Civil Society Statement on the Provision of Essential Services

Prepared for the Commonwealth Finance Ministers Meeting 16-18 September 2003

I. PREAMBLE

We, representatives of civil society and people’s organisations working in the Commonwealth regions and countries of Africa, Asia, the Caribbean, South Pacific, Australia, Canada and the United Kingdom, met in Brunei Darussalam from 22 to 24 July 2003 to share experiences and views on the provision of essential services within Commonwealth states.

2. We acknowledge the efforts that various Commonwealth governments are making to provide essential services for their citizens and commend Commonwealth Finance Ministers for selecting this important issue for their 2003 meeting. Governments have committed themselves to meeting the United Nations Millennium Development Goals (MDGs) and targets. Reaching these goals will require universal access to essential services.

3. Essential services are fundamental to human survival and to a life of dignity as enshrined in Article 25 of the Universal Declaration of Human Rights (1948) and in the International Covenant on Economic, Social and Cultural Rights (1966), which states that everyone has “… the right to an adequate standard of living including food, clothing, housing, health care and necessary social services…” Access to essential services is also enshrined in other international agreements, such as the Convention on the Rights of the Child (1989) which recognises the right of the child, inter alia, to education, health care services, and clean drinking water; and General Comment No.15 of the Committee on Economic, Social and Cultural Rights (November 2002) that obligates states to ensure that resources are available to meet the rights to water and binds them to promote access to safe water “…equitably and without discrimination…”.

4. However, in developing countries, many people, particularly the rural and urban poor, women and children, do not have access to affordable, quality services. We believe that the crisis in the delivery of services essential for life, such as water, sanitation, electricity, education and health care demands a different response to that envisaged by some governments and international financial institutions. Education, health and water are also global public goods. Public goods are recognised as having benefits that cannot be easily confined to a single “buyer” (or set of “buyers”). These goods are non-excludable, in other words, no one can be excluded from benefiting. However, global public goods suffer from under-provision or insufficient or unequal access. Strong public participation in essential services cannot be separated from ensuring universal access to global public goods.

5. Every government has a duty to honour its constitutional obligations to, and social contract with, its people. These are threatened in a number of ways. The capacity of developing country governments and their political will to provide access to quality services for all is being eroded by the presumption that greater efficiency and effectiveness is achieved by their provision through the market. With the private sector becoming increasingly involved in essential service delivery, the state’s accountability to its citizens is being weakened. Moreover, where foreign transnational corporations become involved in the provision of essential services, self-determination of public policy can be undermined.

6. Governments’ constitutional obligation and social contract are also threatened by the Bretton Woods Institutions, regional development banks and their major shareholder governments, which are touting the benefits of private provision of public services and actively pushing such policies through their poverty reduction programmes. This is happening at the same time that large and powerful corporate interests are driving the negotiations of the General Agreement on Trade in Services (GATS), under which specific commitments to liberalise could erode the ability of governments to regulate or subsidise essential services.

7. Private sector provision of essential services are not automatically superior to public sector delivery. Evidence from developed countries that pioneered privatisation of utilities has shown that this approach does not always work, and in some instances the results have been disastrous. The assumption of superiority of private sector provision is part of the neo-liberal agenda, and it is based on the premise that the presence of markets will always result in more efficient delivery of services. However, one of the features of developing economies is the presence of market failures, in particular the dominance of monopolies that often replace government as a single provider of services. With the presence of monopolies, the competitive discipline that drives the realisation of efficiencies in private sector provision of services is absent.

II. ISSUES AND CONCERNS

8. Case studies on essential service delivery prepared by civil society organisations and researchers in advance of our meeting in Brunei Darussalam, together with the experiences of participants have revealed the following:
 The critical link between access to essential services and poverty eradication underscores the need for democratic and participatory approaches in all aspects of service delivery, from the selection of options or models for service delivery through to policies and methods of implementation. Indeed, decision-making about the design of service delivery models should include end users, doubly so when those users are poor or marginalized and would otherwise lack the voice needed to influence service delivery to ensure affordability, access and equity.
 Private sector participation in essential service delivery does not typically solve pre-existing problems. Indeed, it can exacerbate budgetary problems as well as those related to access, quality and the availability of services to the poor.
 Public sector/community partnerships can be effective in: addressing the specific needs of a community, including those of vulnerable groups; promoting efficiency and equity; and ensuring adequate revenue for public utilities. A notable feature of such partnerships is the participation of women as key and equal stakeholders.

