World Bank exec: ‘Investment in water has been totally lagging’

Lars Thunell IFC.jpg

This article is part of our special report Plastics and PVC.

Many of the water systems in major cities around the world, including in developed countries, have losses of 30-40%, says Lars H. Thunell of the World Bank's International Finance Corporation (IFC). And that’s not viable, he insists, so we have to make sure we invest.

Lars H. Thunell is executive vice-president and CEO of the International Finance Corporation (IFC), a member of the World Bank Group. He spoke to EURACTIV's editor Frédéric Simon.

The World Bank has consistently supported public-private partnerships in the water sector. But this policy has drawn criticism for putting profits ahead of people on access to safe drinking water and sanitation. What is your response to this?

First of all, I think water is a key part of the whole food-energy-water nexus. They all tie together and they are very interdependent.

And the fact of the matter is that people have just been using more and more water without really thinking about how we use it. And now we’re getting to a point, where there is more and more water scarcity in the world, and we’ve got an enormous problem in front of us.

The other thing with water is that it’s local. It’s hard to move water around very much. You have to find the solution for water in the various water basins around the world.

With the population growing from 7-9 billion to maybe 10-11 billion be 2050, we really have a problem.

We've done studies together with McKinsey and the World Economic Forum showing that the water gap can be closed but we can’t only work on the supply side. We also have to work on the demand side.

Now, we also have to recognise that a certain amount of water every day is a human right. And that’s a fact of life. But we should remember that only about 1.5% of all the water that is used is used for those purposes.

But we just can’t let that fact – the need to have a certain amount of water at a very low price or free – to stop us from addressing the water issue in general.

You support having some sort of specific social tariff for water?

I like, for example, the South African model where they say that you get a certain amount of free water every day but if you want to use it for industrial purposes or filling a swimming pool or taking ten showers a day, you have to pay for it.

Is that a principle that you are promoting around all the projects that the IFC is supporting?

No, I think every government has to decide what type of model they want. What we can do is show different models and this is one I think which addresses both the problem of making sure that you’ve got water for the poor people who need it but also the fact that we are heading for a world of water scarcity.

Many countries are already there. The minister of Jordan has said they’re already in the world of water scarcity. So we have to address the issue of water efficiency in industrial processes, we have to address it in agriculture because 70% of the water that is used is for agriculture.

But again it is different in different countries. China uses more water for industrial processes, India it is very much agriculture, South Africa is somewhere in between.

For you, is pricing is the key to getting there, to work on the demand side?

In a world where you have scarcity, you have to have a price on things. But you also have to take the social dimension into consideration.

And in this case this means governments need to make sure that the people have their basic needs – that is their human right – enforced.

But it is also important that you don’t waste the rest of the water.

So you do support the principle of water as a human right? That is something that the World Bank adheres to?

Absolutely! It’s a convention that has been adopted by the UN and we follow that. But as I say, there is a lot of leeway and various governments have to decide on how they implement that policy.

But as a general statement of course we support it.

In developed countries – the United States, the UK – water prices have tended to increase dramatically over the past years, even up to 58% in Canada. Is it something that you see as a positive development or does that worry you in a way?

Well, one has to understand that that may create hardship for people and I have respect for that.

On the other hand we have to also conclude that investment in water has been totally lagging. Many of the water systems in the major cities around the world, including the developed world, have losses of 30-40%. And that’s not viable, we have to make sure that we invest.

There you have to find the right combination of both public sector investment and the private sector when that makes sense given that it seems that governments don’t seem to have much money right now.

How can that negative effect on the population be cushioned, in developed countries as well?

As I said, the whole issue is you’ve got scarcity and there are only two ways to resolve it. One is either you have to start rationing, which isn’t a very effective solution, which also has side effects. Or you’ve got to raise the price but you’ve got to do it in a socially responsible way.

More generally, and maybe you can differentiate between different regions, do you see private sector involvement as some sort of guarantee that infrastructure projects are going to go through and meet deadlines and costs?

No I don’t think that’s a guarantee. We are in a situation where the need for investment in water, whether it’s on the supply side or water efficiency, are tremendous and are absolutely necessary to actually get the freshwater to the people. We have to remember that we have 2 billion people who actually don’t have access in the poorest countries.

How that happens, I think every government, every country has to decide their combination of public sector water utilities and of the private sector.

But as you do that the fact of the matter is that we’re going to have to less and less aid going forward for the poorer countries and governments don’t have much money.

So one solution among several solutions is to involve the private sector. It is not the silver bullet. You have to keep the balances straight.

In Europe there’s a growing trend it seems to stop water privatisation schemes and put it back in the public domain. We’ve seen that happening in Paris for example. How do you react to this trend? Is it gaining momentum?

I’m not familiar with the Paris situation. I don’t have any opinions on why it’s happening and how it’s happening.

I know we have a project in Manila where half of the water for the city was privatised, and half was lost.

Now ten years later you can compare and see that the access for water has increased dramatically on the privatised side, so has the quality of the water and the amount of the investment. This has not happened for the publicly-owned utilities.

But there are other countries where privatisation has not worked.

Which ones?

If I remember correctly, in Argentina they re-nationalised the water.

And that was something that was the right decision in your view?

I have no opinions about that. That was their position.

Private management was not efficient?

I didn't say that. These are emotional and very political issues and one has to look in the individual cases. This was ten years ago before I got involved and I don’t know the details, I just know they re-nationalised.

Read a shortened version of this interview here.

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