DAMAS MASHAURIPROFESSORPOLYTECHNIC OF NAMIBIA,NAMIBIA

DEFINITIONS AND CONCEPT OF CORRUPTION

OUTLINE OF PRESENTATION

1. What is corruption?

2. Nature of corruption in

the water sector

3. Costs and impacts

of corruption

4. Drivers and incentives/disincentives of corruption

WHAT IS CORRUPTION?

• Corruption is the abuse of power for private gain (TI).

• Corruption is an exchange of either economic or social resources.

• Corruption is active e.g. when political influence is used to get preferential treatment in the review of contracts.

• It is passive when, say, a public official overlooks the pollution of a water source.

GRAND CORRUPTION

• Grand corruption involves larger sums of money:-

• Seldom as visible as petty

corruption, because both parties

usually go to great lengths to

conceal the transaction.

• While petty corruption typically

involves low level utility staff.

GRAND CORRUPTION

• Grand corruption involves larger sums of money:-

• Grand corruption tends to involve politicians, senior officials and higher

level engineering staff.

• Grand corruption exists mainly in construction (tendering and implementation) and frequently in the purchase of expensive equipment and materials.

DRIVING FORCES OF

CORRUPTION

Individual incentives:

Actors engage in corruption

when the expected net

benefit is positive and risk

is low.

DRIVING FORCES OF

CORRUPTION • Weak governance and unclear

institutional rules: • Weak institutional structures and systems of governance can have a considerable effect on corruption.

• Low level of economic competition and a high level of discretion (misamaha!) tend to increase corruption

DRIVING FORCES OF

CORRUPTION • Norms:

• Corruption social systems where the rules are not clear

• And the distinction between the public and private spheres is not well established can be an intrinsic part of.

INCENTIVES AND DISINCENTIVES FOR CORRUPTION TO OCCUR

Corruption flourishes when the incentives/opportunities are high. Disincentives counter balance corrupt incentives and

prevent corrupt behavior.

Corruption Prevention

IncentivesDisincentives

CORRUPTION IN THE WATER SECTOR

• The water sector is characterized bya number of factors that increase the

likelihood of corruption: -

CORRUPTION IN THE WATER SECTOR

• Large-scale construction - high returns

• Monopolistic conditions - no competition.

• Weak consumer involvement.

• High level of public sector

involvement.

CORRUPTION IN THE WATER SECTOR

• Technical complexity, which decreases public transparency and leads to an asymmetry of information.

• Necessity of water (high demand),

which reinforces the power position

of suppliers and encourages bribery.

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CORRUPTION ORIGINATES IN MULTIPLE INTERFACES BETWEEN

PUBLIC AND PRIVATE ACTORS

Interface Water Supply & Sanitation (WSS) Water Resources Management(WRM)

Public - Public Inter-departmental complicity in selection Inter-departmental collusion to coverand approval of water projects, up pollution of water resources.

Public officials bribing for jobs.

Public - Private Bribery, fraud or collusion in public Collusion or kickbacks in publicprocurement for construction of water or procurement for largedams. waste services. Kickbacks for awardinglarge-scale contracts. Bribes to cover up wastewater

and pollution discharge.

Public - Consumer “Speed” money Bribery to obtain water permits. Falsification of meter readings Illegal connections

THE COSTS OF CORRUPTION (1)

1) Waste of financial resources: Corruption serves to diminish the total amount of resources available for public purposes.

• Money leaves the investment cycle and enters private domain

• The prospect of payoffs can lead officials to create red tape, encourage the selection of uneconomical and unsustainable projects to manufacture opportunities for financial kickbacks or political patronage.

THE COSTS OF CORRUPTION (1) CONTINUED

1) Waste of financial resources: Corruption serves to diminish the total amount of resources available for public purposes.

• Corruption increases the price of administration and size of public expenditures.