9. Specific concerns about the private provision of essential services include the following:

10. Greater Risks and Costs to the State
Private sector participation in service delivery is not without risks and costs to the state.
 The private sector is not necessarily interested in delivering services that do not guarantee profits and is likely to select those services and customers with the most profit-making potential, rather than those with the greatest need.
 Governments and/or consumers often shoulder the cost of improvements of the utilities before they are privatised.
 The private sector typically requires governments to carry the burden of risk, as evidenced by insistence on commercial and political guarantees, and contracts in which the government retains responsibility for major investments.
 The public sector is required at times to absorb past public debt and future private debt as part of franchising or sale agreements.
 Traditional cost-benefit analyses of private sector involvement, from ownership to delivery, have often been shown to be flawed, providing an overly optimistic view of its benefits. Projected costs for both the public sector and the private sector in taking over essential services are often highly inflated.
 The aforesaid aspects of public-private partnership often result in the public sector losing its ability to cross-subsidise and to have a revenue stream for rehabilitation, maintenance and expansion of services.
 Hidden costs of public-private partnerships include the impacts of corruption and losses incurred from undervaluing assets at the time of original sale to private interests or overvaluing them when the state purchases the assets of failed privatisations.

11. Increased Inequality
Private sector participation in service delivery may not necessarily uphold such principles as equity, affordability and ensured access, all of which are key for meeting the MDGs. In some instances where basic services have been privatised, they have gone from being instruments of social inclusion to ones of exclusion.
 In the case of health care and education, allowing for private providers who target higher income earners creates further inequality in society, disproportionately affects women and exacerbates class tensions.
 Indeed, user fees for primary health care and basic education have also been shown to increase inequality as the poor lose access to these services. Targeted subsidy schemes have not always been effective in ensuring access by the poor, a majority of whom are women and children, in no small part due to problems of means testing and delivery of subsidies.
 The costs of increased tariffs for utilities are disproportionately borne by the already marginalized, particularly the rural poor, women and children. Where tariffs are increased beyond the means of the poor to pay, the result is loss of access. The free basic water policy of the Government of South Africa is one example of how a minimal level of access to a service might be assured.
 The greatest benefits of privatised services tend to accrue to those who already have formal access to the system.
 Pricing is done in a non-participatory and undemocratic manner and negates the principle of pro-poor policy making. In many instances it is often neither progressive nor based on the consumer’s capacity to pay.

12. Threats to Good Governance
The issues of good governance, democracy, transparency and accountability are central in any debate on the provision of essential services.
 Where private participation in essential service delivery is considered likely to yield benefits, a transparent and participatory policy making process can enhance both the design and political legitimacy of the reform.
 All too often, however, private sector involvement in service delivery is neither transparent nor accountable and generally fails to invite genuine participation by stakeholders in decision-making about any aspect of service provision.
 Furthermore, there is typically a lack of meaningful transparency and accountability in all aspects of private-public partnerships, from the phase where advice and conditions are given by donors, such as the World Bank, IMF and regional development banks; to the contracting and bidding stages; to the assessment of service provider performance.
 There is an inherent conflict of interest in processes where consultants and audit firms advising governments on private delivery of public services stand to gain from privatisation.

13. Poor Regulatory Mechanisms
Strong, pro-poor, independent regulatory mechanisms and institutions are essential for ensuring access to quality services in sufficient quantity and at affordable prices, whether the service is owned by public, private or community interests. This need for regulation is particularly crucial in the case of infrastructure services, which are natural monopolies and where there is the risk of firms using their monopoly power to extract additional rents. In the context of weak or non-existent regulatory mechanisms, it is not sufficient to undertake long-term ‘capacity building’ programmes at the same time as privatisation as significant negative effects are likely to occur long before adequate regulatory capacity is achieved. Realistic policy sequencing requires regulatory capacity to be firmly established before private control over essential service management or assets is adopted.

14. External Influence
The international financial institutions (IFIs) and donor agencies have been instrumental in promoting the private provision of services in developing countries, particularly in Least Developed Countries and Heavily Indebted Poor Countries. External influence by IFIs and donors in delivery of public services should be eliminated.

15. Despite these problems, policies for privatisation of services are gaining momentum and are largely unquestioned.

III. RECOMMENDATIONS FOR GOOD PRACTICE

16. The provision of essential services must be considered in the context of national development. As governments seek to deliver essential services to their citizens they should ensure that they are sustainable, equitable, gender sensitive and promote social inclusion and justice. Governments must retain control over essential service delivery to meet these ends. Importantly, they should work to improve the process of essential service delivery and the regulatory framework for services.

