Revisiting Water And Wastewater Utility Privatization
There have been considerable changes in the provision of water service in the world since 1990s. There has been development of market based reforms which are emphasizing on competition and improvement of service efficiency. The Irish government has not been left behind and has implemented these reforms. The government of Irish in 1999 decided to conduct a pilot study on public private partnership in a number of sectors. These sectors included public transport, infrastructure, and the sewage sector.
Since the first implementation of public private partnership in Ireland the activity has taken considerable expansion. This paper will do an analysis of the concept of outsourcing of water services in the world looking at the empirical evidence of the application of this concept. The paper will then analyze the concept of outsourcing in the local authorities of Ireland and give various recommendations.
Outsourcing defined
Out sourcing refers to a situation where an organization subcontracts another organization to provide services that could have otherwise been done by the employees of that origination. These services are handled by a different company that is specialized to undertake them.
In our case outsourcing of water services by local authorities involves signing up the private sector to provide water services such as infrastructure installation, reading of water meters, laboratory services and collection of bills.
Background of water services outsourcing in the world
The water service provision has a history of market failures and a great concern to social welfare that has given the governments the needs to control these services so that it can protect the consumers and the producers. Lets us first examine the characteristics of water service sector.
The water provision serves consists of various functions, the water is first captured from rivers, reservoirs, and from underground sources. It is then treated to remove particles and pollutants to make it clean for use. It is then supplied to consumers through a network. The sewage water is then collected and taken to sewage treatment works. The sewage then undergoes treatment and then discharged to the sea.
The features and reasons for market failure in the water provision sector can be looked in terms of demand and supply. The demand for water for domestic and industrial use rise with the rise in population and urbanization. The rising urbanization in the world has quantity and quality impacts in the water supply. The increased urbanization in the world has made different changes in the water charges and billing. In Ireland meters are only applied to the non domestic users.
The supply-side of water the sector requires high capital investment in fixed assets. The fixed costs assets that are installed in the water supply network are very high. The fixed cost in the national water network in United Kingdom accounts for about 80 percent. Due to this high cost it makes it difficult for a private investor alone to supply water and make the service affordable to the citizens.
The provision of water is faced with some externalities in relation with the consumer’s health and the impacts on the environment. For example water may be polluted by discharges from industries located upstream of the water sources. The underground water may also be contaminated by fertilizers from the agricultural uses. This externality makes the control of water provision important. The natural monopoly condition in the provision of water services has been contributed by the large economies of scale required in the sector. The amount of capital investment required reduces competition in this sector (Seidenstat, 2003, p. 66).
Reasons why governments outsource services
The model of outsourcing of services is different in different countries, but the concept of outsourcing is becoming popular in many countries of the world. We will analyze the reason that makes a government to outsource an essential service.
The gap in infrastructure and scale of investment required
The quality of infrastructure is important for the economic growth of any country. This is particular very important to countries with small economy like Ireland which mostly relies on direct foreign investment. The model of outsourcing is used by many governments to solve the problem of capital scarcity. When a government outsource services it is saved by the private sector in investing in capital assets for the outsourced project (World Bank, 2004).
Innovation
Through outsourcing the government encourages the private sector to be more innovative and come up with good way of providing quality service to the public. There is also the issue of specification, when a private investor is contracted to provide a certain service he follows the required standards. In outsourcing of services the public sectors gives specification that are required for that kind of contract. This gives the potential bidders motivation to be creative and come up with ways in which they can meet the required specifications.
Risk transfer
The model of outsourcing enables the government to transfer risk to the private sector. This risk acts as an incentive to private investor to come up with method of reducing costs and increasing efficiency so as to increase profitability. The issue of risk transfer should be analyzed carefully and the optimal risk should be transferred to the private sector, this is in order to make sure that quality services are delivered and the consumer is protected (Ball. et al, 2001, p.95).
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