Institutional and Governance Capacity

Privatisation in Guinea

Welcome back to my blog! I hope the posts so far have been informative and insightful to some of the debates around conflicts over water. I would like to approach this topic from a more proactive standpoint, investigate how some of these conflicts have been tackled and discuss a few preventative approaches. One popular method amongst states in Africa has been privatizing the water system. In Africa public-private partnerships are formed to shift the ownership of the water supply from the state to a private company (Pierce, 2015), a market dominated by the two French investors SAUR and Vivendi.

(Credits Pierre Holtz/IRIN)

The situation in Guinea is one of continued failure. Poor performance of the water sector was characterized by very sparse access and extremely high rates of water-borne diseases spreading across the densely populated urban areas. In Conakry, the nation’s capital, the problems were situated in the managerial structure of the water sector rather than insufficient resources sparked unrest amongst the population (Budds and McGranahan, 2003). After independence, the previously private company was turned over to the state and financially supported by credits granted by the World Bank (The World Bank, 2006). The failure of this regime ultimately lead to the reform in 1989, as an attempt to improve the financial deliverance and institutional development of the water system (The World Bank, 2000). According to research conducted by the World Bank, less than 40% of the urban population in Guinea had access to piped water (The World Bank, 2000), a figure that is astoundingly low in the context of other sub-Saharan African cities. The irregular deliverance and poor water quality added to the appalling conditions of the water system in Conakry. Poor utility performance doesn’t necessarily require privatization of water supplies, but given the situation at the time, there was desperation amongst the population to improve the internal performance.

Reform Process

In the case of Guinea, there was a ten year lease contract to attract private sector participation whereby control over the resources remained with the government, but the private company pays a fee for the lease in turn for the upkeep of infrastructure (The World Bank, 2000) and is in charge of the operating system and collecting revenue. This is advantageous for both the private company as well as the state as no long-term commitment is required by the private actor. A short lease contract has the benefit of lifting the risk of long-lived investment in non-transferable assets (Pierce, 2015) for the private companies.

Guinea had just been through a military coup and had a weak and government-dependent judiciary system. Continued governmental control over water resources meant that there was political support, so it primarily did not seem too detrimental to the economy. Characteristic of the state opening bidding up to international companies, two companies produced bids for operating and managing the water system in 17 cities in Guinea, with the final contract going to an alliance between SAUR and Vivendi (The World Bank, 2000) through which Société d’Exploitation des Eaux de Guinée (SEEG) was set up. The deal was supported with $102.6 million by the World Bank, the African Development Bank and the government of Guinea for Société Nationale des Eaux de Guinée (SONEG), the public holding company (The World Bank, 2000). In turn prices were increased to cover costs and increase revenue, which were subsidised by the World Bank, going directly to the private companies, rather than the government. The institutional setup constituted multilateral agreements between SONEG, SEEG (with private shareholders) and the government in which SONEG owned assets and had control over the investments and fees (The World Bank, 2000). SEEG’s function was purely operational; it collected payments and paid the rental and maintenance fee. Vivendi and SAUR then received payments from SEEG. This simplified operational explanation of the reform agreement hides an immense number of problems and insecurities in the contract.

So did the privatization of water actually work? Access to piped water increased from 38% to 47% in 1996 and metering improved from 5% to 98% of the entire customer base (The World Bank, 2000). Collection rates initially spiked but after the first two years of the lease, the government collection rate fell from 50% to 10% (The World Bank, 2000), drawing on a serious lack of legal enforcement. Illegal connections to the water system still remain and controlling them is made difficult by the lack of maintenance and old infrastructure. In addition to the unaccounted for water, weak regulations and a stark increase in tariffs, rising to more than double of the agreed influx (The World Bank, 2006) contributed to significant losses.

The privatisation incentive remains a financial one. The billing system was temporarily improved but the growth of collection numbers and minimising water loss was neglected. At the end of the lease SAUR and Vivendi benefited greatly, neglecting a non-beneficial, weak institutional government. After the 10 year contract expired, a failed renegotiation led to the return to public management in 2003.

The improvements are temporary. Guinea would have profited from a stronger institutional environment, supporting administrative capacity. It would have further benefited from an independent actor to regulate the private operator and governmental institution enforcing contractual arrangements. Today, the country remains conflict struck (Water Conflict Chronology, 2017); violent clashes continue to arise due to the lack of adequate access to drinking water and electricity in rural parts of the country. Despite the remaining debt and inefficiencies, the reform has proven that private sector participation in the water sector has the potential to lift performance, despite political interference and a weak institutional framework.