BGRF-WIDE: A case study on the impact of GATS in Bulgaria
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A case study on the impact of GATS in Bulgaria
The concession of Sofia water supply and wastewater services: legal, economic, social and gender aspects.
A BGRF-WIDE publication
WIDE
Network Women In Development Europe
This publication is part of the WIDE-BGRF Project
‘A Gender Perspective on the Privatisation of Public Goods and Services’
funded by Heinrich Boell Foundation, Germany
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WIDE – February 2004
BGRF-WIDE: A case study on the impact of GATS in Bulgaria
For the Bulgarian Gender Research Foundation (BGRF):
Genoveva Tisheva, Plamenka Markova, Krassen Stoichev
With Svetlana Ganeva as consultant and
With the assistance of Irina Moulechkova, Dessislava Gotskova, Andrey Nikolov, Julia Dinkova
Team coordinator and editor: Genoveva Tisheva
With guidance and contributions from
Maria Karadenizli, Amandine Bach and Barbara Specht of Women in Development Europe (WIDE).
1
WIDE – February 2004
BGRF-WIDE: A case study on the impact of GATS in Bulgaria
Bulgarian Gender Research Foundation
5, Evl. Gueorguiev blvd. 2d fl.
Sofia
Bulgaria
(Postal address- P.O. box 938
Sofia –1000)
Tel/fax: 35-92-963.53.57
WIDE
Rue de la Science, 10
1000 Brussels
Belgium
Tel: 32-2-545.90.70
Fax: 32-2-512.73.42
E-mail:
URL:
1
WIDE – February 2004
BGRF-WIDE: A case study on the impact of GATS in Bulgaria
E-mail:
URL:
Summary
Introduction
- The international context and its relevance for Bulgaria
1.1.WTO and GATS
1.1.1.Key characteristics
1.1.2.GATS and the water sector
1.1.2.1. GATS and public services
1.1.2.2. GATS and national and local regulations
1.1.2.3. GATS, the environment and the threat to water services
1.1.3.The new round of negotiations: EU demands
1.1.4.Trade liberalisation and Bulgaria
1.1.5.Impact of liberalisation on foreign direct investment (FDI) and employment in Bulgaria
1.2.Trade liberalisation and human rights
1.2.1.Gender impacts of GATS
1.2.2.Brief overview of trade liberalisation’s impact on Bulgarian women
1.2.3.ICESCR and the Right to Water
1.2.4.Brief overview of other relevant international documents
1.2.5.IFIs, WTO and the rights agenda
1.2.6.The civil society response
2.Driving forces behind Sofia’s water concession : economic and social implications
2.1.The Sofia Water transaction
2.1.1.Flaws in the tender procedure
2.1.2.Water, a men’s affair?
2.1.3.Citizens’ awareness and the role of the media
2.2.The water oligarchy
2.2.1.Global expansion
2.2.2.Global alliances with the banks and the governments
2.3.The Bulgarian legal framework for water concessions
2.3.1.Neo-liberal policies and legislative changes
2.3.2.Legal framework for privatisation and concessions
2.3.3.Water privatisation and macro-economic policy
2.4.The concession to IWL: economic and social implications
2.4.1.The economic effects
2.4.2.The impact of restructuring on workers in Sofia’s water sector
2.4.3.Consumers and water prices
2.4.3.1. Consumer survey
2.4.3.2. General considerations
2.4.3.3. The price policy
2.4.3.4. Implications for poor people
2.5.The balancing act: the need for regulation and pressures to liberalise
3.Recommendations
3.1.General recommendations
3.2.Recommendations to the Bulgarian government
3.2.1.On GATS and WTO negotiations
3.2.2.On decision-making over water supply
3.2.3.On the regulation of private companies
3.3.Recommendations to the international institutions: EU, WTO and IFIs (World Bank and IMF)
3.3.1.To the international institutions
3.3.2.To the European Union
3.4.Recommendations to civil society
3.5.Recommendations to private actors and foreign investors
References
Annex 1 : Bulgaria – national accounts
Annex 2 : Foreign direct investment in Bulgaria
Annex 3 : Small-scale sociological survey of the opinion of the consumers
GLOSSARY
ASAAgency for Social Analyses
BGRFBulgarian Gender Research Foundation
BPFABeijing Platform For Action
CASCountry Assistance Strategy
CEDAWConvention on the Elimination of Discrimination against Women
CEOChief Executive Officer
CESCRCommittee on Economic, Social and Cultural Rights
COMECOMCouncil of Mutual Economic Assistance
CNESCitizens’ Network on Essential Services
DDADoha Development Agenda
