Managing precious water resources (26 June 1996)


Water and the environment are indivisible. The management of water resources is central to our environmental future. And the formidable challenges the developing countries face in managing their water resources will be critical to our prospects for a secure and sustainable future as well as to theirs.

Keynote address to the North American Water and Environment Congress, Anaheim, California by Maurice F. Strong, Chairman, The Earth Council, 26 June 1996

I am pleased to have this opportunity of addressing such an impressive group of leading professionals, practitioners and policy makers in the water industry. And I am especially encouraged that you have chosen the environment as the theme for this congress. For the inter-action between water and the environment is of critical importance both to the environment and to your industry. This relationship, as you have clearly recognized, will become of even greater importance in the period ahead as water issues move inexorably to the centre of the public agenda. Of course this has long been true in California and becoming more so in other areas, even those blessed with abundant supplies of water.

In the United States and other industrialized countries, we are moving out of the area in which water quality and water supply could be largely taken for granted by the public. The water industry has, by and large, done such a good job over the years in industrialized countries that the general public attitude towards water has been one of complacency. But as California's experience and the experience in Colorado in which I have been involved, makes clear, complacency rapidly yields to controversy when events occur which disrupt or threaten the supply and quality of water.

New investments


The immense new investments that would be required to ensure future water supplies and meet water quality standards can no longer be met to the extent that they have in the past by governments. Governments will, of course, continue to play an indispensable role but new investment will have to come primarily from private capital. Private capital will also increasingly replace government capital as the move towards privatization of government-owned companies and facilities accelerates. It is surely ironic that in the United States, the bastion of market capitalism and private enterprise, some 85 per cent of the population is still served bygovernment-owned water companies whereas in France where the government role is far more pervasive, 75 per cent of the population is served by investor-owned water companies. And in England the proportion of investor-owned utilities is almost 100 per cent. The movement to privatization of waste water facilities has already begun in Canada and is gathering momentum.

It is clear that the United States, which leads the world in so many respects, is very much the laggard in terms of privatization of the water industry. A recent study by the Reason Foundation documents well the reasons for this and the strong case for restructuring and privatization of America's water industry. While this report does not deal to any great extent with the environmental challenges to the industry, it does pose the question as to how a new institutional framework for the delivery of water services will affect environmental goals.

But these issues are all familiar to you and, tempted as I am to do so, I will not focus my remarks today on the domestic-US situation. Rather, I would like to point out some of the fundamental changes taking place internationally, particularly in the developing countries, and the opportunities they offer to the US water industry and investors.

The World Bank, in it's two recent reports, on sustainable Management of Water Resources, and on Water Supply, Sanitation and Environmental Sustainability estimates that some one billion people in developing countries still lack access to adequate supplies of water and 1.7 billion lack adequate sanitation facilities - despite the impressive progress made over the past two decades. In the 1980s an additional 1.6 billion people gained access to water; the number of people in urban areas with access to adequate water supplies increased by some 80% and the number with adequate sanitation facilities by some 50 per cent. Nevertheless a number of people without access to adequate sanitation increased by about 70 million during the 1980s. The cost of meeting the expanding needs of developing countries for water supply and sanitation services is immense and most of it will clearly have to be provided from the domestic resources of the countries concerned. But these investment needs cannot be made without external capital. TIle World Bank, which is a leading multi-lateral institution in providing such capital, estimates that it will invest some $35B-40B over the next 10 years on water supply, sanitation and related projects.

The cost of lack of water


The costs of not providing access are even greater, both in terms of human suffering and in economic terms. As the World Bank report notes, the poor often have to pay to vendors some $2 to $3 per cubic meet of water -10 times or more the price paid by those who receive it from a tap in their houses. The health consequences are devastating. An estimated two million deaths from diarrhea alone could be avoided every year if people had access to satisfactory water supply and sanitation services. In developing countries, like our own countries, water and sewage services have been heavily subsidized. The rationale for this is that poor people cannot afford to pay for them. But in developing countries it is the poor who do not have access to these services and therefore pay a great deal more, while the subsidies really accrue to the upper and middle class people who are served by the existing systems.