17. Given the influence of IFIs and bi-lateral donors on essential service delivery in developing countries, these actors have a role to play in supporting governments to meet their essential service delivery obligations in a manner that is consistent with achieving the MDGs and equitable national development.

Commonwealth Finance Ministers

18. In order to improve the process of essential service delivery, national governments should:

a. call for an end to privatisation-related conditionalities as part of the HIPC programme and regular programmes of the World Bank and IMF at the Annual Meetings, based on the world Bank Study ‘Private Participation in Infrastructure in Developing Countries’ which found that private ownership did not automatically solve problems in government run enterprises.

Participation
b. ensure the involvement of people themselves in the analysis of problems, and identification, implementation and monitoring of solutions for service delivery. This should include a comprehensive options assessment that places equal weight on economic, social and political issues, and recognises the state’s obligations to human rights and development goals. Any discussion of options should include, at the outset, an assessment of the feasibility of using and reforming existing systems to address the problems identified;

c. put in place a decision-making framework that guarantees the multi-stakeholder participation needed to ensure that the rights of people, particularly target communities, are protected; and assesses thoroughly the risks of reform options to people, the private sector and governments. This framework should conform to the principles of good governance and be grounded in a rights-based analysis that ensures accountability, efficiency, transparency, participation, equity and sustainability;

d. improve the enabling environment for civil society participation, for example ensuring freedom of speech and association;

Governance
e. develop transparent and participatory processes that result in the consideration of the full range of possible technical and institutional policy options prior to the selection of a particular plan;

f. negotiate all agreements for service provision in a manner that is open, transparent and inclusive. Anti-corruption mechanisms for private-public partnerships require explicit attention, due to the endemic nature of such problems in many countries;

g. observe greater transparency and accountability in governance for service delivery at all levels so that there is:
 public disclosure and legislative approval, where applicable, of IFI-state policy proposals including adjustment loan conditions;
 information available about decisions on contracts for delivery of essential services and about service provider performance;
 removal of restrictions on access to information on public-private partnerships to permit greater public participation in decision-making about the provision of essential services;

h. refrain from making commitments to liberalise public services under GATS.

19. In order to improve the regulatory framework for essential services, national governments should:

a. legislate for universal access to all essential services to ensure that the poor are not deprived;

b. give priority to systems of delivery that are compatible with sustainable development goals;

c. ensure that public control in the planning and management of essential services is maintained;

d. ensure, through widespread participation, that contractual agreements contain “public interest” provisions that promote universal coverage and equitable pricing;

e. plan for capital investments in service delivery in a participatory manner to ensure capacity and political will for these investments;

f. refrain from signing contracts that leave the state vulnerable to fiscal losses and erode government revenue through tax concessions including: repaying private sector debt, long-term purchasing agreements, state responsibility for capital investment;

g. prioritise budget allocations for essential service delivery and ensure that general revenue priorities are determined by the people and implemented in an open and transparent manner;

h. set performance benchmarks to facilitate monitoring and evaluation of programs and systems.

Finance Ministers from OECD Countries of the Commonwealth

20. In playing their part to support national governments’ obligations to deliver affordable, quality, essential services for all, bi- and multi-lateral donors should:

a. support public sector investment in capital/operating costs of publicly delivered essential services even while recognizing that some public utilities are not performing well;

b. eliminate private sector participation in the delivery of essential services as a determinant of good performance;

c. acknowledge the special vulnerabilities of Small Island Developing States and support the governments of these countries, through untied overseas development assistance (ODA), in their efforts to provide essential services to their citizens without having to resort to privatisation.

d. meet the internationally agreed aid target of 0.7 per cent ODA/GNI to assist governments that are hard pressed to meet their social spending obligations.

The Commonwealth

21. In order to support national decision-making processes on options for essential service delivery, the Commonwealth Secretariat and Commonwealth Foundation should:

a. facilitate exchanges on the best cases of public ownership/public service delivery and enhancement thereof;

b. facilitate study and exchange of the most effective cases of public participation in regulation and accountability of either publicly-owned or mixed or private delivery.

IV. CONCLUSION

22. As civil society organisations, we reiterate our support for our governments to reinforce their efforts to address the essential service needs of their people, especially the poor and women, within their various national development plans.

23. We reiterate our commitment to the issue of provision of essential services and to empowering citizens to participate effectively in any new structures and systems for essential service provision that may be established in our countries.

24. We acknowledge and appreciate the space provided by the Commonwealth for civil society organisations to participate in such meetings as this and its demonstrated willingness to listen to our concerns and points of view.