Water and power
April 2, 2003
As reported in Stabroek News on Friday, March 21 Guyana Water Incorporated (GWI) has announced tariff increases retroactive to lst January “in order to ensure that the company meets its operating and maintenance costs for the year.” Translated into plain English this means that water rates in Georgetown have been increased by $350 per month plus an additional $100 for sewerage services. In areas outside of the city the increases will be of the order of $200 per month.
The managing director of GWI explained that half of current revenue went towards meeting electricity charges while the rest went towards meeting expenses for labour, chemicals, maintenance and other expenditure. No one challenges that.
However coming at this time when steep increases in electricity charges hang over the heads of consumers and with no certain prospect of an end to blackouts, when at the same time water shortages have led to intermittent and unreliable low pressure supply, the water rate increases will be felt and seen as one further burden being piled on to another.
The GWI, it has been announced, under its new management arrangements will be the beneficiary of a development grant of US $20m from the UK Department for International Development (DFID). Might it have been possible to put some improvements in place before the imposition of the higher rates? Might it have been possible to hold off the higher rates until the water supply situation had returned to near normalcy? Such and similar measures might have softened the blow.
Unlike electricity which one, however inconvenient, can do without for days water is essential for living. Lack of an adequate water supply falls particularly hard on women. That is why water is seen, in some developing countries, as a gender issue. At this moment when it seems there is no solution in sight to the problems with Guyana Power and Light (GPL) and the approach to the solution steadily comes across as confused if not feeble, the imposition of higher water rates may be pushing the society into an increasingly unacceptable if not explosive situation.
It is too easy to see the water scenario as one in which we have been before.
Sell part of the utility to a foreign investor who installs his own management and the rates escalate with hardly any improvements or expansion to show for it. That is the image in the public mind of what happened in the case of GPL.
GWI is an altogether different arrangement to that with GPL. No part of the entity has been sold. Severn Trust has been given a management contract to run GWI for five years. In the UK Severn Trust is a company with a record of civic responsibility. The management contract will be funded to the extent of 3.2 million pounds sterling by the Brith government, through DFID. GWI reportedly will in addition as already noted secure US $26 million for its development programme from the same donor agency.
In short in a classification of forms of privatisation, the Guyana Telephone and Telegraph (GT&T) and Guyana Power and Light (GPL) stand at one end of the spectrum as investor/management arrangements while Guysuco and GWI stand at the other end with contractor management while the entity continues to be owned by the State. Given the experience with GT&T and now GPL it would not be unfair to say that in the case of the investor/management arrangement there is a kind of built in conflict in which management is focussed on the security and profitability of the investment, and development objectives and consumer interests are accordingly given a lower priority.
In the case of the other model, Guysuco on the basis of efficient management is successfully raising funds from regional and international banks. GWI will at least initially get its funds from the donor agency, DFID.
However organised, the indispensable element to privatisation must be regulation in the public interest. Regulation has been largely entrusted to the Public Utilities Commission (PUC). Dealing with the role of the PUC in the case of GWI, Dr Roger Luncheon the Cabinet Secretary asserted that “the role of the PUC will contribute to a diminishing likelihood of a repetition of what occurred in other sectors”. Dr Luncheon further disclosed that Government had been at pains to include in the contract “standards performance criteria and an incentive component to promote greater trust by the company in fulfilling its obligation.”
Yet it must be recognised that the role of the PUC is constrained by the policies of government and as will be discussed below government i.e., the executive (cabinet) is under powerful international pressure to limit the regulatory process. This points to an important role which Parliament could play. Alas, the GPL Agreement and as far as is known to date the GWI contract have not been laid in Parliament. While secrecy is essential in negotiations, it is hard to think of a good reason why the results which so directly affect the lives of citizens should be kept wholly secret. Parliament could provide sorely needed additional leverage for a government when dealing with a powerful foreign private sector entity supported by its government.
The whole regulatory process would be strengthened by a parliamentary scrutiny mechanism in which the Social Partners could be invited to participate.
On the question of privatisation the public discussion too often proceeds on the basis of why privatise at all, or more dubiously on the contention that privatisation is directed against the interests of one section of the community. The political reality is that developing countries and especially small ones have little choice in the matter. Privatisation was in train long before the present government took office.
Once the state seeks to trade preferentially or to protect its markets, once the state seeks assistance from national or international donor agencies, a condition in trade relations or for the provision of economic assistance will be the demand to privatise key sectors of the economy. It is part of the whole process of so called liberalisation to prise open economies so that foreign investment and foreign producers can have access to exploit the markets of developing countries. Privatisation was a condition of the Structural Adjustment Programme (SAP) through which the IMF and World Bank provided assistance.
In addition there are now the formidable mechanisms of the WTO including in particular The General Agreement on Trade in Services (GATS). Most of the attention on the operations of WTO has hitherto been focussed on opening up markets to the trade in goods. GATS extends WTO rules to the trade in services. And almost anything can be regarded a as service. It includes banking but also garbage collection, tele-communications, electricity, water, health services, tourism and so on. GATS facilitates and enables the takeover of services by foreign entities on terms which may not protect the interests of the host country. In the case of the European Union services have become the most valuable export sector.
The provision of services are most often sensitive political issues as many are regarded, as in Guyana’s case, as primary responsibilities of Government. Yet the GATS rules to which Guyana as a signatory of the WTO is subject seek to limit regulation.
Under GATS rules the government cannot easily regulate activities in the service sector once foreign investment is involved, as for example in protecting small local agencies in the same field or in compelling the use of local materials and skills.
Even large developed countries succumb to GATS rules. For example, under Canadian law the Auto Pact, there was, it was reported a provision to encourage companies selling vehicles to invest in and to purchase parts from and create employment in Canada. In l999 European and Japanese vehicle manufacturers challenged successfully this Canadian law under GATS rules. The Canadian provision had to be abandoned. Nearer home, the US government invoked GATS rules to successfully compel the European Union to abandon the preferential access it had up to then provided to Caricom banana farmers - a decision which probably marks the beginning of the end for the banana industry.
To sum up, the further takeover of service sectors in Guyana, in other Caricom states and elsewhere is, given the present organisation of the global economy, probably inevitable. Given such measure of inevitability, it seems that certain lessons should be learnt if Guyana is to benefit from such onward investment and technology and training. It is encouraging in this connection to note Dr Luncheon’s assertion that certain provisions have been written into the GWI management contract which will strengthen the hands of the PUC. But more importantly, there is need for political consensus in the approach to negotiating such arrangements. It may be that the weaknesses or defects in the GPL contract derived from the fact that earlier negotiations with another investor had failed. Therefore, there was a certain eagerness to register at all costs a success.
The appropriate place for the generation of consensus is within Parliament. And the process should begin with making the contracts available to Parliament. The failure to do this goes back a long way. As far as is known neither the Omai nor Barama contracts have ever been debated in Parliament.