Bailout terms force water utility sale in Greece, Portugal

Criticism of the bailout conditions set for Greece and Portugal by the European Commission, European Central Bank and International Monetary Fund troika call for shedding state-owned companies, including public utilities, as a condition for billions of euros in funds to stave off insolvency.

Greece came under renewed pressure this week from eurozone finance ministers to approve a fiscal overhaul in order to receive €31.2 billion in an aid instalment that is already two months overdue. German Chancellor Angela Merkel made a one-day visit to Athens on Tuesday to give cautious support to the austerity plan backed by her Greek counterpart, Antonis Samaras.

David Hall, who heads the Public Services International Research Unit at the University of Greenwich, says water privatisation is a mistake both politically and operationally, leading to higher prices and disgruntled customers.

“In terms of operating efficiency, there is really no visible difference between public and private sectors,” Hall said in a telephone interview, adding “there is no evidence at all to support the widely asserted view that the private sector is more efficient.”

“There is actually very strong public resistance to the idea of water privatisation, and indeed even stronger resistance to the experience of it,” he said, noting that some city and regional governments have reversed course and resumed control over water services.

Greece hopes to raise €3.5 billion from the privatisation of energy and utility companies, while efforts to sell state and locally owned water services are gaining speed in Portugal and Spain.

Commission denies pressure

A European Commission lawyer familiar with the bailout provisions denied that the EU executive was stepping beyond its authority. The lawyer, who spoke on condition of anonymity citing the sensitivity of the financial talks, said decisions on the sale of water utilities and other public assets were made by national, not European, officials.

But the Commission lawyer acknowledged that it was a cumbersome political issue, noting that at one point in 2010, the sale of stakes in the Thessaloniki and Athens water companies was blocked when Greece’s Socialists reversed the previous conservative government’s privatisation deal.

Supporters of public water companies include the utilities themselves, trade unions, consumer groups, environmentalists and human rights activists who insist that water is a public asset. They have used a variety of tactics to defend their turf.

In May 2011, a coalition of activist groups and public suppliers pressed Commission Vice President Olli Rehn, who oversees economic affairs, to back off the water privatisation as a condition for aid. João Ferreira, a Portuguese MEP from the European United Left group, earlier this year urged fellow lawmakers to halt the trend in his country and others, claiming that “untamed privatisation will lead to a disaster.”

In March, trade unions and environmentalists opposed to the sale of Spanish, Portuguese and Greek utilities organised an alternative to the World Water Forum in Marseille, claiming the meeting was dominated by corporate interests. The protest event, known by its French acronym FAME, or Forum Alternatif Mondial de l’Eau, billed itself as offering a “democratic” choice to the other Marseille gathering.

At the previous water forum in Istanbul in 2009, police battled protestors opposing private management of water utilities.

FAME organisers also backed a European Citizens Initiative on water and sanitation rights to pressure the European Union to halt the liberalisation of water works.

Millions invested in private companies

Hall urged the EU to reconsider its support for privatisation. He and colleagues at the Public Services International Research Unit published a report in August noting that despite the promoted advantages of private operations, many end up tapping the public purse for financing and investment.

The study shows that private companies received €496 million in financing from the Europe Bank for Reconstruction and Development, which underwrites public improvement projects in Central and Eastern Europe and former Soviet states. The report says €272 million came in the form of equity investments in private companies.

Hall said the European Commission, as member of the international troika, should reconsider its policies towards indebted eurozone countries.

“The IMF can and does do and say what it likes,” he said. “But there has been a long argument over the years with the EU about privatisation policies and the EU has always been very clear that the Treaty allows it to promote liberalisation in various sectors, but the Treaty requires the EU itself to be neutral on public or private ownership.”