Elsevier

Utilities Policy

Volume 15, Issue 2, June 2007, Pages 93-109
Utilities Policy

Experience with private sector participation in Grenoble, France, and lessons on strengthening public water operations

https://doi.org/10.1016/j.jup.2007.01.004Get rights and content

Abstract

This article looks at the experience with water supply reform in Grenoble, France, where, starting from 1989, different forms of private sector participation were introduced until the decision was made to revert to municipal operations. Identified risks of private operations include interest-seeking practices and a distribution of resources favourable to service providers, together with the high cost for local communities of exiting unsatisfactory deals. The new municipal operator has been able to improve performance in terms of contained pricing and enhanced investment. This can be explained in relation to the strengthening of accountability networks through advanced public participation and transparency.

Introduction

The city of Grenoble (158,000 inhabitants), which has good quality water resources and a satisfactory network, nevertheless experienced an intense period of change from the mid-1980s in the provision of water services. More precisely, a number of reforms have been introduced in relation to water supply, sewerage and wastewater treatment, ranging from various types of private sector participation (PSP) under the French system of “gestion déléguée” to re-municipalisation.

This article draws from a more extensive report on decision making in Grenoble, developed in the context of the WaterTime project (Lobina, 2006), 2 which provides a more detailed account of the various reforms undergone by local water services. For the purpose of this essay, the analysis of events focuses on the reform of urban water supply but it should be noted that parallel and analogous developments have affected sewerage and wastewater treatment operations (Lobina, 2006: 25–29).

Water operations were privatised in 1989 with the award of a lease contract, in return for financial support for a mayoral election campaign, which was subsequently judged to be corrupt. The private operator re-negotiated a different form of contract following this, but problematic economic effects on consumers persisted while the legal validity of operations proved uncertain, and years of political activity were involved before the contract was terminated. Legal and audit processes played a significant role in this process. Eventually, management and operations were brought under full municipal control and this decision appears so far to have been rewarding for consumers.

The observation of the above sequence of events, with municipal decision making going full circle throughout the entire spectrum of reform options, allows for comparing the implications of different types of public, private and public–private operations in the same context. From the methodological point of view, this presents the advantage of neutralising geographic and technical factors as possible explanation for different outcomes of reform in different cities. Unity of space means that, apart from ownership of operations, time might remain the only significant factor determining the results associated with different reforms. For example, changes in legislation governing service provision are expected to produce an effect only from the moment of their introduction.

As regards the evaluation of specific types of reform, the processes at Grenoble provide an acute illustration of the complex relationships and processes that can be experienced in the French system. This exercise is of relevance beyond the French context as, with the promotion of PSP gathering pace since the early 1990s, similar contractual frameworks to those experienced in Grenoble have been increasingly introduced not only in Europe but also at international level. In that sense, the observation of factors varying from the fiscal considerations of local governments to individual and organisational interest-seeking, from the distribution of resources among relevant actors to transparency and accountability mechanisms, provides valuable indications for the analysis of water sector reform in different contexts. Finally, the stark contrast in outcome between current municipal operations and previously adopted organisational modes, both under public and private management, allows for deriving general lessons on the determinants of successful public water operations.

The first section of the article is devoted to setting out the analytical framework underlying the case study, on the background of relevant theoretical perspectives. A brief overview of the French institutional framework follows, aimed at identifying the main contractual and operational typologies together with recent legislation affecting the organisation of water services. After a brief history of the development of Grenoble's water supply system, each section addresses one of the episodes in which the narrative of events has been divided: the award of lease contracts in 1989 and their operation until 1996; the re-negotiation of the lease contracts from 1995 to 2000; and the re-municipalisation of water operations from 2000 to date. Finally, findings are discussed and concluding remarks set out.

