Corruption in the water sector cannot be de-linked from the issue of privatization of the water sectors around the world, as water resources become increasingly controlled by corporations and subjected to profit-maximization.

51-year-old Emy Faustino, a housewife from Bulacan, rushed her two daughters to the Barangay health clinic after complaining of persistent stomachaches. She learned that her girls were suffering from amoebiasis, a condition characterized by abdominal pain, diarrhea and fever.

“I was shocked when the doctor said that my children acquired the disease from drinking unclean water,” she said. Like many of the households in their area, Emy’s family gets their drinking water from an old well at the back of their house near the farm. She and her husband decided not to avail of the local water service because they cannot afford the rates. “With the meager income from our farm and poultry, we could not afford an expense that costly,” Emy explained.

The Faustino family’s case is just one of the many scenarios around the country, which demonstrates people’s lack of access to clean water and the high cost of availing water service.

Whereas water services should be provided by the government, the water sector is rapidly being privatized, with the public carrying the costly price. At present, projects in line with privatizing water systems water districts are fraught with allegations of corruption-- ranging from petty administrative corruption to big-ticket scandals.

The Philippines however is not the only country that is experiencing this crisis. The issue of massive corruption brought about by the privatization of the water sector is in fact a global concern.

Private control and corruption

Privatization has opened extensive areas for profit opportunities for Transnational Corporations (TNCs) around the world. Fortune Magazine in 2000 reported that water is the best investment opportunity of the century. Estimated potential annual revenues in the global water service industry range from US$400 billion to US$3 trillion. True enough, the total water-related revenues amounted to US$522 billion in 2007. The bulk of revenues were made in water services at US$385 billion.

With such massive profits at stake, the water industry has been increasingly monopolized by a few corporations. In the last 10 years, there were 506 mergers and acquisitions in the water sector with a total worth of US$176 billion. Major water service TNCs, mostly based in rich countries such as France and Germany, have entered into joint ventures and other forms of business relations with each other, forming a tight network of interlinked interests.

Also, corporate giants from other sectors such as water, energy, food and beverage and shipping have also ventured into investments in the various water subsectors like waterworks and sewerage, irrigation, dams and water trade.

Not only corporations have benefited from the privatization of the water sectors but also International Financial Institutions (IFIs) such as the World Bank. From 2004-2008, the Bank’s water and sanitation portfolio had a total of 157 projects for a total cost of US$9.5 billion. The bulk of project costs (70%) are for privatization promotion.

Corruption in the water sector has intensified alongside increasing privatization efforts. Corruption is prevalent in drinking water, sanitation and sewerage, water resources management and infrastructure and even in tradable water rights, accomplished in various ways.

According to Transparency International 2008 Global Corruption Report (GCR), around 10%-30% is being siphoned off annually from the sector. Estimates by the World Bank are even higher: as much as 40% of water sector finances are being lost to dishonest and corrupt practices.

Moreover, corruption is intrinsic in the very structure of privatization: the monopolization of a basic service fosters corrupt practices that are not addressed within a policy environment dedicated to liberalization and deregulation.

Due to corrupt practices in water service delivery, the already steep cost of household connections worldwide, which the GCR pegged at an average of US$400, would increase by 45% to US$580. As it is, utility connections are beyond the financial capacity of the poor. The cost of a utility connection in Kenya, for instance, is equivalent to about six months the average household income.

Also, the urban poor especially those living in the slums generally do not have piped water but ironically pay more than connected consumers for water from informal water vendors. Currently 2/3 of the roughly 2.1 billion people who do not have access to safe drinking water live on less than US$2 a day and half of some 2.6 billion people who lack basic sanitation live below the poverty line.

Since the business of big dams has proven to be a very profitable venture for construction TNCs, their local counterparts and the government which facilitates the construction, the subsector has now become a venue for grand scale corruption.

However, since IFIs and TNCs are not accountable to the public, either they look the other way or wash their hands of corruption’s dirt since they have already earned from the interest on the loans made.

