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Conference Board of Canada report sweeps P3 problems under the rug

Regina has been in embroiled in a debate about how to get funding for upgrades to their wastewater treatment plant. The city wants to apply for funding from the federal government but the catch is that the city must then enter into a public-private partnership (P3). Regina Water Watch and other groups have been raising concerns about how a P3 would impact residents and calling for the treatment plant to remain in public hands.

On June 20, Regina Water Watch delivered over 24,000 petition signatures from residents calling on City Council to hold a referendum on whether to privatize Regina’s wastewater system through a P3. The referendum will be held on September 25, 2013 and Regina residents are urged to pledge to vote “Yes” to public water.

The Regina Leader Post reported today that the Conference Board of Canada recently produced a report called Delivering Value through Public-Private Partnerships at Home and Abroad, which promotes P3s as “on time and on budget.” In response Toby Sanger warns that this is “another exercise in largely blissful ignorance promoting P3s, while glossing over or ignoring their major problems.” Sanger says that several important points are missing from the report including the secrecy around the real costs of P3s.

Here are examples of where P3s have failed or have been flawed and why Regina residents need to think twice about turning their wastewater treatment plant to the private sector.

Canadian Case Studies

Hamilton: The City of Hamilton faced a decade of environmental disasters and financial troubles after awarding a contract to Philips Utilities Management Corporation for water and wastewater treatment in 1995. In addition to the workforce being cut in half within eighteen months, millions of litres of raw sewage spilled into the Hamilton Harbour, homes were flooded and major additional costs were incurred. Ontario Ministry of the Environment laid a number of charges against the contractor for failing to meet effluent standards. And as is common with P3s, the private water contract changed corporate hands four times. In 2004, Hamilton ended the private contacts for good and brought its water and wastewater systems back under community control.

Moncton: Although some tout Moncton as a success story, the inflated cost of Moncton’s water filtration system raises serious concerns about P3s. Moncton entered into a P3 for their water system with US Filter in 1998 which later became Vivendi in 1999 and then Veolia in 2004.  Between 1999 and 2000, rates went up by 75 per cent. Companies borrow at a higher right than governments and economist John Loxley notes in Public Service, Private Profits – The Political Economy of Public-Private Partnerships in Canada that “the cost of borrowing which is applied in a capital charge is much higher than what Moncton could have borrowed at,” highlighting that Moncton ended up paying $31 million for a $23 million water treatment plant.

United States Case Studies

Cave Creek: Cave Creek, AZ remunicipalized their water system after a private company took over their water system. According to Food and Water Watch, “In 2005, after the town lost to Global Water Management in a bid to purchase the water system, local leaders didn’t give up. Instead, they decided to use condemnation proceedings to buy the system.  Why did the town decide to publicly own and operate its water services? Local control was a major factor. “One concern was having control of our growth in town,” said Cave Creek utilities director Jessica Marlow. “And with private ownership the town had no say in those transactions. We’re a small town and people want that small town environment.”  The utility‚ which was operated by Arizona American Water‚ was also performing badly and needed improvements. “It was in very poor maintenance,” Marlow said. “Facilities are falling apart. There wasn’t a lot of revenue going back into the system.” The state of the system was so poor that Cave Creek experienced three system-wide water outages during the summer of 2007.”

Indianapolis: In 2002, Indianapolis gave Veolia a 20-year, $1.5 billion contract to manage the city’s water system, Veolia’s largest water contract in the United States. There were a number of complaints from residents and employees including cuts to employee benefits by more than $50 million, unfair billing and overcharging of customers, a 2005 boil water alert that affected over one million people and cuts to staffing, water testing, treatment chemicals and maintenance. After the several years of these problems the city announced that the water services would be put back in public hands and is now operated by the public utility Citizen’s Energy Group.

Montara: In 2003, after suffering poor service and some of the highest rates in California, residents of Montara bought back the municipal water system from American Water, then owned by RWE of Germany. The purchase was financed by a property tax hike of about $159 per year for every $100,000 of assessed home value. Water and sanitation services are now administered by the Municipal Water Board, which includes community representatives.

International Case Studies

Grenoble, France: In 1989, Grenoble handed a 25-year contract to deliver water and sewage treatment services to Compagnie de Gestion des Eaux du Sud-Est (COGESE), a subsidiary of Lyonnaise des Eaux, which is owned by Suez Environment. In 1995 a French court found the privatization had been concluded in exchange for election contributions to the mayor. Overpriced procurement handed to other subsidiaries of the service provider was ratcheting up costs. A new city council that same year changed the contract to a public-private partnership model but the company retained a veto on important decisions and the favouritism in procurement continued. Gradually the city bought back control of the service until it was fully remunicipalized in January 2001.

Paris, France: Water services management in Paris was handed to two private firms in 1995, one a subsidiary of Suez-Lyonnaise des Eaux, the other to a subsidiary of what is now Veolia Environment. These operated as public-private partnerships with majority public control – on paper only. The private companies involved had almost total control over operations, there was little transparency, and rates more than doubled between 1990 and 2003. After a long public and Paris City Council campaign to make water fully public again, water services were remunicipalized in January 2010. According to the president of Eau de Paris, the city’s new public utility, the €35 million ($47 million CDN) in what used to be corporate profits are now reinvested into the water systems, water prices have dropped and stabilized, there is greater synergy between water production, distribution and treatment, and the residents of Paris have been able “to introduce designated environmental, economic, democratic and social objectives, which was not really possible with private operators.”

For more examples, read economist John Loxley’s guide Asking the right questions: A guide for Municipalities considering P3s.

To read more case studies on water privatization in the U.S., visit Food and Water Watch’s website.