Portuguese Court of Auditors uncovers profiteering in the water sector

(10 March 2014) An investigation by the Court of Auditors in Portugal has uncovered the true consequences of private management of the water sector: private companies pocket hefty profits whilst residents and local authorities are left to pick up the bill.

A report published on 27th February by the Portuguese Court of Auditors into Public Private Partnerships (PPPs) in the water sector exposes the consequences of privatising public services in the water and sanitation sector. It shows how detrimental these deals are both for local authorities and ordinary citizens, who are forced to pay all the costs whilst private companies pocket hefty profits. The report shows that three in every four of the agreements guarantee compensation to the private service provider if there is a drop in water use or in number of consumers.

The report makes specific mentions of one decision by the Arbitration Court that awarded substantial payments to two private operators. The local council in Marco de Canaveses was forced to pay the private service provider, Águas do Marco, €18 million in compensation. Similarly, the local authority in Barcelos was made to pay Águas de Barcelos nearly €172 million in instalments over the period of the contract. This sum is nearly three times the council’s entire budget.

The profit margins are truly obscene, ranging from 9.5% to 15.5%. The Court states that “this level of expected shareholder dividend is inacceptable in light of current fiscal and budgetary constraints.” It recommends a downward revision of profit margins that are above 10% “as a consequence of changing circumstances and for reasons of fundamental public interest.”

The findings of this highly relevant and important report confirm our belief that the existence of such contracts demonstrates how privatization clears the way for all kinds of corrupt practices damaging to the public interest. They also serve to disprove the consensus that legal and regulatory oversight is enough to prevent mismanagement and malpractice by private companies, whose sole motive is to extract the maximum possible profit.

It is a pity that this audit has only been carried out now, some twenty years after the first water privatisation in Portugal.
Our affiliated union STAL, the national union for local and regional government workers believes that it is vital to bring privatised water and sanitation services back under public control, to do away with these abusive and illegal contracts and to hold all those responsible to account. Read the STAL press release here

More like this