Water privatization in Jyväskylä, Finland?

Photo by Sampo Sikiö

Jyväskylä is the first Finnish municipality, which has decided to part-privatize its water services, intending to sell 30 per cent of the municipal company. What may look as an attractive option at first sight to generate finance for the municipality, is however a potentially highly dangerous initiative. The experiences of water privatizations elsewhere in Europe counsel caution.

Globally, water privatisation became widespread in the late 1980s and throughout the 1990s. In Europe, the biggest change took place in the UK, when the Thatcher government privatised all water companies throughout England and Wales in 1989. During the 1990s, further privatisations occurred, for example, in central Italy and especially in Central and Eastern Europe after the end of the Cold War. During the 2000s, however, in response to increasing criticisms, the privatisation of water services started to stall. More and more municipalities took water services back into public hands such as Grenoble/France in 2000.

The supporters of privatising public services argue that thanks to the competitive pressures of the ‘free market’ four benign consequences would result: (1) the production of services becomes more efficient; (2) the quality of the services is improved; (3) the cost of services for the consumer is reduced; and (4) companies providing these services can still make a profit. The private provision of water too, they argue, is subject to the same beneficial market pressures, overlooking that water supply is, in practice, a natural monopoly, and consumers are not free to choose from whom they will buy their services.

In reality, water privatization has generally resulted in insufficient investment into infrastructure, soaring consumer tariffs, lower levels of efficiency, poor service quality and ‘the failure of private water corporations to contribute investment finance’ (Lobina 2014: 10). Only one of the four envisaged consequences has actually occurred due to privatisation: companies’ ability to make large amounts of profit. The UK provides a good example in this respect. As Aditya Chakrabortty reported in the Guardian, between 2007 and 2012 there was only one year in which the consortium of shareholders of Thames Water took out less money of the company than it had made in post-tax profits, thereby doubling the company’s debt to £7.8 billion (Chakrabortty 2014). 

These corporate profits have come at the expense of consumers, who have seen their water bills increase drastically. In the Italian region of Tuscany, for example, privatisations in the late 1990s, early 2000s resulted in an average increase in water charges of 24 per cent. In some communities, the increase was even a staggering 120 per cent.  In the UK too, corporate profits have been financed by users. Even though operation costs have remained the same, water bills have increased by 50 per cent since privatisation. In recent years, large investment banks and pension funds have discovered British water companies as profitable investment opportunities in an otherwise rather volatile global financial climate. Unsurprisingly, almost 27 per cent of the average Thames Water customer bill was paid to satisfy return on investment between 2010 and 2015 (Bayliss 2017: 388).

In short, water privatisation is not about how to provide best water. The main purpose is to generate private profits. Rather than being about efficiency and universal access to water, this discourse of superior private services facilitates a redistribution of income from people to private companies. That only 30 per cent of the Jyväskylä water services are to be privatized does not change the fact that this envisaged private-public partnership would have to operate under market conditions with profit maximization as primary objective.

As European examples also show, privatisation is neither inevitable nor irreversible. In Greece, despite the pressures of the Eurozone crisis, to date broad alliances of trade unions and social movements have successfully defended the highly profitable and efficient public water companies in Athens and Thessaloniki against privatisation. When the Irish government wanted to introduce additional water charges in 2014 as part of a move towards water privatization, large demonstrations, a widespread non-payment campaign and the physical blocking of the installation of water meters forced the government to withdraw its plans in 2016. 

In 2012 and 2013, the Right2Water coalition of trade unions and civil society organizations collected almost 1.9 million signatures across the European Union in the first successful European Citizens’ Initiative on ‘Water and Sanitation are a Human Right’, opposing the liberalization of the water sector. Finland was one of the 13 countries, where enough signatures were collected to meet the required national quota.

Moreover, re-municipalisation pays off, indicating where the real savings may lie. In 2010, when water had been taken back into public hands in Paris, the new water provider ensured savings of about €35 million. Water tariffs were reduced by 8 per cent as a result.

Considering the reality of water privatisation, it is not surprising that many cities have decided to take back control. After Grenoble in 2000 and Paris in 2010, Berlin followed in 2013. And this re-municipalisation of water services is a global trend. As researchers from the Transnational Institute in Amsterdam established, there have been 235 cases of water re-municipalisation in 37 countries affecting over 100 million of people between 2000 and 2015 (Kishimoto, Lobina and Petitjean 2015).

Jyväskylä may want to think again, before it embarks on a water privatization journey, other cities in Europe and beyond have reversed due to negative experiences. 

A shorter version of this blog post was first published in Helsingin Sanomat on 5 February 2020.

 

Andreas Bieler

Professor of Political Economy
University of Nottingham/UK

Andreas.Bieler@nottingham.ac.uk

Personal website: http://andreasbieler.net

5 February 2020