DMCDepartment for Monitoring the Concession
EBRDEuropean Bank for Reconstruction and Development
ECEuropean Commission
EUEuropean Union
ETNEuropean Trade Network
FDIForeign Direct Investment
FFDFinancing For Development
GATTGeneral Agreement on Tariffs and Trade
GATSGeneral Agreement on Trade in Services
GDPGross Domestic Product
ICESCRInternational Covenant on Economic, Social and Cultural Rights
ICIJInternational Consortium of Investigative Journalists
IFCInternational Finance Corporation
IFIInternational Financial Institution
IMFInternational Monetary Fund
ISOInternational Organisation for Standards
ITInformation Technology
IWLInternational Water Limited
LMPLaw on Municipal Property
LOTISLiberalisation of Trade in Services
LPPPSLaw on Privatisation and Post-Privatisation Supervision
MoSMunicipality of Sofia
MDGsMillennium Development Goals
MFNMost Favoured Nation
NEANational Employment Agency
NGONon-Governmental Organisation
NSINational Statistical Institute
TNCTransnational Corporations
TRIPSTrade-Related Aspects of Intellectual Property Rights
PPPPublic Private Partnership
UNUnited Nations
UNDPUnited Nations Development Programme
VATValue Added Tax
WADWomen’s Alliance for Development
WBWorld Bankµ
WDMWorld Development Movement
WWCWorld Water Council
WIDEWomen in Development Europe
WSSCWater Supply and Sewerage Company
WTOWorld Trade Organisation
Summary
On 6 October 2000, Sofiyska Voda-EAD (Sofia Water) started to operate a 25-year concession for Sofia’s water supply, wastewater and sanitation services. Sofia Water is a special purpose company established between the winner of the bid for a water concession, International Water Limited (IWL), a company in consortium between the US Bechtel Group and the British United Utilities International, and the existing municipally owned utility company, Vodosnabdyavane i Kanalizatsia (Vik EAD). Sofia Water was established initially with 75 percent of shares belonging to IWL and 25 percent to Sofia municipality (MoS), through ViK EAD. The European Bank for Reconstruction and Development (EBRD) supported the financial contribution of IWL.
The concessionaire’s responsibility is to operate and maintain the water supply and sewage system during the concession period. It also has to design, plan, finance and construct the required capital investments. The MoS retained ownership of all existing water, wastewater and sanitation infrastructure assets during the concession period. Ownership of new infrastructure assets, constructed by the concessionaire was also vested in the MoS. The concessionaire is entitled to the right to use those assets in accordance to the contract. The duration of the concession was initially set at 25 years, extendable for a further 10 years in accordance with the Municipal Property Act. A significant programme of capital investment is required in order to meet the target service standards. Furthermore, the concessionaire is responsible for metering, billing and revenue collection and has the power to warn consumers with disconnect for non-payment. The bidding started at a minimum of USD 150 million. This was the minimum investment that the future concessionaire had to provide for replacing the old water pipes in Sofia. It is estimated that the renovation of Bulgaria’s water and sewage networks as a whole will cost about USD 2 billion, which represents substantial business opportunities. It is the first transaction of its kind in Bulgaria, and one of the biggest investment contracts of its day.
The contract leaves the implementation of the Right to Water and the provision of water supply, an essential service, in the hands of the concessionaire, an entity with predominantly foreign participation. It has to be viewed against the backdrop of Bulgarian commitments to the World Trade Organisation (WTO), namely under the General Agreement on Trade in Services (GATS), combined with the conditionalities of the World Bank (WB) and other International Financial Institutions (IFIs). All of these are pushing the Bulgarian government towards liberalising the water and energy sector and other essential services. Bulgaria has become a target for the big water Transnational Corporations (TNCs), a market dominated by Western-European and US actors.
