1. Water resources and rights to water: essential legal framework. I.S.S.A.E.R.E Torino, Italy September 13 th, 2010

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1 I.S.S.A.E.R.E Torino, Italy September 13 th, 2010 WATER RESOURCES AND INFRASTRUCTURES PROPERTY MODELS FOR WATER SUPPLY PROVISION: A LEGAL PERSPECTIVE Dario CASALINI* *Assistant Professor of Public Law, University of Torino Italy dario.casalini@unito.it 1. Water resources and rights to water: essential legal framework 2. Legal models for water supply service provision 3. Property regime applicable to water supply infrastructures 1. Water resources and rights to water: essential legal framework 1

2 Human right to water Water is a natural resources vested in public domain or incapable of exclusive appropriation closely connected to fundamental individual rights: as a means of the effectiveness of the right to life, access to water is itself a fundamental human right inherent to human being. According to UN the human rights to water entitles everyone to sufficient, safe, acceptable, physically accessible and affordable water for personal and domestic uses [1.1 billion persons have no access to basic water supply yet] Environmental right to water Any environment is entitled to have at least the minimum amount of water it needs as far as water is an essential part of any ecosystem (environmental law; sustainable development). Water as a good essential to the existence of individuals and communities must be (1) vested in territorial sovereignty hence (2) subject to an administrative system of licence, permit or concession in order to define the content of the right to water (quantity, purpose, conditions of use). Civil law approach (Continental Europe, South America, China) Water resources (non-marine) in situ are vested in the State, subject to public ownership. The use of water must be permitted by means of licence, permit or concession issued by a public authority which precisely defines the content of the right (quantity, purpose, condition of use). Water enters the market on public authority s decision (=administrative system of water rights). Concession, License, Permit Conce ssion 2

3 Common law traditional approach (UK, USA, Commonwealth) Water resources are incapable of exclusive appropriation (like a res nullius or extra commercium,) but rights of use water resources are subject to different doctrines none of which proved to be able to quantify or exactly define the content of the right to water (right to water coincides with the extent of its effective and actual use): 1) Riparian doctrine: 1a) natural flow theory (UK) 1b) reasonable use theory (UK, USA) 2) Prior appropriation doctrine (Western States USA to legitimate the diversion and transport of water for miles to serve mining and farming in the Far West) Common law approach updated UK Water Resources Act 1963, art. 23: no person shall abstract water from any source of supply in a river authority area except in pursuance of a licence under this Act granted by the river authority and in accordance with the provisions of that licence. = recognition of existent water rights according to traditional theories + introduction of administrative system for new water rights Common law approach updated Different national water systems in USA: i) Riparian systems (29): Alabama, Arkansas, Connecticut, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachussetts, Michigan, Minnesota, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin; ii) Prior appropriation systems (9): Alaska, Arizona, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Wyoming iii) Mixed or hybrid systems (10): California, Kansas, Mississippi, Nebraska, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Washington = recognition of existent water rights according to traditional theories + introduction of administrative system for new water rights 3

4 Administrative system of water rights were then introduced even in previous common law water systems. Its main characteristics are: 1. Water resources are part of the public domain or subject to State administration; 2. The holding of a permit or licence is a precondition of access and use of water (with few exemptions); 3. The use of water must comply with the conditions laid down by the permit or licence (= environmental concerns); [ 4. Licence and permit may be transferred (water rights market)] 5. Private ownership in physical water exists only after water has been abstracted by individuals according to the permit or licence 2. Legal models for water supply service provision 4

5 2. Legal models for water supply service provision Extremely high fixed costs (infrastructure) very low marginal costs + natural monopoly No unique network but several monopolies COMPETITION only: For the market in related market 2. Legal models for water supply service provision Two basic alternatives for providing water supply services are available: Self-Organization P.A. In house provider Tendering procedure Public-Private Partnership COMPETITION LAW Market Concession Procurement 2. Legal models for water supply service provision SELF-ORGANIZATION In-house providing defined by EU law as the external limit of common market and competition law. Two requirements must be met by a public authority to provide the water supply service within its own organization: P.A. must i) exercise control over the in-house provider which is similar to that which it exercises over its own departments and, at the same time ii) the in-house provider must carry out the essential part of its activities with the controlling public authority or authorities 5

6 2. Legal models for water supply service provision MARKET Water supply service can be provided by private (Concession, procurement) or mixed public-private capital companies (PPP) to be chosen by means of public tendering procedure (art. 107 s., 315 TFUE). Privatization of water supplier does not mean competition Privatization is distinguished from outsourcing or contracting out 2. Legal models for water supply service provision SELF-ORGANIZATION 1. achieving social goals (e.g. avoid creamskimming practices; non cost-effective rates) 2. response to market failure (e.g. private monopoly) 3. direct control on informational asymmetries (ensuring compliance with quality standards) 4. ensure risky investment in infrastructure of uncertain economic return 5. avoid market incentive to raise consumption of water (=private profit) Vs. MARKET 1. inefficiency (political interference) of inhouse provision 2. financial burdens 3. technological knowhow 4. others (labour law; liability; management; regulation/control) 2. Legal models for water supply service provision UK Water Act, 1989 privatisation of RWAs (sold on the market) regulation authority (OFWAT) = private regulated monopolies FRANCE PPPs or public (in-house) providers since 1900 = flourishing of the biggest water companies in the world (e.g. Veolia, Lyonnaise des Eaux ) GERMANY, ITALY mixed solutions:i) PPPs ii) public (in-house) providers iii) market providers (water companies) 6

7 2. Legal models for water supply service provision Price per m 3 : Copenaghen 6.50 Berlin 4.85 Glasgow 4.80 Nice (F) 3.19 San Diego 3.17 Newcastle 2.81 Calgary 2.53 Philadelphia 2.37 New York 1.53 Tokyo 1.42 Sao Paulo 1.26 Singapore 1,17 Rome 0.95 Rio de Janeiro 0.64 Moscow 0.63 Beijing 0.39 Johannesburg 0.34 Caracas 0.15 Algeri 0.08 Damasco 0.05 L Avana 0.03 New Delhi 0.03 Karachi 0.02 Riyadh Property regime applicable to water supply infrastructures 3. Property regime applicable to water supply infrastructures NATIONALIZATION P.A. Public owned companies Private companies Mid-XIX century PRIVATISATION Late XIX century Project financing PPP Private companies 7

8 3. Property regime applicable to water supply infrastructures Water infrastructure can belong to: Public local authorities Public Water authorities Totally owned public company whose share are inalienable water supply companies under public control PUBLIC ENTITIES PRIVATE ENTITIES Private (water supply) companies 3. Property regime applicable to water supply infrastructures The legal framework of water infrastructures ownership mainly depends on the financial constraints and the relevant economic concerns: Public financing (work public procurement) Public-private financing (PPP, project financing + concession) Private financing infrastructure in public ownership infrastructure in public ownership but run and managed by the private financer/builder on the ground of a long term concession to recover investments infrastructure in private ownership whose destination to water supply might be modified only on public authority agreement. 3. Property regime applicable to water supply infrastructures Granting third providers access to water supply infrastructures in private hands (essential facilities doctrine): PROVIDER 2 PROVIDER 3 PROVIDER 4 Private OWNER ANTITRUST AUTHORITY compel the owner to allow third parties to access its own infrastructure 8

9 3. Property regime applicable to water supply infrastructures Granting third providers access to water supply infrastructures in public hands the separation between infrastructure and service provision is directly imposed by the public owner and does not require antitrust decision Public OWNER PROVIDER 2 PROVIDER 3 PROVIDER 4 9