Privatizing the water supply

An amendment to the water supply law to make it easier for municipalities to entrust private-sector companies with handling their water supply operations has been enacted by the Diet. Behind the move is the dire prospect that the public water supply system will suffer falling revenue due to loss of demand, brought on by the shrinking population, and municipalities won’t be able to afford renovations to their aging water infrastructure. The experience of many other countries that privatized their water supply operations since the 1990s, however, indicates that putting operations in the hands of the private sector is no panacea for this problem in Japan.

According to the Health, Labor and Welfare Ministry, about 15 percent of the water supply pipes across Japan — many of which were introduced in the 1960s in the middle of the rapid postwar economic expansion — had passed their endurance limit of 40 years as of 2016, with less than 40 percent of them deemed strong enough to withstand a powerful earthquake. Ruptures of these aging pipes in times of major disasters leave local residents without a water supply for unacceptably long periods.

What hampers the efforts by city, town and village governments — which under the water supply law are in principle tasked with running their local water systems — to renovate aging infrastructure is the dwindling revenue from water bills, as demand declines along with the population. The nationwide volume of water consumed by households is falling after hitting a peak in 2000 — and is forecast to decline by roughly 40 percent from that peak in the next 40 years.

The water supply system is basically run on an independent account, with the revenue coming from local households and businesses in the form of regular bills. With revenue falling, water supply operations are reportedly running in the red in about 30 percent of municipalities nationwide.

By revising the law to make it easier for municipalities to transfer management of their local water supply to private-sector operators through concession contracts, the government hopes to “beef up the foundation of the water supply system” and ensure a “stable supply of safe water.” Indeed, several local governments, including Miyagi Prefecture and the city of Hamamatsu, Shizuoka Prefecture, are reportedly interested in selling the management rights to their water supply systems to private-sector firms while retaining the ownership of the water facilities, with hopes that efficient operations with private-sector management know-how will cut costs. Operation of public infrastructure and services by private-sector firms through concession contracts is already implemented at airports, expressways and sewer systems.

Privatization of the water supply, however, has not been particularly successful for many of the countries that have tried it since the 1990s. There have been examples of a surge in charges — since the concession holders will effectively become local monopolies — and deterioration of services such as declines in water quality, as a result of privatization. A survey shows that since 2000 a total of 267 cities in 33 countries around the world have put their privatized water supply systems back in public hands. The city of Paris, which signed a concession agreement with private-sector operators in 1984, took its water supply system back in 2010 after billing shot up more than threefold in a 25-year period.

It is believed that the concession holders will be interested in running the water business only in areas where a profit can be expected — in other words, in large cities where there will be sufficient demand. In that sense, it is questionable whether selling the rights will be a solution to the problem confronting depopulated municipalities in rural areas. The amended law also seeks to promote cooperation among municipalities to sustain water supply systems across their borders — and that’s what municipalities in rural areas should explore. The revision calls on prefectures to play a key role in cross-border cooperation among municipalities.

There are many concerns about putting the water supply system — which affects the safety and daily life of local residents — in the hands of private-sector businesses. But there is no guarantee that publicly run operations can sustain a safe and reliable supply if the system’s foundations are being eroded. If revenue is falling and the water supply infrastructure needs to be updated, higher bills will likely be inevitable regardless of whether the system is being run by the public or private sector. How to maintain basic public services such as water amid a declining population — and how the cost of sustaining such services should be shared — is an issue that requires a broader discussion.