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Public-private partnerships de-democratize water

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Image: Jake Nackos/Unsplash

In 2019, the Canada Infrastructure Bank (CIB) announced $20 million in federal funding for a project that would turn a municipally owned water and waste water system into a private, for-profit utility using the public-private partnership (P3) model.

Mapleton Township, a rural community of 11,000 residents nestled in the northwest corner of Wellington County, Ontario, was the sleepy little community chosen to make history. However, earlier this month, the township voted to terminate the project.

P3s, promoted as a means of balancing municipal budgets, invite private-sector investors to finance, design, construct, operate and maintain the daily operations of existing and planned infrastructure projects. These 20 to 30-year partnerships usually fall far short of their lofty goals, indebting municipalities to their private partners for generations to come.

Andrea Muehlebach, an associate professor at the University of Toronto's department of anthropology, has researched movements struggling against the privatization of water and is currently writing a book titled A Vital Politics: Water Insurgencies in Europe.

Having studied P3s in Italy, Germany and France, Muehlebach found that these partnerships rarely deliver as promised and actually led to the de-democratization of water due to the loss of control by municipalities over water governance and price. P3 contacts lack transparency, inherently relying on non-disclosure agreements to keep the public in the dark.

Across Europe, Muehlebach found P3s routinely led to: jobs losses, specifically for workers with years of experience, expertise and knowledge; uneven access to water; higher utility prices; and increased shut offs due to an inability to pay. She also found that P3s are generally no more efficient than publicly owned and operated utilities.

In fact, there was less investment in infrastructure because the primary motive to service debts to investors superseded maintenance and service.

Increases in customer billing reflected the debt of the utility rather than investment in infrastructure. Because of the length of these partnerships, this debt is passed on to at least the next generation, if not the one after.

Berlin, Germany, successfully organized a city-wide campaign against the partial privatization of their water system. Citizens fought the contracts on the grounds that the details were not public and in a 2011 referendum, citizens retained control of their water and waste water system.

It was not an easy fight by any stretch of the imagination. Government officials fought Berliners every step of the way because many politicians were as invested in P3s as private investors.

The water system was remunicipalized in 2014, and Berlin is now a "blue community" -- a municipality that recognizes water as a human right, opposes the sale of bottled water in public facilities and at municipal events, and promotes publicly financed, owned and operated water and wastewater services.

It's often argued that water is not actually privatized because the majority of shares, usually 51 per cent, remain in public hands. However, the need for profits for the 49 per cent making up share holders can in fact put the utility into debt, and as Berlin found out, P3s are extremely expensive to reverse.

Italians fought the privatization of their water and waste water system on a national level. They presented the legal argument that water should never be private property nor should it be public property either because then the state could sell it.

Instead, Italians were asked to think of water as a commons, or a resource that belongs to all, and therefore should be managed in a transparent and democratic way with the direct participation of citizens.

In 2011, approximately, 95 per cent of the Italian population voted against privatization. However, some large cities remain partially privatized.

In 2007 and 2008 Paris, France faced privatization of their water and waste water. Anne Le Strat ran her campaign for deputy mayor on a platform that included water as a public good to be managed by a public authority called Eau de Paris.

Once voted in, Le Strat and the green-social democratic coalition waited for the P3 contract to end, then refused to renew it. This is in stark contrast to Berlin whose municipal government terminated the contract and bought back shares which proved to be extremely expensive, and currently Berlin finds itself more indebted because of this.

"If water is a commons owned not just by current but also by future generations whose lives depend on it as well, why hand water infrastructures over to for-profit actors in PPP contracts that last 25, sometimes 30 years?" Muehlebach asks. "Why place current water utilities and future generations into debt that future generations will have to repay for decades to come?"

The 2014 annual report of the office of the auditor general of Ontario was very critical of P3 projects undertaken in the province. In fact, the Ontario AG found that the province spent $8 billion more on P3s than it would have had it used public procurement. $6.5 billion of that was directly from the higher cost of private financing.

