In Jeddah, a tanker full of water costs about SR115. The price of the same amount of water delivered through the mains is roughly equivalent to the price of a can of soft drink.
This seems to confirm the opinion of Michael Klein, vice president, private sector development at the World Bank. He says that in developing countries, users unconnected to water mains may pay 10 times more for the same amount of water as do those connected to mains.
Many connected users in such countries do not pay their bills, explains Klein, putting the case for privatization. Public sector customers have no incentive to conserve scarce water. Meanwhile, governments often do not have the resources to invest in water systems or maintain and operate them adequately.
Hence, says Klein, those who are unconnected pay through the nose. He argues that the biggest gains for most poor people come from providing access to water, not from lower user fees. This means more investment, better maintenance and efficient operations.
The world debate over the privatization of water has its echoes in Saudi Arabia. The Kingdom has decided to commit to the privatization of desalination, which supplies 60 percent of non-agricultural needs in the Kingdom. It is also to sell off various waste water management projects.
The decision to privatize this sector to some extent avoids the contentious and sometimes violent debate over who owns the water and its status as a “human right.” Desalinated water is an industrial product — manufactured and sold. However, in a country with rapidly dwindling natural water resources, where access to them by the population is either impossible or very difficult, there is frequently no choice for the water consumer; it is desalinated water or death. At this point, the discussion of “water as a right” enters the arena.
Cochabamba, Bolivia’s third largest city, was the scene of a disastrous attempt to privatize water. US giant Bechtel, promising better services, raised water rates by 300 percent. This provoked an armed uprising. Bechtel broke the contract and demanded $45 million (SR168.75 million) in compensation. It has since reduced the claim to two Bolivianos — about 25 cents (SR0.93).
Saudi Arabia has now chosen the privatization route. Opportunities thus arise for private interests to capitalize on the existing infrastructure and services for water manufacture and distribution. The Kingdom is facing an increasing need for water due to demographic and industrial expansion. There are two areas to consider in addressing this, the supply side (manufacture or extraction of water) and the demand side (conservation of existing resources).
One of the challenges for both sides of the equation is finding a way of pricing water for agriculture, industry and domestic use which better reflects the cost of providing it and so discourages waste. Additionally there needs to be market mechanisms that encourage scarce water to “find” its most valuable use. In both cases, the requirement to protect the environment and ensure that no one is left without water are also essential considerations.
Some years ago, the US city of Boston needed to source more water for its 600,000 citizens. Environmental objections were raised to diverting a portion of the Connecticut River for this purpose.
So Boston opted instead for a supply side solution and hiked water rates. The need for the proposed diversion vanished as people began turning off the taps rather than letting them run. This effectively tripled the capacity of the Boston reservoir.
Desalinated water is heavily subsidized in the Kingdom — 93 percent or more. Water bills are almost negligible and thus water is wasted. The culture of waste is exemplified by the daily washing of SUVs and the hosing of marbled courtyards.
With privatization, the price of water must inevitably rise, because investors will demand a decent return on their money. Given the 93 percent subsidy now, it is easy to imagine a 1,500 percent rise, merely to break even on production costs, quite apart from recouping the capital investment in new plant and infrastructure.
To reject the idea of a commercial return for water services will deprive the Kingdom of the ability to make the best use of its water. It may also impact on Saudi cities which during the next 20 years, according to Minister of Water and Electricity Abdullah Al-Hussayen, will need SR350 billion ($93.3 billion) in investment for water and sewage projects and SR340 billion ($90.6 billion) for electricity projects.
“We want to set up joint private-public ventures to reduce the cost and optimize water resources,” says Al-Hussayen.
Fehaid Al-Sharief, governor of Saline Water Conversion Corporation (SWCC), recently outlined the options. The first was to convert the corporation into a joint stock company that would take over management of the ground water and sewage water sectors.
This business would then be privatized with some shares offered for public subscription. Direct participation by the private sector in SWCC assets is the second option and a third allows five independent companies to be formed to operate the main desalination plants.