The World Bank produces compelling evidence that poor people are willing to pay the prices for water and sewage services which would enable them to access that service. In Jakarta, Indonesia, some 32 per cent of the population purchases water from street vendors and the remaining 54 per cent obtain theirs from private wells. At the same time, there are more than 800,000 septic tanks in the city financed by householders themselves. This underscores the willingness of people to pay the higher prices for water and sewage that are necessary to finance the development and extension of the central systems that can best provide these services. When water and sewage are priced properly, the utilities that provide them can generate a substantial percentage of the capital required to expand their systems and can attract the additional capital required from external sources.

Subsidization of water supply and sewage services is the biggest single impediment to the extension of these services to the large numbers of people who still do not have access to them. So these subsidies are as counter-productive in developing countries as they are at home, although the consequences are even more severe. World Bank experience has made clear that when the real cost of providing water and sewage services are reflected in their pricing, people are willing to pay and projects become financable. The most successful examples of communities which have overcome resistance to the changes this approach requires are those in which the people themselves have participated. And in the course of this they have come up with some innovative approaches which reduce costs and extend the number of people who can access these services.

Movement towards privatization

The movement towards privatization is also taking root in developing countries and is beginning to extend to water distribution, sanitation, sewage and waste water treatment. User and private sector participation in water management is not new. Communal irrigations systems have existed for generations in countries like India, Nepal, Indonesia, Sri Lanka and the Philippines. However, historically, the idea has been resisted due to lack of confidence in the capacity and incentives of the private sector. But in recent years, the continued decline in the performance of irrigated agriculture and the inadequacy of water supply systems have lent new impetus to their approach. This can take many forms ranging from management or concessionaires contracts, private ownership, and participation by users and communities in managing water resources. Experience is teaching us that private sector involvement and user participation has the potential to introduce appropriate incentives that provide people with a sense. of responsibility for their own water systems, improve performance and accountability, increase efficiency and lower the financial burden on governments.

One of the most acute needs of developing countries is for sewage and waste water treatment facilities which are woefully inadequate almost everywhere and virtually non-existent in many countries. In citing this, it should be borne in mind that even our more wealthy countries treat only a part of our sewage - only 52 per cent in France and 66 per cent in my own country, Canada. But in Latin America only 2 per cent of waste water is treated. But in most of the rapidly growing urban centres of the developing world, the environmental, social and health costs of disposing of raw sewage and waste water into rivers, lakes, estuaries and allowing them to contaminate soil and ground water resources is becoming intolerable and domestic pressures for treatment are growing. The World Bank Group has in its pipeline projects involving a total of more than 8 billion dollars for sewage and waste water treatment facilities. And this represents only a portion of those that are underway or planned.

While water and related issues are politically sensitive in developing countries, the traditional bias in favour of government control and aversion to foreign investment are givingway to a new pragmatism. This is opening up promising new opportunities for those who can provide the professional and engineering services, the management and entrepreneurship, the technologies and the equipment as well as the investment capital to meet the needs of what will certainly be a vast and growing market. It is a market that will be increasingly sensitive to the environmental dimension. For while global environmental concerns are perhaps a lesser immediate priority in developing countries than in our own, the environmental issues related to water and sewage are far more acute and immediate. And because they are experienced at the local level, the awareness of and response to them in developing countries is much greater than their concern for the more remote and distant issues of climate change and ozone depletion. Also, the World Bank and other multi-lateral development agencies condition their support on adherence to sound environmental criteria and these requirements also influence those of other investors. So the experience that the American water industry has developed in meeting environmental requirements will be an important asset to it in securing a significant portion of the new business opportunities opening up in this sector in developing countries.

