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Lessons from Moncton’s water privatization experience

In a recent CBC The Current radio interview, Elizabeth Brubaker, Environment Probe’s executive director, debated Council of Canadians’ Trade Campaigner Stuart Trew on water privatization in Canada within the context of the Canada-EU Comprehensive and Economic Trade Agreement.

In the January interview, Brubaker sang the praises of private sector participation in the water services sector. Brubaker claimed Public-Private Partnerships (P3) provided better opportunities to regulate industry because companies are under binding contracts. She also praised P3s for the “capital that private firms can invest,” funding that is not “available at the federal or provincial level” and for companies’ “expertise” and “efficiency.”

The example of Moncton

Moncton, a case study examined during The Current interview, entered into a P3 for their water filtration system with US Filter (which became Vivendi  in 1999 and Veolia in 2004) in 1998. There was a later attempt to enter into another P3 with the same company for the upgrading of the city’s water distribution, stormwater and sewer systems including pumping stations. CUPE raised awareness on the impacts of P3s and the deal was stopped. Moncton city council also commissioned an independent study showing that it was cheaper to keep the water distribution infrastructure public.

P3s mean higher water rates

However, what Brubaker and Jacques Dube, city manager of Moncton, failed to mention in the interview was that Moncton was an example of rates going up drastically as a result of privatization. The contract was awarded in 1998 and between 1999 and 2000, rates went up by 75%. A 2011 PPP Canada Report obtained through an access to information request notes that typical water prices are $0.31 m3 with the average daily domestic use of 343 litres. If we compare Moncton’s rates in 2011 at $1.401 m3, they are significantly higher than the Canadian average.

Lease-buy agreements are more expensive

Brubaker and Dube also fail to mention the high costs of contracting a private firm to finance, operate and maintain the plant. US Filter built the Moncton plant at a cost of roughly $23 million in a lease-to-buy agreement. Vivendi, which later became Veolia North America, bought the plant as it was being completed. The private firm fronted the money and built the plant and then took over operations.

In the book Public Service, Private Profits – The Political Economy of Public-Private Partnerships in Canada, economist John Loxley has noted that “there is a capital charge in water fee that you pay and that capital charge is basically paying for the debt that the private company borrowed.” He also notes 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.

As noted in Critique: A Bridge Over Troubled Water, “A case study published by John and Salim Loxley concludes that despite some advantages for the municipality if the city had raised its own financing it would have saved approximately $8.5 million over the life of the agreement. The private partner received a 24% return on its equity investment.  The Loxley’s analysis also makes the point that the aforementioned was not fully brought out to the public and it remains unclear how evaluations on the scheme were conducted.”

In an interview with the New Brunswick Telegraph-Journal, Loxley reasons that “[t]he dispute here is not about the quality of product that Moncton received, that’s indisputable knowing the quality of Moncton’s water before, it’s about whether or not the private partnership was a cheaper alternative.”

Private water means those who can’t pay can be cut off

The inability for some people to afford higher water rates is another common challenge with P3s. A December 2011 Times and Transcript news article noted the frequency of late payments on water bills: “In Moncton, $2.6 million is owed by residential water users, which is not out of line with the norm, (Paul) Thomson says. Eventually, those accounts end up being settled, he said. And if they’re not, the city can always place a lien on the debtor’s property.”

The article added that “With about $8.5 million in water bills issued every year in Moncton, that means about 30 per cent of invoices are six months overdue or more at any given time. In Riverview, the town is owed about $558,000 by homes and businesses who are six months or more behind in their payments.”

The article further noted that the nearby City of Dieppe left letters “at each residence in the subdivision that water could be cut off ‘without further notice’” which raises the problem of potential violations of the human right to water.

In July 2010, the majority of countries around the world overwhelming voted in favour of recognizing the human right to water and sanitation at the UN. Since then, the UN has passed two more resolutions outlining clear legal obligations to which all countries are bound.

In Maude Barlow’s Canadian Appendix to Our Right to Water: A People’s Guide to Implementing the United Nations’ Recognition of the Right to Water and Sanitation, she outlines the three obligations governments have with respect to recognizing a human right: the obligation to protect, respect and fulfill. Barlow points out that “The first is the Obligation to Respect, whereby the State must refrain from any action or policy that interferes with the enjoyment of the human right. For water, this would mean, for instance, that no one should be denied essential water services because of an inability to pay.” Therefore, cutting off a home’s water services because of the inability to pay is a clear violation of the human right to water.

Private bidding lacks transparency

Despite Brubaker’s argument that there is greater ability to regulate companies because of binding contracts, the tendering process is often secret and the contracts are not often made public.

Despite the praise from Brubaker, Dube and others of the Moncton P3, this example highlights challenges that are characteristic to water privatization around the world: price increases, higher total costs to finance construction and operate the system, the potential for water cut-offs and the lack of transparency and accountability.

Conclusion and further concerns

Public debate on the viability of P3s is critical in addressing in Canada’s water infrastructure deficit. With austerity measures, upcoming budget cuts and PPP Canada explicitly promoting privatization of public services by only providing funding to P3s in water and wastewater, Canadian communities may increasingly be pressured to privatize their water systems.

We may also see an increase in the privatization of water services on First Nation reserves. The “Safe Drinking Water for First Nations Act,” also known as Bill S-11, was tabled in Parliament on May 2010 with the stated objective of ensuring First Nations have access to safe drinking water.  First Nations called the Bill into question arguing that the federal government failed to consult them, and did not make clear how these regulations would be implemented to address the lack of infrastructure, resources and training within First Nations. Bill S-11 died on the order paper but an iteration of the bill is expected to be introduced by April of this year. While high standards for drinking water on First Nation reserves are critical to address the longstanding atrocious conditions, a failure to provide adequate funding may force some communities to enter into agreements with the private sector.

The Federation of Canadian Municipalities has estimated water and wastewater needs alone at $31 billion for deferred maintenance and deteriorating infrastructure. A 2011 Environics Research poll commissioned by the Council of Canadians indicates that 78% of Canadians support the federal government spending $31 billion in federal budgets over the coming years for urgently needed maintenance and upgrading of water and waste water infrastructure. Despite this, there was no mention of funding for water and wastewater infrastructure in last year`s budget. With a concerted push by the federal government to involve the private sector in water and wastewater services, people in Canada need to continue to demand transparency, accountability and respect for the human right to water.

Special thanks to Kelti Cameron, Carol Ferguson and Karin Jordon of the Canadian Union of Public Employees for their contribution to this blog post.