HEALTH-BRAZIL: Best Medicine Faces Tough Privatisation Process

By Mario Osava Reprint | | Print |

Mario Osava

RIO DE JANEIRO, Apr 7 2000 (IPS) - Brazil’s biggest public health problem is the scant investment made in basic sanitation, say experts, a sector the government is attempting to privatise despite major legal obstacles and strong opposition.

Health minister José Serra, who complains that funding is limited to “a fifth of what is needed,” is an outspoken defender of the idea that sanitation is the best cure for the diseases that threaten the Brazilian population.

Lack of water and sewage services only underscore the country’s poverty. Just 31 percent of the population has access to drainage services, a portion that rises to 39 percent in the cities, according to data from the Brazilian Association of Sanitary and Environmental Engineering (ABES).

Statistics also reveal that 28 percent of Brazilians in rural regions lack access to clean water, compared to nine percent in urban areas.

In addition, less than 10 percent of the nation’s sewage is treated before finding its way to lakes, rivers or the ocean.

Under these conditions it is difficult to contain epidemics of malaria, dengue and, in recent months, the advance of yellow fever – which had been eradicated in urban areas but now threatens cities in central Brazil, including the capital.

Such poor sanitation conditions result in preventable deaths of 8,500 people per year, according to a 1998 World Bank study.

Every dollar spent on sanitation produces savings of five dollars in public health, argue government agencies as they request the resources they have needed for decades. The funds were made even more scarce by the 1998 agreement with the International Monetary Fund (IMF) because it blocked the sector’s principal source of funding.

Every additional percentage point of investment in sanitation services for the poorest population reduces infant mortality rates by 6.1 percent, says the National Front for Environmental Sanitation, made up of professional groups like ABES, unions and non-governmental organisations specialising in the issue.

In Brazil, 60 percent of hospitalisations of children are caused by water-borne diseases, according to the Front, which rejects privatisation and defends universal access to sanitation services.

But this urgent need for hefty investment is the government’s principal argument for privatising this public service.

With the State’s hands tied by a fiscal deficit and enormous debts, only private capital could meet these urgent needs, explain privatisation’s defenders.

The National Bank of Economic and Social Development, a government entity that co-ordinates its privatisation processes, estimated it would take annual expenditures of 3.2 billion dollars through 2010 to overcome the sector’s deficiencies.

Minister Serra stated that some 2.3 billion dollars are needed annually just to fight the expansion of epidemics. But the situation continues to deteriorate due to the lack of funding sources, warned a group of 27 state sanitation entities.

But 24 of these state agencies do not have any way to obtain new credits, due to their abominable financial situations and lack of efficiency, says an assessment by the Federal Economic Bank, a development entity responsible for most of the financing of Brazil’s government construction and social projects.

President Fernando Henrique Cardoso’s government decided to push for the privatisation of sanitation utilities, but the process faces much larger obstacles and stronger opposition than previous sales of the government’s steel, petrochemical and banking operations.

In the first place, the nation lacks legislation that defines whose jurisdiction it is to determine if the state or municipal administration should oversee the privatisation, or how they should share power in selling off the water and sanitation services.

The lack of clear boundaries results in frequent disputes between the different levels of government, often aggravating the problems they are trying to resolve, say observers.

Legislative bills covering the concession and regulation of the privatisation process are sensitive because they involve the entire population and health, and they have been bogged down in National Congress for years.

This situation makes designing a privatisation model difficult, intensifies opposition and facilitates the success of the lawsuits filed to impede the process.

Such was the story of a Manaus sanitation firm, which serves the capital of Amazonas state, when it tried this week to privatise for the second time. The bidding process was suspended Monday by a local court for an indefinite period.

But that did not prevent 28 municipal entities from being privatised over the last six years, while minority participation by private companies also increased in state-run entities.

Basic sanitation services, a five-billion-dollar business according to the federal government’s Urban Development Office, has caught the attention of powerful corporations from the industrialised North, such as France’s Lyonnaise des Eaux and Vivendi, Britain’s Thames Water, the US-based Enron and Iberdrola of Spain.

In addition to the legal obstacles and the slowness of the process, privatisation of water services faces resistance from society and even government sectors.

Sanitation is a “natural monopoly” that is not based on competition in the industry, much less on the law of supply and demand, because it involves a product that is of universal and necessary consumption, pointed out Antonio Marsiglia Neto, president of ABES.

As such it is foolhardy to turn this sector over to private capital, because a for-profit company would have no interest in providing the services to the poorest population.

Because Brazil’s sanitation services require enormous investment and would not be profitable for years to come, private companies would have to raise rates, pushing the service out of reach for the lowest income sectors of the population, argued Marsiglia.

The solution is to free up funds to finance expansion that are blocked by the fiscal adjustment agreements with the IMF, and to promote development of the sector at the municipal level, said Antonio da Costa Miranda, president of the National Association of Municipal Sanitation Services.

Miranda calculates that a total investment of some 1.4 billion dollars per year in Brazil’s municipalities would enable the country to meet its basic sanitation needs within 10 years, thus reducing infant mortality from its current 35 per 1,000 live births, to eight per 1,000 – a rate similar to that of industrialised countries.