 and 2007, growing by an additional 55 million people and to about 40 percent of the market. Meanwhile, the market for international operators remained stagnant, at about 100 million people served. Local private operators were awarded more than 80 new PPP contracts for water utilities between 2001 and 2008 and have accounted for almost all market growth since 2001. This trend was confirmed in 2008: six of the seven new PPPs awarded for water utilities went to national private operators (in Brazil, China, India, and the Russian Federation). Private water operators from developing countries now serve more than 70 million people through large PPP contracts.