One way...or another4 October 2002
Publicly funded hydro, or privately funded - does it really make a difference when it comes to serving the public interest? Carrieann Davies reports on some very different views in the hydroelectric industry
BEFORE you read any further, I'd just like to ask you some questions. Do you believe that the public interest of hydro is best served with ownership of hydro facilities in municipal hands? Or do you feel that the same public interest is served with ownership in private hands? If a recent conference session in the US is anything to go by, if you're a keen supporter of environmental issues, you'll answer yes to the first question. If cost-effectiveness is more important to you, then your opinion would probably incline more to the second.
Debate on the topic of public versus private hydro has raged hot and cold in the hydroelectric industry for decades, and from the audience at the conference session, organised as part of Hydrovision 2002, it seems that the subject is still very much alive and kicking.
'While I don't think it has gotten to the point where we are facing severe problems, I do think that over the last year the whole issue of private versus public has picked up steam. I think to a potentially harmful degree,' says Joel Malina, from the Wexler Group in the US.
Malina, who has spent the last four years working with both municipalities and investor owned utilities (IOUs) on legislative reform of the licensing process, has perhaps a unique viewpoint on this issue, dealing with the arguments from both sides.
'Let me state the obvious,' he says. 'The IOUs and the public have a difference of opinion. Both sides have clear staked out positions, and have lots of documents supporting their cases.
'The IOUs say that bigger is better, they say that since they must compete for customers they provide more reliable, responsible service. They say that the taxes they pay go into community services and economic development,' he continues.
On the other hand, Malina points out, the public utilities say that their primary mission is to provide least cost reliable service rather than maximising profits. 'They offer local control, with every citizen an owner,' he says. 'A greater portion of their revenue stays in the community and of course they claim they're greener.
'With these battlelines drawn, I want to put up a big stop sign and say we're asking the wrong question. It has nothing to do with which model, private or public, is best, but rather who is the best steward of this resource.'
Malina says a number of questions need to be asked. How does the owner use the resource to the betterment of the public? Do they have the financial resources and if they do, do they use these resources responsibly? Do they have the technical expertise? Do they understand the important role of dual stewardship - protecting the energy and other public benefits of hydro versus the all important environmental benefits as well? And, are the interests of consumers front and centre?
'Using those criteria, I can say that both sides have lots of case studies of proven success. I've seen a number of great stewards from both sides of the issue,' he says.
And the survey says
Although both sides may have different attributes to offer, just what do those who purchase the power and recreate at facilities, both public and private, have to say? Patti S Kroen of Kroen Consulting in the US decided to conduct an informal poll to find out. Kroen interviewed 37 people (25 men and 12 women), mostly Californians, and posed the question - which offers the most public benefit, public or private hydro?
'There was some interesting responses,' she says. 'But most of them don't care, that's the bottom line. They don't care.'
Kroen says however, when pressed for an answer, the majority of her sample favoured public ownership. 'I think they felt that there are some resources that should belong to everyone. The justification from these folks for saying public was that there was a gut feeling that certain services like electricity and water should be provided by the government.'
During the survey, Kroen says that three common themes appeared. 'The first two were accountability and transparency,' she says. 'There's a perception that public trust seems to resonate better in the public sector.
'The third common theme is access,' she adds. 'There was concern whether or not a facility run by a private organisation would have the same type of access to the public resource activities as a public facility.'
When it comes to privatisation, it seems, however, that it's not just the power purchasers who have some doubts about its public benefit.
'A lot of groups I've worked with around the world are very strongly against privatisation of the electricity sector,' says Patrick McCully of US environmental group, International Rivers Network.
'A big issue, especially for the groups we work with in the US, is when it comes to the privatisation of existing dams, or dams that are incomplete and been finished off by the private sector, agreements that have already been reached on social and environmental mitigation when the dam was in the public sector have been nullified,' he says.
'The other big problem is the accountability of the private sector. In publicly funded projects, there have been cases where the government has actually implemented guidelines on things like resettlement and environmental mitigation. In the private sector these policies don't often exist, and that's especially a problem in the countries where there is very weak regulatory and legal structures. It means, basically, that people who are directly displaced by projects have no recourse.'
McCully also claims that some developers have problems putting financial packages together, meaning that projects are getting delayed.
'For example,' he says, 'in a project like Bujagali, the local people first heard it was going to be built in 1994, so for eight years now they've been living under the threat of displacement. It's a lot of uncertainty that people have to face.'
McCully acknowledges, however, that there are benefits of privately funded projects. 'Hydro power needs very high capital investment,' he says. 'This can mean that a multi-purpose project with a large number of people likely to be displaced is less likely to happen in the private sector. Generally there will be less impacts because the projects are smaller, and often they will be run-of-river rather than storage.'
Another benefit that McCully suggests is that cost estimates are probably more realistic in the private sector. 'In the public sector, we know cost overruns for dams have been huge,' he says. 'The World Commission on Dams (WCD) found the average cost over runs 56%. The World Bank has found 30% on its projects.'
What's happening in today's hydro industry, McCully claims, is that because it is often difficult to build dams in the private sector, the public are coming back in. 'Lots of guarantees are being given. The World Bank especially is trying to structure deals whereby there's a lot of public sector guarantees for private projects. This is in many ways the worst of both worlds because you now have the public taking all the risks and bearing the costs, and the private sector getting guaranteed returns.'
However, this point was the subject of some debate among the session audience. One delegate pointed out that there was often not much difference between the two sides: 'We're saying public or private, but private isn't what it used to be. We've got the heavily regulated investor owned utilities for which there is a great deal of accountability at state level, and now we've got a much larger sector of independent power producers who are owning dams. The distinction now isn't so great.'
Joel Malina pointed out that a benefit might lay in working together, instead of competing. 'We've got a lot more to do to reform both legislatively and administratively, the structures and processes that govern the licensing process we all live with,' he says. 'We need to pursue further technological advances, we need to secure a lot more federal funds for R&D and we need to pursue environmentally responsible expansion opportunities.
'As long as we remain tied to a he-says, she-says mentality, we're heading in the wrong direction,' he adds. 'As an industry we can't afford increased division among our ranks. If ever there was a time for unity, it's now.'