In the absence of an exhaustive survey of French private water operations, this article is not aimed at claiming that events unfolding in Grenoble from 1989 to 2000 are representative of all private contracts awarded in France. Conversely, there is sufficient empirical evidence supporting the view that the dynamics between actors and factors observed in Grenoble are representative of many French and international cases whereby both municipal water provision and PSP have proved problematic. In that sense, the analysis of events in Grenoble allows for gaining valuable insights on problems often associated with municipal and private operations, as well as on the potential for reforming municipal undertakings to strengthen their performance without renouncing public management and ownership. It is argued that the achievement of reform objectives through the introduction of PSP is considerably difficult due to tenuous principal–agent relationships, with service provision predominantly informed by private operators’ commercial interests. Furthermore, advanced participation and transparency mechanisms are instrumental to strengthening the effectiveness of principal–agent relationships established around the provision of urban water services. Sectoral reform should thus be informed by the awareness of the potential contribution of enhanced accountability networks in terms of operational effectiveness and sustainability.

Section snippets

Analytical framework and underlying theoretical perspectives

The analytical framework informing all case studies under the WaterTime project, including the Grenoble case study, is based on the consideration of interrelationships among actors, factors and events throughout time (WaterTime, 2003). The analytical framework sees decision making on the reform of urban water systems, from diagnosis to implementation of decisions made, as the result of actors pursuing different interests and objectives through the respectively available resources in a context

The organisation of water services in France: an overview

Responsibility for the organisation of water services in France rests with local authorities, who are free to decide whether to select a private operator or entrust a public enterprise with service provision (Bauby and Lupton, 2004: 21).

Under French law, water operations might be managed by the following types of operator: (a) 100% municipally owned undertakings known as régie; (b) mixed economy enterprises known as Société d'économie mixte; and (c) private companies, under a number of

Brief history of Grenoble's water supply prior to 1989

Water supply in Grenoble remained under municipal management from the beginning of operations in the late 19th century until the award of a privatised contract in 1989. Up to the 1960s, decision making on water provision was dominated by the imperative to meet the requirements of continuous expansion in terms of urban population and economic activity. Between 1965 and 1971, the municipality of Grenoble built three new wells for the abstraction of groundwater, which secured the city with a

Award of lease contract to COGESE, 1989–1996

In 1984, the then Mayor of Grenoble, Alain Carignon, a prominent member of the RPR party, initiated a new policy in favour of private sector participation in gas, electricity and water services. In 1989, Mr. Carignon took the initiative to privatise the city's water services to Lyonnaise des Eaux’ subsidiary COGESE (Compagnie de Gestion des Eaux du Sud-Est). The deal went ahead in spite of strong opposition led by the green political party, ADES, and trade unions, supported by several consumers

Decision to re-negotiate the water supply and sewerage lease contracts: 1995–2000

In June 1995 municipal elections led to a change in the ruling coalition, from right- to left-wing, and the same year the court case exposed the corrupt deal behind the 1989 award. Grenoble City Council opted for negotiating a new solution with Lyonnaise des Eaux, rather than terminating the contract. ADES was opposed to this decision but could not prevent it. The new majority decided to re-negotiate as it estimated the municipality would have to pay more for termination.

As the municipality had

Administrative court rulings: 1989–1999

Following the corrupt deal in November 1989, the then opposition had challenged the privatisation in court but the Tribunal Administratif rejected the request to void the decision of the City Council on grounds of ultra vires.

ADES however continued legal proceedings and, in October 1997, the original decision to delegate water services to COGESE was annulled by the French Conseil d'Etat for being illegal (Conseil d'État, 1997a). Although the court sentence did not rule on the validity of the

Discussion of findings

The following findings drawn from the Grenoble case study appear to be relevant to enhancing sustainability through urban water reform. These are discussed in three sections. The first sets out generalised observations derived from the analysis of the Grenoble case study in light of the adopted analytical framework and the considered theoretical perspectives. The second section points to empirical evidence corroborating the findings discussed and illustrating their relevance beyond the case of

Conclusions

We offer the following conclusions in light of the observed empirical evidence and discussed findings.

The introduction of PSP in the water sector carries considerable risks that the intended objectives of reform might prove difficult and costly to achieve. This reflects the fact that the distribution of resources among actors, the rules informing the relationships among the parties and market structure, might favour the fulfilment of private operators’ commercial interests over those of the

Acknowledgements

The authors wish to acknowledge the financial support from the European Commission for the WaterTime project (EVK4-2002-0095, http://www.watertime.net). This article is based partly on the work and results of that project.

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