Comparative advantage


American companies have made a good start in responding to these opportunities. But they are still lagging somewhat behind the Europeans, particularly France and the United Kingdom. The Europeans have to some extent a comparative advantage in dealing with developing countries as their own history of developing their water resources has produced some of the world's leading institutions in the field, both public and private. A particularly interesting example is the Ruhrverband, the self-governing public body that manages the water resources of the Ruhr Basin. The French have set up a similar system. And in France water distribution has long largely been in the hands of private companies which are now amongst France's largest private corporations. From this strong domestic base, they are very much in the lead in exploiting international opportunities in developing countries, as well as in the US and Canadian markets.

This underscores one of the advantages that can accrue from privatization of the water industry which makes possible the development of strong private corporations which combine capital with professional and operating expertise. This, as the French are demonstrating, is a great asset in taking advantage of external market opportunities.

The Earth Summit, held in Rio de Janeiro, Brazil, in June 1992, identified water, in its Agenda 21, as a central issue in the transition to a sustainable civilization which will be the primary challenge we face in the 21st century. This transition will not be made unless the needs of the developing countries for basic water supply, sanitation and sewage services can be met on an environmentally sound basis. The provision of such services does in itself meet one of the most important environmental priorities by addressing directly one of the primary sources of human suffering and disease. But the development and operation of these systems also creates environmental problems which must be addressed in the planning, management and financing of such projects.

Integrated approach


This requires a systemic, integrated approach to water development and management for which the institutional and regulatory structures of most developing countries are ill equipped. Thus, the re-orientation and strengthening of institutional structures and regulatory reform are essential and are being accorded high priority by the World Bank.

The inadequacy and inefficiency of existing institutions is imposing unconscionable burdens on developing countries in depriving them of the benefits of the investments they have already made in water and sewage facilities. In Latin America losses due to system inefficiencies are estimated at between 1 and 1-1/2 billion dollars in foregone revenues every year and even in Singapore about 8 per cent of total water supply is unaccounted for.

The financial performance of water and sewage agencies must be greatly improved in order for them to qualify for self-standing financing. The combination of inefficiencies and inadequate pricing leads to large losses which must be made by injections of government money. It is estimated that between the mid-70s and the mid-80s about one billion dollars of public funds had to be provided annually by the government in Brazil to meet shortfalls of these agencies. The same situation exists in many if not most other countries in which public utilities are high cost, low quality providers of services. Strengthening their institutions and building their professional and management capacities is thus the most urgent priority for developing countries and those who would assist them. It also represents a major opportunity for companies that can provide the management and training expertise that is required to make up for their immediate deficiencies and help them to build the institutional capacities and develop the human skills they will require in the longer term.

Daunting challenges

The challenges faced by developing countries are certainly daunting. As was pointed out by the recent Habitat II conference in Istanbul, cities and towns of the developing world are growing on a scale that is without precedent in human experience. Meeting their needs for basic water supply and sewage services will require far more capital and expertise than they can provide from their own limited resources. And the environment of these cities and towns, where more than half of the population will live, as well as that of the surrounding regions, will be decisively effected both by the degree and the manner in which these needs are met. The Earth Council, formed as a result of the Earth Summit to help ensure implementation of its results, specializes in facilitating such participatory processes at the grass-roots and community level. It has joined with the International Council for Local Environmental Initiatives to undertake a program of assisting communities throughout the world to develop their own "local Agenda 21" based on Rio's global Agenda 21. So far some 1600 communities have done this, and in all cases water supply and sewage are central Issues.

Water and the environment are indivisible. And as Rio's Agenda 21 emphasized, management of our water resources is central to our environmental future. And the formidable challenges the developing countries face in managing their water resources will be critical to our prospects for a secure and sustainable future as well as to theirs. For the processes of globalization have made their problems our problems, as well as our opportunities. The health hazards, conflict, political and social upheavals which will be the inevitable product of inaction in meeting these needs cannot be contained by national boundaries. We will feel its effects in economic, security, health and human terms.

Thus the dilemma of developing countries presents us with responsibilities as well as opportunities. We have much to gain by rising to this challenge and much to lose if we do not. For as the Earth Summit at Rio reminded us, the future of our planet as a hospitable home for those who follow us is, in a very real sense, "in our hands".