Privatization of water management can, under some circumstances, lead to the loss of local ownership of water systems, which in turn can lead to neglect of the public interest. Many of the concerns expressed about privatization relate to the control of water rights and changes in water
Figure 7: California Rate Structures. Only 38 percent of water utilities in California reported increasing block rates in 2000.
Source: Black and Veatch 2001.
Others 10% Declining Block 2%
Increasing Block 38%
Uniform 50%
In the La Paz/El Alto concession, a progressive rate structure was developed that subsidized low-volume residential users and imposed an increasing four-block rate – the more water used, the higher the tariff. Industrial customers pay a single rate, equal to the long-run marginal cost. Two tiers were set for commercial users (see Table 7).
Significant customer concerns about changes in water prices are to be expected. As a result, transparent and reasonable
Sidebar 15: Establishing Public Property Rights
for In-situ Water
The Edwards Aquifer of South Central Texas is the sole source of drinking water for 1.5 million people in parts of eight counties, including all of San Antonio, the ninth largest city in the nation (according to the 2000 U.S. Census — www.census.gov). The aquifer provides 300 million cubic meters of irrigation water annually for about 34,000 hectares of agricultural land. It also supports an extremely diverse wildlife population in surface springs and underground. At least nine endangered species rely on springflows for their survival, baseflow in the Guadalupe and San Antonio rivers depends in part on the aquifer, and its subterranean aquatic ecosystem is believed to be the most diverse in the world.
Historically, Texas law granted complete ownership of groundwater to the landowner above it.2 This
common law rule was replaced long ago in most other U.S. states. Several serious droughts (1984 and 1996), legal decisions to enforce the Endangered Species Act (between 1990 and 1996), and citizen action that raised public understanding of the importance of the aquifer, led the Texas legislature to gradually impose public control over (and hence partial public ownership of) water in this and other aquifers in Texas. In 1993 the Texas Legislature created an Edwards Aquifer Authority to limit water pumping, penalize violators, issue permits, control the transfer of water rights, and institute water quality programs.
address some aspect of public ownership, control, and participation over water and water policy. Among other things, they may ensure equitable access to water service, minimize impacts on downstream water users, protect water quality, or resolve disputes.
While some privatization contracts and proposals do not lead to any formal change in water rights, a growing number either intentionally or unintentionally change the status quo. Some even explicitly transfer ownership of water resources from public to private entities. For example, the Edwards Aquifer Authority in the central United States has considered selling water rights for either a limited period of time (e.g., one year) or in perpetuity (EAA 2001) (see Sidebar 15). Granting perpetual withdrawal rights would reduce the public’s ability to ensure that the aquifer is managed as a social good.
Despite numerous legal challenges, this and other actions to establish public ownership of underground water in Texas have been upheld. Most strikingly, the Supreme Court of Texas rejected a claim that action creating the Edwards Aquifer Authority deprived landowners of a property right vested to them by the Texas Constitution. Establishment of the Edwards Aquifer Authority is an excellent example of the type of changes in property rights and rules that are necessary if water is to be managed effectively as both a social and an economic good (EAA 2001). However, the existence of such public bodies does not ensure sound water management. The Edwards Aquifer Authority itself has allowed some water rights holders to sell those rights in perpetuity (edwardswater.com), thereby reducing the public’s ability to ensure that future water from the aquifer is managed as a social good. Full implementation of public ownership of water at the source requires that ownership cannot be permanently transferred to private hands.
Changes in access and water rights may also occur without explicit agreement. One of the causes of tensions in Bolivia over the proposal to privatize the water systems in Cochabamba were efforts to restrict unmonitored groundwater pumping by rural water users and to bring them into the private system. While this may make sense from a purely economic and efficiency perspective, it imposed a fundamental change in the historical use rights in the region.
Another challenge associated with privatization is the degree to which the process of privatization leads to the transfer of government or public assets into the hands of those who are friends of government, or already wealthy. When privatization
2 Unless the groundwater is flowing in an underground stream or river, in which case the laws governing surface water apply.
allocations, rather than explicit financial or economic problems. In part, this is the result of the deep feelings people have for water. It is also the result, however, of serious neglect of these issues by some who promote privatization.
Control of water has enormous implications for any society or culture. Many different forms of water “rights” exist – this is not the place to review them (for more information see Bruns and Meinzen-Dick 2000). But each of these cultural, social, or legal controls has developed over time to
results in a redistribution of wealth in an inequitable way, there will be strong pressure to oppose or cancel reforms. Confidence in the fairness of the process, in turn, depends on both the design and the transparency of the rules and legal system (Yergin and Stanislaw 1999).