Water sector reforms: Time for a new model

The Uttar Pradesh Governor recently gave his assent to the Uttar Pradesh Water Management and Regulatory Commission 2008 Act passed by the State Assembly in this year’s monsoon session. With this, U.P. has joined the list of few states that now have legislation in place to set up an independent Water Regulatory Authority (or Commission). The regulator will have enormous powers - to allocate water entitlements, approve and clear all water projects, set tariffs for the use of water in the state, and more.

Maharashtra was the first state in the country to pass the legislation for an independent water regulatory authority, and the only one so far to have set up the Authority itself. Arunachal Pradesh has passed its legislation but does not seem to have set up the Authority yet. (See earlier article for an analysis of the Maharashtra Water Resources Regulatory Authority).

The agenda of depoliticisation

An independent regulator is the cornerstone of the ‘reforms’ agenda that the World Bank is pushing in several sectors. The ‘reforms’ in sectors like water and power are advocated based on the view that the ills of these sectors are wholly due to their lack of financial self-sufficiency. The reasoning goes that since water and power are supplied at subsidised rates and the costs not recovered fully, there isn’t enough money for maintenance and investments in expansion. As a result, service is poor. The key to change all this is to recover the full costs of service from all consumers, i.e. eliminate subsidies. The reforms program in essence involves transforming the water sector (and others) to operate like a market.

However, governments are not willing to increase tariffs as they are under political pressure from the poorer voters. Hence, the need to create an independent regulatory authority, insulated from political compulsions, that will be able to set the tariff. With this logic, it is easy to see why the regulatory authority is the key to the whole agenda.

The World Bank is pushing these reforms through loans to a series of Water Sector Restructuring projects in various states. Not surprisingly, depoliticisation of the sector is a dominant theme in these loans. In the Project Information Document of the Madhya Pradesh Water Sector Restructuring Project, a US $396 million loan approved in September 2004, the World Bank, justifying an independent water tariff regulatory authority for the state, says, “The pricing of water would be taken out of the political domain and entrusted to an independent tariff regulator. This would minimize risks associated with inadequate water charges being imposed due to political constraints.” These exact words are repeated in the project documents for the Uttar Pradesh Water Sector Restructuring loan.

Privatisation of the water sector and the creation of a market for water entitlements is one of the central means as well as objectives of the reforms. For example, the Project Appraisal Document for the World Bank’s Karnataka Urban Water Improvement Project talks about several factors that inhibit private sector participation in the sector: “low tariffs that lead to poor cost recovery; lack of a credible regulatory framework; and lack of a legal framework permissive to private sector participation”. And depoliticised regulatory authorities are considered essential for meeting this aim.

Is there no alternative?

Politicisation of decision-making has acquired a bad name, because of the rampant corruption and perversion of political processes in the country. But politics is essentially the practice of making public policy, and depoliticisation of policy - especially in the water sector, with its wide implications - would be an oxymoron. It is important to remove the distortions from the political process, rather than attempt to remove politics itself from decisions in the water sector. Doing the latter will divorce social and environmental issues from decision making, reducing it only to technical matters.

Wherever attempts have been made to introduce privatisation in the water sector in the country, governments are facing many complex issues of balancing public interest with the interests of private profits.

• A flawed model for regulation

• The bank and the big bang

Today, the political process, no matter how distorted, offers the poor possibly their only point of intervention in decision-making. To depoliticise the sectors is to take away even this small space available to them. The experience of Regulatory Commissions in the power sector shows that in such structures, it is the well-off, better educated people who can easily intervene and use the process; it is most difficult for the poor and not so well educated. Depoliticised regulation thus disempowers the poor even further.

Is there no alternative? In the process of such reforms being pushed in several states, the Independent Regulatory Authority model has been equated with regulation. Like many of the suggestions of the World Bank, this too is presented with an argument that ‘there is no alternative’. But that is simply not the case. It is important to understand that there are many different models of regulation; in fact we have a choice - both in the model of the reforms, and the model of the regulation.

