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Privatization Of Water Utilities And Investor- State Arbitration: Chronicle Of A Boosting Phenomenon And Its Implications

Congress: 2015
Author(s): Badr ZERHDOUD (GENEVA, Switzerland)

Keyword(s): Sub-theme 16: Public and private sector management,
AbstractAhead of the Earth Summit in Rio in 1992, the 1992 International Conference on Water and the Environment held in Dublin issued four principles known as the Dublin Principles. For the first time, water was not only considered as a public good essential for human survival but rather as a resource collected in the nature and involving human action through infrastructure and capital. This entails the inevitable issue of pricing and market mechanisms in the context of sustainable management of water. The conference insisted that the price should absolutely reflect the economic value of water in its different uses because this would be otherwise regarded as an incentive for wasteful, environmentally harmful use and ultimately involving a misallocation of resources. Moreover, a report launched in 1993 by the World Bank called "Adjustment of integrated water resources", made mandatory for developing countries the significant increase of water prices and the privatization of the management in water services, through its Public-Private Investment Advisory Facility (PPIAF), a World Bank facility. As such, the privatization of the management of drinking water combined with the explosion of the number of bilateral investment treaties (BITs) ended up with the rise in the number of cases before the International Centre for Settlement of Investment Disputes (ICSID) related to water utility concessions. The ICSID awards raise the acuteness of the issue of access to water, considered today and rightly as a vital resource, enshrined into the new right to water. The public policy inclination of this issue is particularly exacerbated with the fact that the concessionaire has a legal monopoly over that resource. Thus, this paper will address the recent relationship between the process of privatizing water utilities and the Investor-state arbitration in the context of sustainable development. First of all, the analysis of the privatization phenomenon as an operation situated in the frontiers of economy, law and politics, and its underlying implications will be operated in the light of services liberalization under the GATS. From the definition of privatization and public-private partnership (PPP), the different types of privatizations encountered in the water sector will be identified while few relevant foreign experiences (Buenos Aires, Johannesburg, Manila) will be assessed, Then, the privatization of water utilities will be addressed as a major vector of the booming activities of the Investor-state arbitration, through the prism of the ICSID. In this respect, we will assess how the ICSID case law takes (or not) into account the right to water and additionally, to what extent a balance was or could be put in place between considerations relating to the protection of investments and the right of the state to preserve a scarce natural resource as a public-policy matter and to facilitate the access to that resource for the weakest section of its population. The growth of the private sector implication in water delivery coincided with the rise of ICSID cases. This reflects the fact that these companies have seen their rights protected internationally through BITs but at the same time, we did not in fact attended to increasing corresponding corporate obligations with respect to the realization of human rights, including the right to water. Moreover, the right to water as recently recognized by the UN and the states represents a serious attempt to set up a legal framework for the urban water supply. Therefore, this corporate responsibility merely relies on soft law instruments as shown by the Report on the Special Rapporteur on human rights and transnational corporations and other business enterprises . In this respect, the privatization of the water delivery sector did not meet the international financial organizations' ambitious expectations. Therefore, transferring the water management to the private sector could be successful if it is conditioned to stringent factors as the addressed water concessions clearly showed. They include a transparent bidding process where corruption becomes an insignificant phenomenon, a clear water concession agreement indicating precisely the respective obligations of both parties and built on a fine equilibrium between the inclusiveness of the poorest section of the population and the necessity of a certain cost-recovery. In this respect, states and international organizations should be able to provide subsidies to ensure the realization of the access to drinking water and sanitation to all. Ultimately, an independent regulator and national mechanisms for its enforcement should be set up, meaning that citizens could bring a claim before courts to remove obstacles impairing them from having access to water. 1. Dublin Statement on Water and Sustainable development: 2. Laimé, M. (2005) The ‘three sisters’, LE MONDE DIPLOMATIQUE, March 2005, available at : 3. Von Hoffman B. (1993) Privatizations in Comparative and Private International Law, 235 RCADI, 210-325. 4. Chong A. & Lopez-De Silanes F. (2005) The Truth About Privatization in Latin America, in Privatization in Latin America: Myths and Reality, Stanford University Press, 2005, 1-57. 5. Galiani S., Gertler P., Schargrodsky E. & Sturzenegger F. (2005) The Benefits and Costs of Privatization in Argentina: A Microeconomic Analysis, in Privatization in Latin America : Myths and Reality, Stanford University Press, 90-95. 6. Fischer R., Gutierrez R.& Serra P. (2005) The Effects of Privatization on Firms : The Chilean Case, in Privatization in Latin America : Myths and Reality, Stanford University Press, 197-248. 7. Wolff G.& Hallstein F., Beyond privatization in USA: Restructuring water systems to improve performance, Pacific Institute, 8. Les multinationales de l’eau et les marchés du sud : Pourquoi Suez a-t-elle quitté Buenos Aires et La Paz?, Collections Débats et Controverses, n°1, June 2007,1-80.
2011 IWRA - International Water Resources Association - - Admin