Bulgaria joined the WTO as of 1 December 1996, after the entering into force of the Protocol for the Accession to the Marrakech Agreement. The country applies all multilateral trade agreements, annexed to Marrakech Agreement from the date of accession without recourse to any transitional period. Bulgaria accepted as a single undertaking the three major agreements - GATT, GATS and TRIPS. Because Bulgaria “jumped” into the WTO directly with the status of a developed country[1], the reforms of the transition period had to be conducted in a framework of open markets and strong international competition. Despite economic hardship and the negative social impacts of liberalisation, the Bulgarian government firmly intends to pursue the WTO agenda. This is because the country wants to be recognised and accepted in the democratic international community.
By joining the GATS negotiations, the Bulgarian government had to start playing the GATS game, using its rules. GATS is the first multilateral agreement containing the commitment for a continuous liberalisation of trade in all services, essential services included, through binding rules. The aim of GATS is to increase international trade by removing any controls and restrictions such as fiscal policies, standards, conditionalities, environmental protection, social standards, or laws maintaining public monopoly. Exemptions are very limited and commitments, once made, are irreversible. Bulgaria is committed to liberalising environmental services, that is wastewater, sanitation and solid waste collection, except for services in the exercise of state authority. There are no limitations for foreign “commercial presence” concerning sewage, wastewater and other related services.
During the latest round of WTO negotiations, the European Union (EU) has made many requests[2] of developing countries concerning water services, and pressure is also being exerted on Eastern European governments.
The Bulgarian government has not adopted safeguards or regulatory mechanisms to protect the social and economic rights of its citizens against liberalisation. The services sector is particularly important for women’s employment and for the safeguard of other social rights. Women make almost 63 percent of the employed in services, according to Bulgaria’s National Statistical Institute (NSI) in 2001, compared to about 47 percent of employees in general. According to the trade union representing workers in water and sanitation, women make up about 36-38 percent of workers in the industry. Despite this, gender implications tend to be ignored during the liberalisation process.
Arguments made around the world regarding the impact of trade liberalisation, especially GATS, on women are also proving to be valid for Bulgaria. The costs and benefits from intensifying monetary flows, trade in goods and services, and the labour market are unevenly shared between women and men. On the whole, these trends are consolidating the traditional gendered division of roles, just as they consolidate other social inequalities.
Trade liberalisation imposes significant constraints on governments. They have to remove regulations concerning labour rights, gender equality and social policies that are perceived as obstacles to foreign investors, thus reducing well-being. Liberalisation also impairs the capabilities and willingness of the government with respect to gender equality and gender empowerment programmes.
Trade liberalisation causes a decrease in household purchasing power. Access to basic services is impaired for marginalised and poor social groups, and there are significant implications for women’s reproductive roles. Women shoulder the ultimate responsibility for household survival. They have to compensate with their care and other reproductive work for the reduced access to basic services that, all too often, arises from liberalisation.
GATS affects those women who make up a high percentage of workers in the service sector, for instance health and education. In the water and sanitation sector, women tend to be concentrated in administration, and they are also vulnerable to restructuring here.
Bulgaria has ratified all the international treaties on fundamental human rights and freedoms and is bound by them, and namely by the International Covenant on Economic, Social and Cultural Rights (ICESCR). The UN Committee on Economic, Social and Cultural Rights at its 29th session on 26 November 2002 issued a General Comment No.15/2002 on the Right to Water (E/C.12/2002/11). The General Comment is adopted in relation to Article 11 (the right to an adequate standard of living) and Article 12 (the right to health) of the Covenant. The Right to Water is declared as indispensable for leading a life in human dignity and a prerequisite for the realisation of other human rights. The main requirements for the realisation of the Right to Water are availability, quality and accessibility. In this respect, all water facilities and services must be sensitive, among others, to gender and life-cycle requirements. Economic accessibility, non-discrimination and information accessibility concerning water issues are also mentioned. Women should not be excluded from decision-making on issues related to the Right to Water. State responsibility is stressed. The state is responsible for ensuring the Right to Water, no matter by whom water supply is operated, and states have to adopt national water strategies and effective regulatory systems.