Indeed, the rather tardy progress on establishing this model in various states raises some interesting issues. In Madhya Pradesh, the World Bank’s Water Sector Restructuring Project loan included a condition that draft legislation on the regulatory authority should have been ready by December 2005. According to the information received by this author under the Right to Information Act, the Draft was ready by March 2006, but even by November 2008, it has not been introduced in the Assembly.

The Project Agreement signed between the State of Uttar Pradesh and the World Bank in March 2002 for the U.P. Water Sector Restructuring Project stipulated that the State would set up a Water Tariff Regulatory Commission by “no later than December 31, 2002” and “prepare, by no later than December 31, 2003, a draft legislation, which shall, inter alia, specify functions and responsibilities of SWaTReC [the Regulatory Commission] and vest it with competence and powers to carry out its functions effectively”. It is significant that the Bank is telling the state governments what legislation they should create; one may as well bypass the elected representatives in the legislature, according to this advice. What is also interesting is the state missed the deadline by about 5 years.

Further, while the Bank required the Regulatory Commission in U.P. to “set tariff in such a manner as to at least recover the operation and maintenance cost and a part of the capital costs”, the actual Act requires the commission to set the tariff only with “due consideration to all costs including administration, operation, maintenance, depreciation, and subsidies.” It is not clear whether requiring the Commission to only give “due consideration” to all costs is merely a verbal jugglery to avoid protests that could be triggered if the recovery of full costs were to be mandated in law.

In Karnataka, there were reports in late August 2008 that the Government was planning to constitute a State Water Regulatory Authority and introduce a bill in the State Assembly in its next session for this purpose. However, on 8 September, the Government constituted the Karnataka Water Resources Authority through a Government Order. This Authority, with 21 members, appears more like a think-tank and advisory body than a regulatory authority with quasi-judicial powers. Again, it is not clear whether this is only a prelude to the promised regulatory authority or if it is in lieu of the same.

These long delays in establishing Regulatory Authorities, and the fudging of critical requirements like full cost recovery are at least partly due to the strong public opposition to the framework of Bank-sponsored reforms for the water sector. These delays also indicate that states are facing enormous internal political resistance to the reforms, most likely because they have serious adverse implications for most of the poor and vulnerable sections of the society.

Wherever attempts have been made to introduce privatisation in the water sector in the country, governments are facing many complex issues of balancing public interest with the interests of private profits. These difficulties inherent in the privatisation of the water sector, not to mention the stiff opposition, to it are no doubt another reason for the cautious steps being taken by the states.

Start again

This situation should be seen as an opportunity by the states. Instead of half-hearted delays in introducing these Authorities, they should boldly refuse to toe the line, and re-examine the very framework of the proposed reforms.

The water sector badly needs reforms in all the states, and that is not in doubt. But the reforms needed are of a very different kind - we need reforms that put the poor and the vulnerable at the centre, and reforms that can address social, environmental issues as well as economic and financial. Within such reforms, there would be need for regulation, and such regulation could even be provided by independent regulatory authorities. But such authorities would be vastly different than those being set up currently because the framework in which the regulatory authorities are to operate is crucial in determining their nature and impacts.

Given that apart from M.P. several others states - Gujarat, Punjab, Andhra Pradesh - have been considering such regulatory authorities for some time now, it is a opportune moment to intensify the debate about the kind of regulation that is needed in the water sector, and ask what the larger framework of reforms within which it would be placed should be.

There have been many ideas presented for other options, often in the context of struggles against privatisation in water. During the intense fight opposing the privatisation of water supply in Delhi and the ‘reforms’ of its Jal Board, organisations like Parivartan have offered comprehensive alternative plans. Challenging the privatisation of the K-East Ward in Mumbai, mass organisations placed several ideas for making the water supply system in Mumbai transparent, accountable and more efficient. When the Maharashtra Water Resources Regulatory Authority Bill was under consideration, the State had organised several public consultations on it, and many ideas were put forward.

Unfortunately, in all these cases, ideas not conforming to the World Bank model have been side-lined. It is time for the states to start listening to other ideas.