05 Apr 2012

Financial leakage often accompanies actual leakage in the business of water procurement. Bryane Michael argues for ways to improve transparency.

Financial leakage often accompanies actual leakage in the business of water procurement. Bryane Michael argues for ways to improve transparency.

Corruption in water sector procurements affects both rich and poor countries. In the 1990s, executives from two French companies, Vivendi Water and Suez-Lyonnaise, faced charges of paying bribes to public officials at home and abroad in order to win water concessions worth millions of dollars. Corruption means that companies can provide sub-standard service and pass on the cost of the bribes to consumers.

In the case of large dam projects in Japan and Thailand, corruption caused taxes to rise and politicians’ careers to fall.

Consumers in countries such as Singapore and Hong Kong may believe that they do not need to worry about corruption. Think again. Corruption increases the prices these consumers pay for the food they import, particularly from China and Malaysia respectively. Corruption causes the pollution in their larger neighbours— which threatens both city-states. The infographic on page 26 shows how corruption in water sectors worldwide affect people from the advanced and developing countries alike.

Corruption without borders

In the Asia region, financial leakage often accompanies actual leakage. According to the OECD and the Asian Development Bank (ADB), unaccounted for water can reach up to roughly 50 per cent in places such as Bangladesh, Indonesia, and the Philippines. Within countries— in India for example—such leakage can vary from about 13 per cent in Mumbai to 45 per cent in places such as Bangalore. Such large variations underscore the highly local nature of corruption in water sectors. As local governments, where corruption is least monitored and arrested, often provide water, these localities can cause large health, economic and political effects that extend across municipal and even state boundaries. The pollution of the Mekong River basin illustrates how bribes paid in Xishuangbanna in Yunnan, China for local government officials to turn a blind eye to industrial pollution can affect local water consumption downstream in Phnom Penh, Cambodia. Non-government organisations such as Transparency International, the global agency dedicated to raising awareness about corruption, may measure corruption on the national level but in reality, the effects of corruption are truly transnational.

Even the local part of corruption affects more of your neighbours than one might realise. In an annual corruption barometer, where Transparency International asks households from countries around the world if they pay bribes for particular government services, the results show that 9 per cent of Japanese admit to paying bribes for utilities, of which water and sanitation feature. High proportions of households can be expected in countries widely considered as having corrupt practices to pay bribes to obtain water and sanitation service, for example in Indonesia and China. In some of the most corrupt countries, significant proportions of the population rely on bribes to get basic public utilities—36 per cent in Bangladesh and 55 per cent in Cambodia. However, when the survey shows even users in countries such as Singapore and Hong Kong, regularly perceived as less corrupt, admitting to paying bribes, we begin to understand the magnitude of the problem.

Taking a broader view

What can Asian policymakers do to prevent corruption- induced water shortages? Most Asian countries by now have established Integrated Water Management Programmes with Thailand’s National Water Vision, China’s adoption of Agenda 21 and so forth. Yet, rather unglamorously, Prime Ministerial advisors should propose modifying executive regulations that increase the capabilities of government internal auditors. In most governments, internal auditors work in the confined silos of their own agency. Corruption affecting the water sector touches literally scores of agencies which deal with procurement, water delivery, sanitation, and environmental standards, at the local and national levels. The risks addressed in a water audit range from environment degradation to rising costs of living. Audit teams will need the authority to move across the silos and levels of government departments if they hope to spot the corruption that creates large-scale water insecurity.

Anti-corruption agencies in the region do not, and can not, deal with the complex and highly technical issues involved in water-sector corruption. Nepal’s Commission for Investigation of Abuse of Authority has proved a rare exception. In 2009, they proceeded with an investigation of the Nepal Water Supply Corporation for procurement irregularities related to the purchase of pipes. Yet, these complex cases serve as the exception proving the rule. Officials in these anticorruption agencies currently sit around and wait for people to call them with complaints about bribe-seeking. Some agencies pour over thousands of pages of regulations, looking to spot gaps exploited by civil servants to take bribes. Users should be able to actively monitor the price and availability of water with software no more sophisticated than Microsoft Excel. Data about market distortions such as increases in prices and decreases in the quality and quantity of water provided often provides a bright red arrow pointing to corruption.


Follow the money

Anti-corruption agencies in most countries do not even need advanced statistics to spot the market failures that could lead to corruption. The US Centre for Public Integrity has described in great detail the market concentration and lack of competition in one of the most vigorous and competitive free market economies in the world. The popular press, from Baltimore to Jakarta, have labelled the beneficiaries of market-distorting corruption as water barons. When the investigations follow the barons, they will find the corruption.

These anti-corruption agencies can also include the lowest levels of government and government contractors involved in providing water when investigating possible illicit enrichment. Under these illicit enrichment rules, individuals holding power powers must explain the source of their wealth—or lose it. Once the contractors who take bribes know they might need to explain how they can afford to send their children to Princeton (or face jail time), they might think twice before asking for bribes. Maria Julia Alsogaray, the former Argentine Minister of the Environment, proves a rare exception. After approving numerous rate increases by private water company Aguas Argentinas, suspicions of bribe-payments and other irregularities led to her prosecution for illicit enrichment. The privatisations of the utilities coincided somewhat mysteriously with her purchases Buenos Aires mansion and two New York apartments.

Water Report Cards have also received a wide amount of press coverage. These report cards show citizens, often in colourful and easy-to-understand graphics, how much money the government allocates for water-related programmes. They show how the government allocates money and the results received for these funds. Sometimes called results-based budgeting and reporting, these activities allow voters to assess the results of their tax payments. They also produce data that voters can compare across regions and across countries. Yet, such information does not always lead to immediate results. The Bangalore experiment with Citizens’ Report Cards yielded few results in the beginning, as the Water and Sewage Board resisted change. Over time, however, transparency yielded the expected results. Now countries all over the world report the results of water quality tests. As US Supreme Court Justice Louis Brandeis noted, the sunlight (of information and transparency) serves as the best disinfectant (against corruption). Transparency, particularly in water, is never a bad thing.

Bryane Michael is a visiting fellow with the University of Hong Kong’s Centre for Comparative and Public Law. His email is