Water: A commodity or a fundamental human right?
Water covers about 71% of the planet, but only some 5% of water resources (excluding seawater) are privately controlled. The water market is valued at some USD 800 billion per year and attracts increasing commercial interest.
The role of water in the 21st century may be compared to that of oil in the 20th century. Water may be treated as a common good, a fundamental human right, or a commercial commodity. This makes the legal and regulatory aspects of water management an interesting subject.
Different countries deal with issues of water resources in various ways. In most countries water resources belong to the state or other public entities, but water resources are not always 100% public.
Public or common ownership of water carries the risk that the right to water may be abused, destroying the resources. But even a recognition that water is a “common good” does not necessarily mean that everyone has the right to use water without limitation. Access to public waters is often limited, e.g. for environmental or safety reasons. Nonetheless, attempts to privatise water generate strong opposition.
Water regulation in Europe
Water resources are managed around the world under various models: public, private, or cooperation between the private and public sectors (public-private partnership—PPP).
Public-private partnership in the water sector—also known as the French model—may be described as the golden mean. In practice various versions of PPP are used, differing in the degree of risk shifted to the private partner by the central or local government. Under the PPP approach, the private partner is required, pursuant to a concession, not only to operate the entire water management system but also to plan and finance investments in this respect. Concessions are generally granted for 20–30 years through a tender. The state remains the owner of the infrastructure, which is modernised and expanded with private funds. This is a flexible model because of the great leeway in establishing the rules of the concession. It is also the most popular model worldwide. In Europe there are currently over 12,000 PPP agreements in place involving water and sanitation, defined under EU law as concessions.
An alternative to PPP is the public model of water management. Under this model, the infrastructure belongs to a public entity and is managed by state authorities. This is the model followed in about 95% of cases in Poland, except that the owners and operators of the water and sewer infrastructure are local authorities, not a central authority. Because of the widespread problem of financing aging infrastructure, it appears obvious that the public entities will gradually shift toward a PPP model in order to finance future modernisation.
Meanwhile, where there is a private water sector—known as the British model—both the fixed assets for water resources and the operation are entrusted to profit-making private entities. Thus the relationship between the administrator of water resources and the consumers of this good is regulated solely by market mechanisms. Private capital invests in infrastructure and improvements in the water supply, but the investments are recouped through higher water bills. Water therefore becomes an expensive commodity and consumption decreases. This effect is beneficial for the environment, but the private model is not risk-free: it is very easy, legally and solely through increases in prices, to deprive end users of access to water.
European law does not impose one method for managing water resources. Various models can be adopted. So long as the water sector remains unregulated at the EU level, it will continue to be independent and may be regulated by the member states as they wish. It does not appear likely that this situation will change in the near future.
Exclusion of the water sector from the Concessions Directive
Drafting of the EU’s new Concessions Directive (2014/23/EU) began in December 2011. The goal of the European Commission was to improve the transparency of performance of public services which are of general economic interest, to ensure equal access to these services by private operators, and to improve the legal security for authorities seeking to conclude such contracts using a PPP model.
The original proposal included procedural guidelines for local authorities deciding to cooperate with a private partner to deliver public services. The draft did not impose an obligation on authorities to outsource any public services or require them to cooperate with private operators. Nor did it provide for privatisation of services in the water sector. Nonetheless it was announced in June 2013 that under pressure from water lobbyists, water services were excluded from the list of public services that must be performed in compliance with the directive, and the draft was revised accordingly.
The directive was finally adopted with specific exclusions in the field of water. Under Art. 12(1), the directive does not apply to concessions awarded to:
- Provide or operate fixed networks intended to provide a service to the public in connection with the production, transport or distribution of drinking water, or
- Supply drinking water to such networks.
And under Art. 12(2), the directive does not apply to related concessions for:
- Hydraulic engineering projects, irrigation or land drainage, provided that the volume of water to be used for the supply of drinking water represents more than 20% of the total volume of water made available by such projects or irrigation or drainage installations, or
- Disposal or treatment of sewage.
This exclusion was justified by the need to address actions taken by the European Citizens’ Initiative (ECI) concerning the Human Right to Water. The ECI demanded that the European Commission present regulations guaranteeing a human right to water and sanitation, and promote the guarantee of access to them as fundamental public services for all citizens. Relying on Art. 14, 209 and 210 of the Treaty on the Functioning of the European Union, ECI representatives demanded that EU lawmakers require the member states to ensure and provide all citizens with sufficient and clean drinking water and sanitation, particularly by ensuring that “water supply and management of water resources not be subject to ‘internal market rules’ and that water services are excluded from liberalisation.”
Because many of the ECI signatories (about 1.3 million) were from Germany, some took the view that the exclusion of the water sector from the Concessions Directive resulted from lobbying by the public sector in Germany. Strong support for ECI was also evident in Austria, where the new directive could affect current water services provided by the public sector. It appears that societal concerns over high prices from privatisation of the sector were used by the public sector of member states to gain support for excluding water from the operation of the directive.
If this was the justification, the Commission’s decision to exclude the water sector from the directive appears controversial. It is expected that exclusion of water services will reduce the transparency in this area of public services and enable unequal treatment of entities in this sector.
There is also controversy surrounding the number of PPP contracts for water or sanitation which are defined as “concessions” for purposes of EU law. Their number, as mentioned, exceeds 12,000 throughout Europe, representing about half of all concessions granted in the EU which could potentially be subject to Directive 2014/23/EU. In this context, exclusion of water from the coverage of the directive means that the goals of the directive will be only partially achieved.
The draft directive did not threaten in any way the human right to water. The debate basically involved whether private entities should provide the public with the means to exercise their rights.
Even though the European Commission has announced the launch of EU-wide social consultation and a review of the Water Framework Directive (2000/60/EC) reflecting the ECI’s demands concerning the right to water, some statements by commissioners suggest that the Commission still hopes that the water sector will become subject to the Concessions Directive, and that provision of water and sanitation services will be subject to uniform European rules for performance of public services in cooperation with private partners.
Mirella Lechna, Infrastructure & Transport and Public Procurement & PPP practices, Wardyński & Partners
