SAR, Vol 12 No 4, September 1998
PRIVATE GAIN, PUBLIC LOSS?
SERVICE DELIVERY IN THE NEW S.A.
BY SANDRA VAN NIEKERK
Sandra van Niekerk is coordinator of the privatisation research project at ILRIG (International Labour Resource and Information Group).
Soon after the national election of 1994 it became clear that the South African government was intent on pursuing a policy of privatisation, both of state-owned enterprises and public service. This conforms to the neo-liberal emphasis on liberalising the economy and making it more internationally competitive. Big business has monitored the process closely, and called the government to order with the spectre that anticipated foreign investment will not materialize, should the government be perceived to be faltering in its commitment to privatization.
Considerable media attention has focused on privatising enterprises at a central government level, but little on what is happening at local government level. Yet for many years privatisation has slowly been eroding the traditional role of municipalities as service providers. This is a different form of privatisation than that being negotiated through the central government, because it involves contracting out state services rather than selling off state assets. Specific services (like meter reading) can be contracted out, or it can take the form of more extensive public/private partnerships, like water and sewerage infrastructure.
According to Finance Minister Trevor Manuel, public/private partnerships are more than just a mechanism to bring private financing into the public sector, they are the preferred method of development. The private sector is preferred because it is also seen to bring in managerial and technical skills, greater efficiency and more cost effective operations. This preference for public/private partnerships is now being translated into policies.
The steady move of the private sector into local government service delivery has not gone unchallenged by workers and their unions. For many years, the COSATU affiliate responsible for organising municipal workers, SAMWU (the South African Municipal Workers Union), has vocally opposed municipal service privatisation. SAMWU rejects public/private partnerships (regarding them as a form of privatization) because it is opposed to the very idea of public services being delivered for a profit. Instead, SAMWU promotes public sector service delivery. The other municipal sector trade union, IMATU (the Independent Municipal and Allied Trade Union), which primarily organises white collar workers, has a more equivocal position on public/private partnerships. Yet at times it has come out strongly against privatisation as well. With millions requiring access to basic services such as water, sanitation services, electricity and housing, government, labour and communities all recognize the scale of the service delivery problem. Clearly, however, not all agree on what is the most appropriate solution.
Public/private partnerships: the best option?
The Department of Constitutional Development, which is responsible for local government, has stated repeatedly that public/private partnerships are but one form of local government restructuring. Rather than exploring these various forms, however, they have indicated their preference for such partnerships as the best option for solving the problems local authorities face. A number of programmes have been initiated to encourage and support municipal public/private partnerships. One such programme, the Municipal Public-Private Partnership Pilot Programme (MPPP), has set aside R50 million (17 million Canadian dollars) to help municipalities enter into public/private partnerships. This, in effect, privatises the very process of contracting out the municipal services.
The government's orientation towards public/private partnerships must be understood in the broader context of the government's macro-economy policy, GEAR (Growth Employment and Reconstruction). GEAR advocates reducing state spending, the deficit, and the size of the public sector, but the government also is committed to fulfilling the promise of the RDP (Reconstruction and Development Programme to extend basic services. Bringing the private sector into a massive programme of service extensions as well as operating and maintaining existing infrastructure and services may allow the government to fulfil the promises of the RDP, without increasing its budget for infrastructure development.
Bringing in the private sector means that the role of the municipality in ensuring everyone has access to basic services, must be separate from actually delivering services. That the government is moving in the direction of separating the service authority and service provider can be seen in the discussion document on local government, (released as part of the process of transforming local authorities), the water services bill and other government statements.
Nelspruit: privatisation laboratory
The Mpumalanga province town of Nelspruit has the most advanced pilot project initiated through the MPPP. Already, a number of national and international consortia have bid on the concession to take over water and sanitation services. The municipality is now evaluating the bids.