As specialised agencies of the UN, the WB and the International Monetary Fund (IMF) have special roles to play in the implementation of the two Covenants, especially the ICESCR. According to legal theory, states are not exempted from their human rights obligations when they adhere to another legal body. There is a fundamental inconsistency in that member states have opted for strict regulations and enforcement of decisions in relation to financial and trade multilateral agreements, while at the same time leaving international human rights legislation without a reliable enforcement mechanism.
In the case of Sofia Water, the foreign investor, IWL, is related to the global water oligarchy that drives restructuring and privatisation. The thirst of these companies for profit, and their global alliances with banks and governments, has turned the Right to Water into a mere commodity. Water TNCs can be ruthless players who constantlypush for higher rates, frequently fail to meet their commitments and, when fined for not achieving performance targets, often avoid payment, resorting instead to lengthy and expensive arbitration and court proceedings by challenging the decisions and rulings of the courts. In the meantime, the social and economic damage they cause is not compensated.
IWL had no prior presence in Eastern Europe. It found in Bulgaria excellent opportunities for profit, including a strong governmental commitment to liberalisation and deregulation, conducive legislation, and skilled and well-qualified personnel. Not least, it found a captive pool of customers who are not used to standing up for their rights. The company took advantage of flaws in the concession procedure and the contract itself. Its operation of the contract has been deeply unsatisfactory. It has made promises it probably never intended to keep, directed its investments into non-essential services rather than modernising crumbling infrastructure, failed to account properly for its investments and its use of the EBRD loan, contracted out essential activities such as emergency repairs and made many qualified staff members redundant. At the same time, the company is pushing for continuous increases in water rates, has allowed overcharging and has cut off water supplies in an arbitrary manner. According to a survey conducted in the course of the research, women are more sensitive than men to the deterioration of services and increased prices. Yet women did not participate in decisions made about the concession.
The Bulgarian media has been vigilant in publicising problems, in particular the concessionaire’s non-compliance with the contract it entered into.
Before deciding to replicate the Sofia Water concession model in other locations, the Bulgarian government must assess its social and economic impacts. The government faces a dilemma; whether to continue to pursue its liberalisation and deregulation agenda, or ensure that all its citizens have access to water. In particular, the Bulgarian government must regulate water prices, irrespective of the nature of the water provider.
Introduction
“We must be extremely careful not to impose market forces on water because there are many more decisions that go into managing water - there are environmental decisions, social-cultural decisions. If you commodify water and bring in market forces which will control it, and sideline any concern other than profit, you are going to lose the ability to control it.”
David Boys, Public Services International, UK
This case study looks at the impact of GATS on water supply in Bulgaria. The purpose is to throw light on the economic processes Bulgaria is going through as a result of pressure from the WTO for continuous trade liberalisation. Water supply is generally regarded as a “sensitive” service sector in terms of trade liberalisation. The opening up of the sector in Bulgaria through the unprecedented concession of Sofia’s Water Supply System to a joint venture including a foreign company needs to be analysed in its international and national context. A human rights approach should overarch the analysis, as the principle of equal enjoyment of fundamental rights and equal access to public goods need to guide further reforms. The social implications of the transaction, usually neglected in this type of activity, need to be highlighted, in order to avoid negative impacts in future. A gender perspective has to be applied when assessing impact, such as that of privatising basic services. This study tries to meet these needs by providing information on, and analysing, the impact of a specific water concession in Bulgaria. The study is based on research and analysis covering both international and national aspects of the privatisation process. Official documents have been analysed, experts interviewed and a survey carried out.
It should be explained before going any further that, in the report, the term “privatisation” is used as an umbrella term. It includes selling assets to a private company, tendering a concession to a private company, or awarding management contracts to a private company. The paper looks at the policies of key international bodies, notably the WTO, the WB and the EU, which are driving the trend towards privatisation, as well as the relevant human rights instruments. It also touches on the national picture in Bulgaria, for instance the economic situation, legislative framework, environmental aspects, government policies and strategies. At its widest, the study takes into account global trends of structural adjustment, liberalisation and foreign direct investment (FDI) in the provision of basic services such as water supply.