As with other infrastructure services such as electricity, telecommunications and transport, most developing countries rely on public sector utilities to finance and operate water and sanitation services.

But because of financial and human resource constraints, the results are often low productivity and inefficient service and coverage. According to the World Bank, technical inefficiencies in power, water, roads and railways alone were estimated to have caused losses of $55 billion a year in the early 1990s – equivalent to one per cent of the GDP of all developing countries, a quarter of their annual infrastructure investment, and twice the annual development finance for infrastructure.

In the late 1980s, urged by international lenders, countries around the world began turning to the private sector, both to take over the operation of existing infrastructure enterprises and to finance new infrastructure assets.

It was argued that private sector financing and management expertise could improve the quality and quantity of infrastructure services. Private financial resources could be tapped and services expanded, while reducing the burden on scarce public resources.

In developing countries, water and sanitation services are often subsidized, traditionally through direct payments to utilities, and are paid for by general taxation. The current investment in water and sanitation in developing countries is about $15 billion annually.

According to the World Bank, governments are responsible for close to 75 per cent of financing and the private sector for about 11 per cent, with the remaining 14 per cent of financing coming from external support agencies.

Popular belief generally holds that water is a common good and basic need that can best be provided by the public sector at very low cost. As a result, the full cost of supplying water is seldom charged to consumers.

Even where tariffs are charged to industrial users, they are usually based upon average costs and ignore the real costs of externalities such as wastewater disposal, as well as the “opportunity costs” such as the benefits lost by not pursuing alternative uses of water.

One result is that much water is undervalued and wasted, even as the world faces greater and greater water shortages. Without compensation for the costs incurred, developing country governments usually cannot afford to expand their services to all in need, and the poor who are not serviced are often forced to take arduous treks to fetch water and risk becoming sick from unsafe supplies.

Some proponents argue that privatization of water and sanitation services can address some of these problems. Currently the private sector manages the water system for only 7 per cent of the world population. That figure is expected to more than double by 2015.

Private water management is estimated to be a $200 billion per year business at present, which World Bank projections show could reach $1 trillion a year by 2021.

Information & Contact:
Mr. Andras Szöllösi-Nagy, Mr.Alberto Tejada-Guibert
Director, Division of Water Sciences
United Nations Educational, Scientific and Cultural Organization (UNESCO)
1, rue Miollis
75732 Paris CEDEX 15 France