Why did Nelspruit jump at the opportunity to contract out its water services to a private consortium? Like other municipalities, since the 1995 municipal elections, Nelspruit has undergone a process of integration - bringing together the areas previously covered by the white local authority of Old Nelspruit and the areas covered by Kangwane, one of the former self-governing territories. While water services (both water supply and sanitation) are adequate in the Old Nelspruit area, the old Kangwane government areas have major problems. Many residences lack access to water and rely on water tanks or communal stand pipes, water is not always available all day, and low water pressure is an ongoing problem.
Municipal calculations indicated that R300 million (approximately 100 million Canadian dollars) would be needed to extend water services to Kangwane, money which it says it lacks. Municipalities must raise 90% of their income locally, receiving only 10% through intergovernmental grants. The central government (and the Department of Finance in particular) also restricts how much municipalities can borrow. Thus although the central government makes finance for infrastructure development available through its Consolidated Municipal Investment Programme, nonetheless it has exacerbated the financial pressures on municipalities, encouraging them to turn to the private sector to finance service delivery.
Expanding the private sector
If Nelspruit does indeed contract out its water services, it will not be the first municipality to do so. The Nelspruit contract will be more extensive, however: the winning consortium will be responsible for raising sufficient investment to extend water services as well as operating, managing and maintaining the water services system.
The Department of Constitutional Affairs has argued that in contracts to date, the private sector takes too little of the risk in service delivery. The local authority bills water users and collects tariffs, and, although full payment of the tariffs is impossible with areas lacking meters and many residents unable to pay their bills, local authorities have to pay the private company the full contract price for the service they deliver. Clearly this was a win-win situation for the private sector, with companies carrying little of the risk and making an easy profit.
Thus the Department of Constitutional Affairs has indicated that the private sector must take on more risk by assuming responsibility for collecting tariffs and committing themselves to an extensive infrastructure development investment programme. Tariffs would then cover the contractor's operating costs and provide a return on its investment. Because the tariffs charged by the private sec tor must allow it to recover its operating and investment costs, and make a profit, the concession must be lengthy. The Nelspruit concession will be for 30 years.
Operating strictly on a money for service basis, the private company will not hesitate to cut off residents unable to pay their water bill. Many will be unable to afford even the most basic charge, since an estimated 62% earn less than R800 per month. Their water will be cut off, which has serious health, economic and social implications. The only way to ensure that everyone has access to water and sanitation services will be for the government to subsidise the provision of basic services considerably. This suggests that the financial benefits of public/private partnerships may be considerably less than is claimed.
Governments in many countries, encouraged by transnationals, the IMF and the World Bank, have contracted out public services - from water concessions in Manila in the Philippines, to Build Operate Transfer (BOT) programmes in Malaysia and Public Finance Initiatives (PFI) in Britain. The South African government talks about the need to use international experiences to develop guidelines for private sector participation in municipal service delivery, to develop a regulatory framework tight enough to prevent the problems experienced elsewhere. In this way the South African government has tried to project public/private partnerships as a neutral, technical solution to service delivery problems, provided it is sufficiently monitored.
The experience of workers and communities in other countries shows the problems with public/private partnerships, however. Jobs are lost, working conditions are eroded and union rights are threatened when services are contracted out. Communities have suffered a decline in the quality of services and rising prices, while they can no longer hold their elected representatives to account for service delivery. Monitoring will not eliminate these - the company will simply withdraw if the regulatory framework becomes too onerous.
Private sector companies do not hide the fact that they will deliver water and sanitation services only to the extent that it is profitable. Where millions of people lack access to services or the money to pay for them, it is no wonder that public/private partnerships face opposition.
"We are against privatisation because contractors will always be there to make a profit. If they cannot make a profit, they will be gone." Nelspruit water worker
SAMWU has consistently opposed privatisation, including contracting out services. It acknowledges the many and serious problems South African municipalities face, and accepts that local government must be restructured. For SAMWU ,however, restructuring means "turning around" service delivery: reorganising the workplace and the way services are delivered, building strong accountability between municipalities and the communities they represent, and finding alternatives to local government financing. The crux of SAMWU's opposition is their objection to public service delivery becoming a profits-making activity. They argue that privatisation cannot be separated from its neo-liberal roots - it is a policy designed to benefit capital, not workers and communities. They also reject portrayals of public/private partnerships as simply a technical issue. Both the ideological assumptions and the practical implications of privatisation must be challenged, they argue.
