Privatisation talk all water down the drain

PUBLISHED : Friday, 23 April, 2004, 12:00am
UPDATED : Friday, 23 April, 2004, 12:00am

BACK TO THE water business. The Audit Commission has certainly found room for plenty of comment here. Did you see the short report we carried yesterday on how the Water Supplies Department had been 17 months late and $26 million over budget on three projects?

There were also the gems that not a single household had registered a water account in eight villages to which the department had connected water supplies and also that it had registered 400 residents in Tai Long village when only 10 people live there.

You have to wonder whether anyone in the department ever makes use of his or her legs. I recommend to them the splendid walk to Tai Long Wan. They may then also come to my view that these 10 people live there on weekends only when they can sell beer and soft drinks to hikers.

Why that lovely trail had to be made an unsightly mess with the laying of pipes also puzzles me when I have always found a working tap in the village and when there is a service reservoir just around the hill behind it. I suppose Water Supplies will tell us it had no choice in the matter, that the rules under which it works obligated it to put the pipe in and, in any case, it likes to keep up good relations with that notable New Territories parasite, the Heung Yee Kuk.

But it is nonetheless wastage like this that contributes to driving up the cost of water to more than double what we pay for it and this is very much to the point. The idea abroad behind privatising water supply is to make it a more cost-efficient service. It is not to help government balance its budget, the rationale in our case for privatising a $6 billion renovation of the Sha Tin water treatment plant.

I shall grant you that not everyone believes water privatisation has invariably succeeded abroad. You need not look far to find protest that it has resulted in higher-priced water of lower quality less reliably delivered.

I am far from sure, however, that the dissidents have the right of it. It strikes me that much of the purported research behind these protests is a good deal less than rigorous and that most people who shout about it have the larger agenda of a political creed that opposes privatisation of anything at all.

Be that as it may, we are not yet in a position to do any privatising of water supplies, whether through the government's newly discovered PPP (public private participation) or through the older name by which this idea goes, BOT (build, operate and transfer).

The first requirement of privatisation is that the service to be privatised pay its own way from user fees plus leave a reasonable profit for the private entity performing the service.

We are nowhere even close to it with water. And it is not as if we are short of experience in this sort of thing. Hong Kong is well advanced in privatisation exercises. We have done it with power, telecommunications, bus companies, tunnels and other public services.

Admittedly, there is a difference here with PPP schemes in that ownership does not revert to the government at some later date. But the biggest difference is that these services were priced right from the start at levels that allowed them to cover cost plus reasonable profit for the operator.

The MTR Corp, in contrast, should not have been privatised when it was. It lost, and still loses, money on railway operations and only the transfer of huge swathes of public land created the illusion of a service that pays its own way.

We will have the same trouble with the airport if we privatise it before it makes enough money to justify doing so.

The only way to go with water is first to raise tariffs to a level that at least covers cost. The government knows it too. In every budget speech recently, we have had references to unreasonably low tariffs for utilities and every time the financial secretary defers to the argument that there should be no increases for services that 'affect people's livelihoods', as if there were any service that does not affect them.

Very well, but then let us not waste breath on talk of a PPP scheme for water and let us also tell the Audit Commission not to bother itself with scandals in water supply.

Water wastage is inevitable when water is wrongly priced. Charge those New Territories villagers a fair cost for overall water supply in Hong Kong, leave alone what it really costs to put in the pipes to them, and they would not even think of asking for mains water in the first place. We are very much on the wrong road here.