Privatization of

Essential Services
In the world today, over a billion people lack access to safe water and other basic services.
This adversely affects their nations' prospects for higher economic growth, improved health
care services, and higher educational levels. The rising cost of services is increasingly forcing
families - particularly those in low-income, developing countries - to choose between medical
care or schooling, schooling or work, dirty river water or clean tap water. When services are
unavailable or unaffordable, the greatest burden often falls upon women and the poor.

What is privatization?
Privatization has become a dominant economic policy prescribed by financial institutions and
other donors. It has been incorporated in various multilateral trade agreements that promise
improved efficiency in the delivery of and, ultimately, enhanced access to, basic services.

Privatization includes contracting government functions out of the public sector or selling
state assets. Privatization shifts some or all responsibility for producing and providing goods
and services from the government to the private sector. When basic services are privatized,
governments often retain ownership of the assets and contract out discrete tasks or entire
operations. For example, a country might retain control of the water system but contract out
the testing of water purity or water provision to a private company.

In such a context, a clash between a State’s human rights obligations and its commitment
towards private service suppliers and international financial institutions can emerge.

Such privatization removes matters of crucial public concern from the public arena,
where the public can in principle play a role (and sometimes does), to private
tyrannies from which the public is in principle excluded. That’s an attack on
democracy! ( Naom Chomsky )

Privatization of public services and Human Rights:

Basic services are deemed “human rights,” according to the UN Declaration on Human Rights
and other UN conventions. Moreover, the International Convention on Economic, Social, and
Cultural Rights (ESCR) requires states to progressively realize these rights.

Services which are rights by themselves include access to water, education, and housing.
BUT there are other rights related to this access, including proper provision of sanitation,
provision of electricity, access to roads….
Governments are required to ensure the availability, accessibility and quality and non-
retrogression of public services in order to guarantee the equitable, non-discriminatory and
universal enjoyment of human rights.

Access to certain services is so essential that denial of access to such services can
constitute violation of human rights. ( Amnesty International )

Privatizing the delivery of essential services has often led to the false assumption that the
state is no longer responsible for the realization of these rights, and that the responsibility has
been sub-contracted to the private sector provider. While the private sector provider remains
responsible for his legal responsibility, the state continues to be primarily accountable for the
human rights responsibility.

Problemetic results of privatization:

Privatization leads to the introduction of user fees, implicit to the privatization of sectors such
as health, education and water, which often places these services out of reach for the poor,
the destitute, and the vulnerable. With most cases of public services privatization,
communities have witnessed sharp increases in prices; although quality of the services have
not improved. Many cases of privatization have not achieved the expected government
revenue, while corporations have been able to exploit the infrastructure and natural resources
of a country.

Moreover, in instances of basic services’ delivery to remote regions or areas inhabited by low-
income groups, privatised services providers, relying on a cost-benefits analysis, might decide
either not to operate in such regions or to stop operations that were, prior to the privatisation,
carried out by a public entity. Such a situation, corresponding to a ‘market failure’ raises
serious concerns with respect to the principle of physical accessibility.

Example of citizens’ response

In some states, such as South Africa, India, and Australia, citizens have been able to proceed
against the state by using legal means for the fulfillment of their ESC rights. National and
legal frameworks and mechanisms exist, which in the event of a violation allow the violated
party to take the specific violator to court, and seek a legal remedy. The judicial process makes
governments accountable, and that accountability is rooted in public recognition of the
primacy of human rights.

The World Bank and privatization:

The World Bank encourages privatization through several tactics;

 The Bank pressures governments to include plans for privatizing infrastructure and
social services in their national development strategies. In many cases, the Bank links
 the disbursement of a loan to the privatization of certain services sectors (Uruguay and
Tanszania).

 The Bank has also pressured governments to impose “user fees” to recover costs from
basic service provision – both public and private. These fees have often been exorbitant
and have served as a barrier to access of services by the poor.

 Another way that the World Bank promotes privatization is by requiring governments
to decentralize responsibility for the delivery of basic services from the central to state
and local governments, although the later would not be ready to handle that.