SAMWU also rejects the idea of separating the service authority from the service provider. Proper accountability between the community and their elected representatives will only be built if municipalities are responsible for ensuring that everyone has access to services and for delivering those services. Private sector delivery undermines this accountability and turns communities into individual, atomised customers. In contrast, "public sector delivery prioritises meeting the needs of communities and strengthening democratic lines of accountability between communities and municipalities above other considerations."
SAMWU has initiated pilot projects to develop PLANS for equitable, effective, efficient and affordable public sector service delivery. They argue that the municipality, daunted by the size of the problem, has been too quick to turn service delivery over to the private sector, instead of investigating other ways to extend services. A key element of the SAMWU proposal involves a participatory pro cess for front line municipal workers (not just shopstewards) to identify obstacles to effective service delivery and develop plans to overcome those problems. Their proposal emphasises effective public sector delivery and the right of access to basic services for all. To ensure this they demand that everyone be given 50 litres free water per day, after which a progressive tariff system kicks in.
The SAMWU proposal challenges the government's motivations for privatisation and the implementation of such policies. They argue that there is nothing inherently inefficient about the public sector, that prevents it from being cost-effective, or denies it the capacity to use new technology. While they recognize that the private sector's financial advantages make it appear to be an attractive service provider, they have identified a number of other sources of financing which need to be investigated. These alternatives include re-prioritising budgets, cross-subsidising services from the rich to the poor, and a Local Government Solidarity Fund. For public sector delivery to be successful though, both central and local governments must be willing to put resources into developing plans for it.
In Nelspruit, SAMWU has mobilised support for its position by engaging local political structures. To date, it has garnered the support of COSATU, SACP (South African Communist Party) and SANCO (South African National Civics Organization) in the region. By meeting with ANC provincial structures and the Nelspruit ANC councillors, SAMWU obtained a commitment that the final decision on contracting out the water services will be delayed until SAMWU's proposal has received further consideration.
SAMWU's pilot projects are part of a broader campaign against privatisation. Notwithstanding COSATU's acceptance that restructuring state assets should "consider all forms of ownership-nationalisation, privatisation where necessary, joint venture, opening up new entities and partnerships between the state and private sector", it has committed its support to the SAMWU campaign. A resolution to " campaign against the current moves which aim to privatise the provision of basic services such as water and electricity" was taken at a policy conference this May.
SAMWU also has received some support for its campaign at the National Labour Relations Forum For Local Government (NLRFLG) which brings together organised labour (SAMWU and IMATU) and organised employers (SALGA - South African Local Government Association). A June 1997 resolution supported local government service delivery as the preferred form. While SALGA could not commit to stopping its members from continuing with privatisation processes already underway, the NLRFLG agreed to a process to develop plans for public sector delivery of services.
The move towards public/private partnerships must be understood as one of the features of globalization - which includes: an overriding belief in the effectiveness of the unfettered market, emphasising the need for both countries and cities to be internationally competitive, with decentralised service delivery and liberalised economies. In this context, public/private partnerships have become an accepted form of service delivery: international capital and their governments portray them as neutral development tools. However, they must be viewed as a form of privatisation, and as partnerships which promote the interests of capital, especially transnational companies, rather than workers and communities. These market-based economic activities do not offer "free choice" to communities with little money.
In rejecting the governments argument that public/private partnerships are necessary to help meet the developmental needs of South Africa, and in mobilising a campaign against privatisation, SAMWU has delayed their implementation and forced the issue of public sector delivery onto the agenda. Perhaps the most important aspect of the SAMWU campaign is that it counters the argument that there is no alternative to privatisation. SAMWU cannot battle privatisation alone, however. The possibility of effectively shifting local government service delivery rests on the extent to which they are able to mobilise sufficient support - both from the labour movement as a whole and from the affected communities.
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