Integrity, the private water utilities and why it matters

This blog entry was written by Janek Hermann-Friede, Monitoring, Programme Planning, Focal Point East Africa Coordinator at WIN. 

At Savern Trent Water a corruption case emerged as a result of whistle-blowing in 2004. We are talking about the second-largest water company in Great Britain. Following the scandal a change in management resulted in far reaching reforms to enhance integrity of the company, tackling processes, behaviours and values simultaneously. Prosecution resulted in a fine for Savern Trent in 2008. Just a year later, the company was awarded ‘Utility of the Year’ in recognition of their reform efforts (for more information on this case see Dietz, G. and Gillespie, N. 2012). This clearly shows one of the main benefits that a company can gain from enhanced corporate integrity – a good reputation. However there are several other ways how integrity pays off.

Planta de Caraz, Peru. Copyright Janek Hermann-Friede

Planta de Caraz, Peru. Copyright Janek Hermann-Friede

But let’s first take a step back and look at the role of the private sector in water supply and wastewater management. In the 1990s donors and multinational companies increasingly pushed towards privatisation of service provision. Various failed concessions led to public opposition and an ideologically driven debate. More recently there has been a trend to commercialise the operations of water providers in a socially acceptable way. This means that service providers are operated and managed like private entities but consider marginalised groups and the poor adequately when it comes to tariff setting, investment decisions, customer management etc. In consequence, some of the public attention shifted from the providers to companies that consume large amounts of water. A recent European Citizens’ Initiative opposing the European Commission’s proposal for a Directive on the award of concession contracts for water supply and wastewater services shows however that private sector engagement remains a relevant and sensitive topic.

Pinsent Masons (2011) estimates that the private sector is involved, to some extent, in the provision of water supply and wastewater services to approx. one billion people. Several other numbers exist quantifying the engagement of private companies in water service provision. Whichever number is correct, the bottom-line is that by supplying water and managing wastewater the private sector plays a crucial role in the lives of many people. Because water is so important for life and because of the sensitivity of the topic, it is essential to assure high levels of integrity if private actors engage in the water sector.

Private actors stand to benefit from integrity

As a participant of the 6th World Water Forum in 2012 pointed out, conduct with integrity should be a matter of course for entrepreneurs, yet in reality this is not always the case. Transparency International’s bribe payer survey 2011 showed that companies frequently lose contracts because of other actors that bribe. The private sector itself therefore needs to be activated to report on and act against the corrupt companies in their own rows.

Companies stand to benefit from high levels of corporate integrity reducing reputational risks and risks of prosecution as well as lowering costs by avoiding transactions where bribery is an issue. With a clear commitment to integrity, it is possible for early movers to create a competitive advantage in the marketplace where integrity is a deciding factor for some partners and customers.

While private sector actors are often considered the cause of corruption it has to be recognised that corrupt deals could not take place without those public officials who gladly top up their salaries with kickbacks and favours.

The status quo and taking the next step

Private service providers may face some specific integrity risks, when it comes to competition for large projects or satisfactory completion of contracts. In several countries the public and media pay increased attention to the privatisation of water services, demanding increased transparency and scrutinising responsible public authorities. This could be observed for example in the case of the Berliner Wasserbetriebe (Berlin Waterworks), which was partly privatised in 1999. A citizen initiative led to a referendum on the disclosure of the related contracts. As a result parts of the waterworks have been re-communalised. Similar initiatives have emerged in other cities. However private water providers have also contributed in improving service provision in many places (see for example AquaFed).

Private, as well as public, service providers face corruption risks and integrity challenges in their operation and overall management. To promote integrity at this level, WIN and cewas developed a systematic bottom-up approach to tackling integrity issues of Water Service Providers (WSPs) – the Water Integrity Management Toolbox. Integrity Management provides a stepwise approach to improve the performance of WSPs – both the financial and operational performance. This approach aims at optimising the WSPs’ business model in a systematic management-led integrity change process. This project was supported by Federal Ministry for Economic Cooperation and Development (BMZ), Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH and the Water Service Providers Association in Kenya (WASPA).

Water Integrity Management Toolbox. Copyright cewas.

Water Integrity Management Toolbox. Copyright cewas.

 

To improve sector performance it will however be essential to enhance integrity of all companies with stakes in the water sector. This is only possible if integrity is established as a guiding principle in the management of companies and in the overall management and coordination of the water sector. If we manage to point out how private actors stand to benefit from higher levels of integrity it can be assumed that they are willing to promote ethical behaviour in their own business. Political influence, bureaucracy and other factors make change processes more difficult in the public institutions that govern the water sector. If more and more companies demand integrity and make it a priority, the private sector could become a catalyst for much needed change towards better water governance.

More information on the topic can further be found in the background paper ‘Water integrity: an opportunity for the private sector’.

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