 Furthermore, the “indebtedness” of Southern countries is used as leverage by the World

Bank and other financial institutions to impose privatization programs on them. Many
governments are mired in debt, in part due to excessive borrowing from the World
Bank. The servicing of these huge debts has been eating up a large part of government
resources for several decades. Consequently, revenues from taxes are not enough to
finance government spending. This in turn leads to restrictions on expenditures, leaving
little money for basic services and investments in public utilities and pushing
governments towards privatization.

 Aside from pushing privatization through conditionalities, the Bank projects are
designed for creating the environment and meeting the requisites for privatization.
These include projects that on the surface appear aimed at upgrading services such as
public water but are actually intended to encourage private takeover of services and put
in place the requirements for profitability of the private sector, such as infrastructure
improvements and financial, managerial, and technical preparations.

One example of essential service privatization FAILURE!!

In 1997, the World Bank required the privatization of the Cochabamba (A main city in
Bolivia) water and sanitation system. In 1999, the privatization took place and the award of a
40-year concession for the water and sanitation system was given to a private consortium led
by the US transnational Bechtel. This resulted in massive price hikes; up to 200 percent
according to the government sources. Uprising and social unrest emerged as the population
was severely hit by these price hikes. The protests were met by military and police response,
live ammunitions being used against demonstrators and the state of emergency being declared
in the whole country. Approximately 5 months after the price hikes, and after a boy was shot
in the head and killed by live ammunitions during a demonstration, the government revoked
the concession.

What is the relation of trade liberalization agreements to

privatization of public services?

Services liberalization is addressed in the General Agreement on Trade in Services (GATS)

under the WTO and through bilateral Free Trade Agreements (FTAs) that the US and other
developed countries are currently seeking with various developing countries.
The GATS provides a legal framework for the progressive liberalisation of trade in services.
GATS does not differentiate between commodity services and essential services that are rights
in essence; GATS clearly encompasses sectors such as health, social security, education and
water, and others such as prisons and public security (especially asked from newly acceding
countries to the WTO).

As other WTO agreements, the GATS entails requirements of the ‘ most favoured nation’ and
the ‘national treatment’ principles. The concurrent application of both principles requires
equality of treatment and non-discrimination between foreign and national services and
services suppliers. Accordingly, GATS threatens to remove governments’ ability to choose
between public and private sector service suppliers.

Trade liberalization in itself places increasing pressure on the provision of essential public
services by governments as they loose significant parts of their revenues through tariff
removal. Since so many services are supplied in both public and private modes, the GATS
rules could apply universally to virtually all public service sectors. Consequently, GATS
reinforces the wide-scale privatization required by structural adjustment programs of the
World Bank and international financial institutions.

In developing countries in particular, GATS liberalization could force the unlimited opening
of markets in essential services to transnational corporate operations. Once signed, GATS
commitments are irreversible,; accordingly countries will have great difficulty in
reversing any decisions to privatize once they have opened their markets to private
foreign operators.

Free Trade Agreements; further exacerbating the problem:

The new generation of bilateral free trade agreements (FTAs), contrary to GATS, does not
allow governments to choose which services they want to liberalize; it asks of government to
choose the services they do not want to liberalize. These put a lot of pressures on
governments’ policy making capacities, especially in protecting services sectors that could
prove essential for human development processes.

Furthermore, FTAs contains various conflicting provisions that could further empower
foreign investors to demand large amounts of compensation from the government in UN and
World Bank tribunals for government actions that undermine their expected future profits as
foreign investors. FTAs give private investors the right to sue a government in international
courts if the profitability of their investment is affected by government action. The
Investment Chapter in these agreements includes a requirement that signatory countries
compensate foreign investors if the government “expropriate[s] or nationalize[s] a covered
investment either directly or indirectly through measures equivalent to expropriation or
nationalization.” Thus, any policy change by a government that signs such agreements will
force this government to compensate any foreign investor for the loss to their expected future
profits.