Pacific Institute of Resource Management
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Commercialisation of Community Services - 2002

21st September 2002

Ms Jeannette Fitzsimons
Chair, Select Committee on Local Government and Environment
Parliament Buildings

Dear Ms Fitzsimons,

This letter is written on behalf of the Pacific Institute of Resource Management Incorporated, to convey its concerns on the provision for the commercialisation of community services and in particular water services which have particular importance for both the social and ecological environments.

The reason for these sections making provision for the commercialisation of these services appears to be political, not in terms of elected bodies responsibilities to provide this natural substance to the households of the populace as a whole but in terms of being "business friendly". Johan Bastin of the European Bank for Reconstruction and Development has been quoted (by David Suzuki in his recent book, "Good News for a Change") as saying, "Water is the last infrastructure frontier for private investment."

The Government has disclaimed the charge of "privatisation" in respect of the contracting out of these services, on the grounds that the assets themselves will not be sold only the management divested .However water companies do not want the expense of buying the assets, but do want the profits of providing the water and maintaining the infrastructure-the "Public-Private Partnership". This (as in Papakura) is the most common form of privatisation. Only in the UK do private companies own the pipes.

There is a very large body of information in Suzuki's book, in Maud Barlow's work, in William Finnegin's article, "Leasing the Rain"(the New Yorker, April 8,2002) and Franck Poupeau's Global Market in Water -Commodifying Rain (Le Monde Diplomatique) and many other sources on the harmful effects of allowing water to be a tradable commodity. The picture is bleak indeed, in differing degrees with increases , in general large to enormous in price but not in the quality of the service. Water quality has declined in general and a Panorama television programme on the subject detailed instances of environmental degradation in the UK. Other results of privatisation there were stated in information held in a Green Party Member of Parliament's office in the UK in the 1990swhere different water firms operated in different areas:-increased prices-159% on average, tripled profits for water firms, water company shareholder gains of 3 billion, increased water company executives pay-339%,increased water pollution- 53%, decreased maintenance-20%,and water companies paid almost no tax. In 1992 21,000 disconnections led to an increase in dysentery and hepatitis.
Privatisation of water testing in Grenoble led to a decline in quality with serious effects on health.

Another undesirable effect of privatisation has been the corruption of municipal personnel. The attached diagram of the inter-relatedness of the major water companies (from the Public Service International article, "The Water multinationals 2002-financial and other problems") illustrates their power and resources which make the offer of large bribes an easy matter.

Privatisation is often claimed to be the only way to get people to avoid wasting water. In El Alto, La Paz, however the water used by frugal peasants who had moved recently from the countryside was not enough to satisfy the Suez Corporation. "They just need to use more water," Finnegan quoted a World Bank official as saying.

Nor has the experience of private companies' entering into the provision of municipal water been a happy one for their inhabitants in New Zealand. At present legislation does not prevent private interests in the provision of domestic water services and companies have gained a foothold in, among others, Auckland and Papakura. In Auckland in 1997/8 a share company, Water Care Services , was formed which was able to franchise out services to private concerns. The cost of that profit oriented service has rocketed by 400% , sometimes more where residents are required to pay $1000-$1100 for water services alone, resulting in some households being cut off. Similarly in Papakura where the water company United gained control of the water supply prices rose as shown in the attached table. (Water Pressure Group Media Spokesperson) 97% of residents disapproved this change when later asked but their views had not been sought by the council. The government's defence that the privatising provisions of the bill are permissive not mandatory will be of little comfort in Wellington either given that the sale of the municipally owned power company Capital Power was sold in spite of the consultation process showing that, overwhelmingly , citizens did not want it. So far there have been two instances of privatisation of parts of the service in Wellington- waste water with an incident of a major unexplained spillage and the contracting out of care of the pipes, formerly maintained by Wellington Regional Council along with its other water services to the cities in the region. Councillor Dick Werry has stated that this change, rather than being a cost cutting activity has increased costs by $900,000.

So it is a matter of gravest concern that the Local Government Bill poses a threat to the provision of clean, affordable water to households of all levels of income throughout the country. To avoid the commercialisation of water it would be necessary to ensure that by law water services be controlled and provided directly by elected, accountable bodies.
I use this term at this point because the government in defending the provisions of the Local Government Bill allowing councils to contract out water management are not "privatising" water because all the assets themselves will not be sold. However water companies do not want the expense of buying the assets, but the profits of providing the water and maintaining the infrastructure. Public private partnerships as in Papakura are the most common form of privatisation. Only in the UK do private water companies own the pipes.

Clause 129 of the Local Government Bill means, in effect that water services may be operated under private contract for up to 15 years with the local body or council acting as a collecting agent for the contractor. It also allows for water services to be as assets to be sold in the form of registered shares to be sold on the open market.

This is reinforced by the repeal of parts of the Local Government Act providing for general health, well-being, recreation and community development, that is, in the removal of Parts XXXV&XXXVI especially sections 595 and 598. Parts XXXV and XXXVI provide for a wide range of public services and amenities which can be provided by interest free loans or direct rating in order to exclude other interested parties. The removal of these parts would place these services and amenities under the jurisdiction of the Commerce Act (Section 36) and so would require councils to operate under market conditions, in so far as they are trading entities, to compete with private enterprise for their own community assets .This, includes except where other Acts specify, virtually all council services. Repeal of Sections 595, 596 and 598 allows Clause 36(2) of the Commerce Act to come into effect requiring that "A person that has a substantial degree of power in the market must not take advantage of that power. Interpretation of "person" p. 6 of that Act includes a local authority, and any association(s) of persons whether incorporated or not.

The GATS Agreement proposed for settlement in November 2002 government and local bodies as trading entities are required to compete with private enterprise(Section 36 Commerce Act and GATS Agreement Article 1 3(c).

The Local Government Bill makes provision for local councils to set up profit oriented water service companies which will be able to profit enormously at the cost of the community in a natural resource vital for public health and amenities also important for general wellbeing.
So it is vital that central government, rather than allowing this, legislate for the provision of domestic water services, in particular, to be operated by directly elected and accountable bodies.

Jocelyn Brooks
PO Box 12125
Wellington. - PIRM/Pacific Ecologist, POBox 12125, Wellington, Aotearoa/New Zealand -
fax +64 (0)4 939 4551

Pacific Ecologist