Robert Ramsay, senior research officer with Canadian Union of Public Employees (CUPE), says international research shows municipalities are moving away from privatization and toward re-municipalizing water and waste water systems.

The Transnational Institute has documented 320 cases worldwide in its international data base of deprivatized public services. Of the Canadian cities that have deprivatized their water and waste water systems, eight are featured in the TI report: White Rock (BC), Hamilton (ON), Port Hardy (BC), Taber (AB), Okotoks (AB), Banff (AB), Sooke (BC), and Owen Sound (ON).

Despite Canadian cities overwhelmingly re-municipalizing their water and waste water systems, in June 2017, the federal Liberal government established the Canada Infrastructure Bank with a mandate to specifically enter into P3 agreements within revenue-generating infrastructure sectors.

Ramsay describes what CIB was trying to do in Mapleton as a fringe position that goes against the trend of remunicipalization. Instead, Ramsay says, "CUPE has been calling for this bank of privatization to be converted to a public bank supporting local governments with low-cost financing."

At a time when national and international research and experiences are driving municipalities away from privatization, the CIB is turning its focus to small communities and was hoping to use Mapleton as the pilot for water and waste water P3.

The new infrastructure was valued between $15 and $30 million, but the final amount wouldn't be determined until project completion and the municipality would have been locked into a 20-year contract. Even if Mapleton had retained 51 per cent of shares the township would not have owned the asset because control would be handed over to the consortium void of accountability and transparency.

According to Vi Bui, head water campaigner for the Council of Canadians, "water is an essential service important to public health, so there's concern with putting the operations and management into private hands."

Bui also points out more provincial and federal grants have recently become available in order to assist municipalities with infrastructure costs.

Since 2019, all council discussions surrounding the pending P3 took place in camera with few details being shared with the public. In fact, the only document available publicly was a business case put together by PricewaterhouseCoopers (PwC). The document, filled with redactions, concluded CIB is the best option for Mapleton.

The local paper, the Wellington Advertiser, did report the redacted loan terms on the $20 million investment to be two per cent for five years increasing to three per cent for the remaining 15 years. Private investors historically would be charged seven to nine per cent interest.

This should raise concerns about the federal government spending tax money to subsidize interest rates offered to private investors rather than investing directly, at these lower rates, with the township.

In early 2020, Mapleton council accepted three proposals. A decision was expected in March, but at the end of July council voted down the P3 proposal.

P3s of this magnitude make huge assumptions that there is no risk to the municipality and that efficiencies, unrealized under public ownership, will be implemented by the consortium. Unfortunately, issues like sewage spills in Hamilton and water quality issues that plagued Walkerton, fall on municipalities and residents who bear the responsibility and eventually the resulting costs.

P3 often lead to higher water rates which disproportionately impact lower income residents who have to deal with a consortium instead of their town councillors.

Bui highlights the fact that, "P3 could violate the human right to water because consortiums are less likely to make investments to put the public interest forward."

Prior to the onset of COVID, the CIB could be found at municipal conferences hoping to entice municipalities to replicate the much-anticipated Mapleton P3 model. Post-COVID, the federal government has indicated the CIB will play a pivotal role in Canada's economic recovery, so expect more P3 projects.

What motivates the federal government to favour P3s over funding low interest loans directly to municipalities? Ramsay says, "There is a lot of latent private capital in Canada looking for investment. Canadian investment funds and pensions have invested heavily in international private water systems and this is problematic."

With only one to two per cent of worldwide water systems operating privately (according to data from CUPE), Canadian capital is looking closer to home. That, says Ramsay, is the goal of the CIB -- to open up domestic investment opportunities for Canadian private capital to privatize domestic public services.

While COVID painfully drove home just how essential water is to life and good health, it simultaneously set up the perfect storm for cash strapped municipalities to enter into P3s. Meanwhile, anxious investors will be queuing up for guaranteed returns during these volatile economic times.

Doreen Nicoll is a freelance writer, teacher, social activist and member of several community organizations working diligently to end poverty, hunger and gendered violence.

Image: Jake Nackos/Unsplash

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