Meanwhile, corruption in the construction of irrigation facilities is also a major concern because under privatization, big-ticket irrigation facilities are constructed, which by design already marginalize small farmers. This is exacerbated by corruption at various levels that do not bring the water to the farms of its intended recipients.

Carrying the burden

According to the 2008 GCR, the impact of corruption brought about by the privatization of the water sectors is more extreme in developing countries.

The privatized water sector in these places result in the marginalized population being exploited and robbed thrice over: their water resources are diminishing into the pockets of corporations; they are made to pay exorbitant rates for a public service; and they are again made to bear the burden of the cost of corruption due to privatization’s fundamental flaws.

Dams and irrigation facilities are among the mechanisms by which corporations control water resource management and infrastructure development, oftentimes to the detriment of communities which are meant to be the “beneficiaries” of the projects. The construction of large dams to harness river systems has been promoted by TNCs and IFIs primarily for profit rather for the needs of communities.

Also, water from dams most often is used to irrigate corporate farms and plantations while small farmers are systematically being deprived of irrigation. This is illustrated by the 65% of the world’s fresh water flowing into industrialized agriculture.

Corporate water resources management also dictate that because water is supposedly an economic good, it can be traded as any other commodity. This further disenfranchises people and creates barriers to water access for the poor. Thus under a policy environment of attracting foreign direct investments, corporations are given priority over residential consumers and guaranteed the right to directly draw water from the ground.

Philippine setting

For an agrarian economy like the Philippines, an efficient irrigation system is a key component for increasing the productivity of small farmers who are still bound by inequitable social relations and traditional farming methods. Latest data from the National Statistics Office report that only 30% of the country’s farmlands are irrigated.

One of the major irrigation projects instigated by the government’s National Irrigation Administration (NIA) with a US power multinational is the CE-Casecnan Multipurpose Irrigation and Power Project in Central Luzon which was designed to irrigate 53,000 hectares of rice land and rehabilitate existing systems for an additional 55,100 hectares in the coming decades.

Originally slated to be operational by 2004, irrigation for only 62,000 hectares has been built or rehabilitated as of June 2007 and the NIA acknowledged that these areas might not necessarily have water yet. Also questionable is the agreement of NIA and the contractor on a guaranteed fee for 20 years that the government will pay whether or not water is actually delivered. The payment of P14.3 billion (US$318.5 million) from 2002 to 2006 for 3.6 billion cubic meters of water was given even though most of it never reached farmland because irrigation facilities from the dam had not been built.

Also in the Philippines, local water utilities have different status as some municipalities have their own water supply projects funded by foreign donors while some areas are under water districts which operate as quasi-public corporations. Inefficient service, labor issues and even violence are results of questionable and corrupt practices in various local water utilities.

The Magdalena Water Project in Laguna is a classic case of a privatized local water utility which did not deliver. Water from the Magdalena water system was found to be “not fit for drinking” by the Department of Health. Despite the findings, the local government and the World Bank hailed the project as a success for providing clean, safe water 24 hours a day for Magdalena folk.

Salt on the wound

They say that water is life. But some two billion people around the world are denied access to clean water. The salt on the wound is that water sectors are neck-deep in corruption issues.

The intensification of corruption in the water sector cannot be de-linked from the issue of privatization of the water sectors around the world. Under privatization, water resources are now under the control of corporations and subjected to the profit-maximizing logic of market forces. Thus, water has been made available only for those who have the capacity to pay while the poor and the marginalized lose access to water. On the other hand, the government relinquishes its responsibility to ensure that water resources are equitably allocated and that the majority has efficient and adequate access to water services. To make things worse, the poor are made to shoulder the cost of corruption in the water sector.

Just like Emy Faustino and her family, more poor people will be denied access to clean, safe and adequate water service for as long as the water resources and services remain in the hands of the profit-oriented private corporations and a privileged few benefit from the spoils of corruption.

With reports from Jeff Meinard Ramirez IBON Features