ABSTRACT
During much of the 1990s, water utilities worldwide experienced a wave of privatization. The rationale for this, much like the rationale for the wave of privatization of state-owned enterprises and other government services, is largely based on two hypotheses: the fiscal hypothesis and the efficiency hypothesis (Braadbaart 2001). The fiscal hypothesis suggests that privatization will relieve governments of the burden of investment financing particularly in the context of fiscal pressures faced by many developing countries in the 1980s. The efficiency hypothesis on the other hand suggests that water utilities’ performance will improve under private ownership because it is “obviously” more efficient than the public sector. These two hypotheses – widely supported by donors, think tanks and economists – is summarized by Franceys (1997) as follows:
[P]rivate sector participation is seen to increase efficiency and introduce new ideas of finance but above all to require a new emphasis on proactive, performance oriented commercial management that aims to match the demand of its customers with their willingness to pay realistic charges and tariff.
