The ultimate risks of water privatization

Jakarta Post | 16 May 2007

The ultimate risks of water privatization

Mohamad Mova Al ’Afghani, Geneva

According to the United Nations, roughly one-sixth of the world’s population has no access to safe water. The lack of access to safe water and sanitation causes 80 percent of all diseases in the developing world.

The status of the water resources law following its judicial review by the Constitutional Court is "conditionally constitutional", meaning that it is possible to submit another judicial review if the government fails to adhere to the court’s recommendations in implementing the law.

The law on water resources allows water services to be privatized. This article will argue that the government might be put in a legally disadvantageous position when concluding water service contracts with multi-national corporations (MNC).

Privatization that involves MNCs will cover generally three legal arenas, namely transnational, national and contractual. Each legal arena requires a different model of legal protection.

In the transnational arena, governments may face parent companies and shareholders of an Indonesian-incorporated subsidiary company in arbitrations. In typical water contracts between local water authorities and a locally incorporated company, there is always a clause that refers every dispute arising from the contract exclusively to a local jurisdiction.

The problem is, MNCs can always refer to Bilateral Investment Treaty (BIT) to which Indonesia is a party and use the "umbrella clause" in the BIT to transform a problem that was originally a contractual dispute into an international investment dispute. So, the central government can be dragged into a costly international arbitration.

One of the drawbacks of international arbitration is that the proceedings are often closed to the public. This transparency can no longer be ensured once a dispute is settled at an international arbitration venue.

Another disadvantage in dealing with an MNC is that there is currently no adequate accountability and responsibility standard in place. Thus, it is theoretically possible for an MNC to cause losses (to the environment or labor) in a host state and get away with it. This is because an MNC is a single economic unity, but is legally distinct.

The losses are not attributable to its parent company in United States or Europe, because those companies exist beyond Indonesia’s jurisdictions and they possess a distinct legal personality from their Indonesian "avatar".

From the above explanations, there are some conclusions that can be drawn.

First, the legal protections granted at the national level will be obsolete at the transnational level if the government decides to conclude a contract with an MNC.

Second, the damages created by an MNC to the host state may be irrecoverable due their transboundary character. Put it simply, the control by the government towards water provision will considerably diminish when privatization is opted.

The second legal arena is the national fora. Protection towards the right to water in Indonesia is very weak. The first weakness is that our constitution does not explicitly recognize the right to water. The right to water in Indonesia develops only out of a judicial interpretation of the Constitutional Court when the water law was reviewed.

The second weakness is the water law itself, which does not specifically cite the right to water as a human right. This is a mistake because it should have cited Chapter XA of the Constitution, which regulates human rights. If it is only Article 33 that is cited, then water would be perceived nothing but as an economic good.

The third weakness is that the current regulations governing infrastructure projects do not distinguish water from other projects. Currently, a 2005 Presidential regulation is used as a "catch-all" regulation for infrastructure project, including water. This could be fatal if the government decides to privatize more water services in the future.

Water projects are among the most critical infrastructure projects for emerging economies. They have natural, cultural, political and legal characteristics that differentiate them from other infrastructure projects. Naturally, water is a limited resource, inseparable from the hydrological cycle, it is an indispensable element of life for human, animal and the ecosystem as a whole.

Regulations governing water infrastructure must contain provisions that obligate financial and legal due diligence toward the bidders. There has to be provisions that specifically regulate water service companies, especially its shareholding, lending structure and corporate executives. Its financial condition must also be declared to the public.

The last of the legal arena is the contract between MNC’s subsidiary and the authority. Provision of this contract is very delicate as it must embody and guarantee constitutional, human rights, environmental and financial benefits of all stakeholders.

Ensuring the sustainability of the contract would be difficult because MNC tends to always have a more favorable position to ask for renegotiation once the contract is signed. On the other hand, the government’s interest is in ensuring water service from being impeded, and the government will be compelled to do it at any cost.

Privatization carries plenty of risks. Irrespective of any choices made, water governance must be transparent and the public must have a voice in the decision-making process.

The writer is a lawyer and lecturer. He can be reached at movanet@gmail.com.

source: Jakarta Post

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  • The ultimate risks of water privatization24-July-2007 | Alicia

    For those of you interested on the effects of privatization on ordinary individual, especially when MNCs privatize essential infrastructure such as water, electricty, railways and health care, you should check out the new documentary “The Big Sell-Out.”

    This documentary challenges current economic orthodoxy in contending that the dogmatic claims of the international business establishment for neo-liberal development policies are not supported by modern economic science. More importantly, it dramatically demonstrates how the implementation of these policies is having disastrous consequences for millions of ordinary people around the globe.

    While national and international economic discourse is fixated on increasing efficiency and economic growth, The Big Sellout reminds us that there are faces behind the statistics. It raises serious questions about the neo-liberal credo that government best serves the public interest by becoming a servant to corporate interests. But brave individuals, like those showcased in this important new film, are standing up and demanding an alternative to the prevailing neo-liberal model, a model that the film shows to be as hollow as it is unsustainable.

    In particular to Latin America, the films documents how citizens in Cochabamba, Bolivia (mentioned in this article) have organized enormous protests in 2000, following the decision by the Bolivian government to sell the public water company to a private corporation, which would have made water cost-prohibitive to much of the population. The film illustrates the disasterous effects of privatizing health care in the Phillipines, privatizing electricity in South Africa as well as the rail system in Great Britian. The Big Sellout shows how ordinary people are fighting the neo-liberal commodification of basic public goods.

    If you are interested in obtaining a copy of this film, it is available from CA Newsreel at www.newsreel.org

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