Privatisation, corruption, oligopoly

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Privatisation, corruption, oligopoly

By David Hall,

Public Services International Research Unit, University of Greenwich

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PSIRU’s work

EU+ Global EU+, network services+ EU+, all services EU+, water, energy, waste Global- water, energy Global-water,energyw aste, health Research on decision-making EC Watertime Database/website, reports, support TUAC (OECD) Anti-corruption Reports EPSU EC policies on SGEI Reports, bulletins EPSU Responding to PPPs Database/website, bulletins EPSU Multinationals - EWC agreements etc Reports PSI

Public sector models

Database/website, reports PSI Monitoring multinationals and privatisation

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The Grenoble water concession

– bribes, privatisation and remunicipalisation

Date Event

April 1985 Privatisation of sanitation in Grenoble region to SDA (Suez-Lyonnaise and Vivendi-GdE)

Nov 1989 Bribes to RPR mayor - Privatisation of water and sanitation in city of Grenoble to COGESE (Suez-Lyonnaise)

June 1995 Elections - change in political power to socialist/green group. Nov 1995 Mayor and Suez-Lyonnaise executives convicted of corruption

May 1996 Renegotiation - joint venture between Grenoble and Suez

1996 -1999 Court cases, audit reports, further renegotiation

Jan 2000 Remunicipalisation of sanitation services in Grenoble region Mar 2000 Remunicipalisation of water supply in Grenoble

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Similar events – France and internationally

• Other problems in

France:1997 Cour des Comptes report

– Corruption, lack of competition

– Lack of transparency – Excessive prices

– Unequal relations between councils and companies • Ile-de-France

– School building contracts: bilateral corrupt cartel

• Internationally: not just a French problem

• Corruption: bribes in Lesotho, Ghana, Kazakhstan, USA

• Transparency: secret contracts, undemocratic regimes (Budapest, South Africa, Morocco, Indonesia) • Prices and charges: Tallinn

(Estonia), Valencia (Spain) • Sub-contracting: Szeged

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Varieties of corruption of political decision

IMF/WB conditionalities; EBRD ‘multi-project’ loans

Government Indirect

Monod-RPR; Skilling-Republicans; Thierry Baudon EBRD-Suez

Political party, bank etc

Personal links

Suez/Thames Jakarta, Manila Political crony

Joint venture

Viv/Suez St Etienne, Viv/BWB Budapest Municipality

Entry fees

Acres etc, Lesotho Officials

Bribes

Vivendi, Angouleme; Suez Kazakhstan Politician

Bribes

Vivendi Milan, Enron USA,

Viv/Suez/Bouyguyes Ile de France All parties Political donations Suez Grenoble Single party Political donations Examples Recipient Category

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Contracts, and a dynamic process of

interest-seeking

Public

interest

Shareholder interest Contract Actual path

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Dealing with corruption – lessons from Grenoble

State capacity and political activity

• Key role of strong public bodies

– Public auditors (CRC) and examining magistrates

– Problem of investigation without such bodies

– General problem of weak state in privatisations

• Political activity crucial factor

– Successful election resulting in change

– Persistent action by critical party

• Cf neo-liberal presciptions

– Minimise role of state as producer, regulator

– Political intervention seen as ‘interference’

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Water: international context

• European and global dominance by Suez and

Vivendi (>70% of world market) - plus SAUR, RWE

• Historical concentration through concessions in France

• Control local companies in Spain (Agbar, FCC, Avsa)

• establishing control in Italy – joint ventures, court cases

• dominate Czech republic, Hungary, now Romania

• Poor contestability

• French tenders closed, UK concessions never tendered

• Prevalence of joint ventures between multinationals and with local partners

• Entry failures of UK companies, Enron

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Thames/RWE – joint ventures with Vivendi and Suez

Vivendi BWB (RWE-Vivendi) FCSM Sewerage Budapest Hungary Suez RWE Aqua Budapest Water Water Budapest Hungary Vivendi Thames Water Sidoarjo water W Sidoarjo Indonesia Vivendi Thames Water Papakura Water W Auckland New Zealand Vivendi Thames Water United Water WS Adelaide Australia Vivendi RWE Aqua Berliner Wasser (BWB) WS Berlin Germany Partner RWE/Thames Company Service City Country

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Electricity

• EU electricity, gas directives

–

Vertical unbundling, liberalisation

– Privatisation not required but eg UK

– Early liberalisation across Scandinavia

– Some state companies remain eg EdF, Vattenfall

• Vertical and horizontal re-integration

– eg concentration in Germany, UK into 4/5 vertical groups

– Same multinationals across Europe EdF (France) , RWE,

E.ON (Germany) (+Vattenfall, Suez-Electrabel, Enel, Endesa

– USA and UK companies

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Shares of generating capacity in UK 17% 13% 8% 8% 6% 20% 8% 7% 4% 4% 5% E.ON RWE EDF Scottish Power Scottish & Southern British Energy AES AEP BNFL

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Liberalisation and concentration in electricity in Germany – Dec 2001 (est) Eon 26% RWE 24% Vattenfall+ 15% EdF+ 13% Municipal 16% other 6% March 1999 VEW 6% VEAG 9% Viag 10% Bewag 3% EdF 4% EnBW 5% HEW 3% NWS 4% Preussenelekt ra 14% RWE 19% Municipal 17% Other 6% March 1999 Dec 2001

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Electricity Market Shares in Western Europe 1998-2002 20 20 20 19 19 7 7 9 10 12 8 8 9 9 11 10 10 9 8 8 4 4 3 6 8 3 3 2 4 4 3 3 4 4 4 3 3 4 3 4 3 3 3 3 3 39 39 37 34 27 0 10 20 30 40 50 60 70 80 90 1 0 0 1998 1999 2000 2001 2002* Other Iberdrola Endesa Electrobel National Power Vattenfall ENEL EoN RWE EdF

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The sale of Slovakia’s energy, 2002

New owners Companies for sale

Sector

(tendering: bidders include Eon, RWE, EdF, Enel)

Electricity generation

Eon, RWE, EDF (1/3 each)

Electricity

distributors (49%) Electricity

Ruhrgas(Eon), GdF, Gazprom (joint venture, 1/3 each)

SPP (49% sold) Gas

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Largest waste companies in Europe

£984 Cleanaway (Brambles) £698 RWE Umwelt £3791 Onyx (Vivendi) £3412 Sita (Suez) Global Turnover 2001 (m) Company

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65 65 60 60 50 50 30 30 10 10 France

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Multinational multi-utilities

X X (x) Vivendi (x) (GDF) X EDF (X) X Eon X X X X RWE X X X X Suez Waste Wate r Gas Electricity

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Comments

• Corruption to obtain market

– Range of legal/illegal inducements

– Politics as solution, not problem

– a dynamic political process, not contract

• Liberalisation/privatisation feeds globalisation

– New markets for existing multinationals

• Cartels and partnerships

– Non-competitive (water, energy)

• Limiting political options by capture

– Restructuring by corporate policy

• Eg water in UK, energy in Germany