• Corruption can lead to the use of inappropriate technologies/overdesign, where public expenditures are based on private gain, not appropriateness or sustainability...\GENERAL\ambulance.bmp

THE COSTS OF CORRUPTION (1) CONTINUED

2) Corruption distorts allocation

• Corruption causes decisions to be weighed in terms of money, not human needs

• Infrastructure projects can also be motivated by their potential to attract votes, rather than on the basis of priority...\GENERAL\Toyota cowrolla1.jpg

THE COSTS OF CORRUPTION (1) CONTINUED

1) Waste of financial resources: Corruption serves to diminish the total amount of resources available for public purposes.

• Corruption increases the price of administration and size of public expenditures.

• Corruption can lead to the use of inappropriate technologies and or over-design, where public expenditures are based on private gain, not appropriateness or sustainability...\GENERAL\semi trolley.jpg

THE COSTS OF CORRUPTION (2)

3) Corruption breeds corruption and undermines leadership

• IF the public leaders are

believed to be corrupt, the

public will see little reason why

they, too, should not indulge in

corrupt behaviour.

THE COSTS OF CORRUPTION (2)

4) Loss of natural resources

• Economic and cultural losses

to societies from

environmental degradation.

CORRUPTION IN THE WATER SECTOR HURTS THE POOR THE

MOST

The poor cannot pay large amounts:• If a scarce resource or service is delivered to the highest bribe, the poor will lose out.

• When the poor pay bribes, they have to pay a higher amount relative to their income.

The poor lack influence:

• Typically, poor people also lack the influential contacts and relationships that determine delivery and allocation of public offices in corrupt systems.

• Poor people do not have the means to enter alternative markets when corrupt public systems fail to deliver.

CORRUPTION IN THE WATER SECTOR HURTS THE POOR THE

MOST(2)Corruption indirectly diverts public resources

• Away from social sectors and the

poor, and limits development,

growth and poverty reduction

• The poor are easy targets for

being subjected to extortion,

bribery, double-standards and

intimidation.

• The poor are unable to access the law to defend themselves

IMPACTS OF CORRUPTION ON

WATER GOVERNANCE

Corruption impacts financial,

economic, environmental and

socio-political conditions.

1) Economic:

• Drains much-needed

investment from the sector and

distorts prices and decisions.

• Increases spread of disease and

costs to economy.

2) Financial:

• Increases operating costs

IMPACTS OF CORRUPTION ON

WATER GOVERNANCE

Corruption impacts financial,

economic, environmental and

socio-political conditions.

1) Environmental: Leads to contaminated drinking water and destroyed ecosystems.

2) Socio-political: Aggravates social

tensions, political frictions and regional

disputes.

CONCLUSIONS

• Corruption, the abuse of power for privategain, occurs in many shapes and forms

• The characteristics of the water sector make it highly prone to corruption

• Everyone needs water and water sector has great range of opportunities for corruption: billion dollar contracts for large dams and hydropower to a few cents in speed money or buying illegal water

CONCLUSIONS

CONTINUED

● Corruption can occur in all water sub-

sectors:

(WSS, WRM, Irrigation, Hydropower) and involve all water stakeholders.

● The costs of corruption are large:

• wastes resources, undermines leadership, environmental impacts, weakens governance

• Greatest ultimate impact is on the poor and un-served

CASE STUDY 1

Lesotho Highlands Water Project (LHWP)

• Whereby German-based Lahmeyer International was barred (for seven years) by WB

• For bribing officials to win contracts for Africa’s largest inter-basin water transfer scheme

CASE STUDY 2

Cochabamba Water Protests in 2000

(Bolivia)

• Private company given the mandate to

manage water supply and sanitation

services of Cochabamba, (Bolivia’s 3rd

largest) city.

• Water tariffs were raised beyond the means of ordinary citizens.

• Corruption was the main source of these disruptions.

CASE STUDY 3

• Jakarta disastrous water privatisation case. Palyja a subsidiary of Suez International, a French Utility company.

• Again tariffs spiralled while incomes of customers were stagnant. People went up in arms –for termination of the contract.

• Corruption played a role in the contract to have a private company to take over the mandate water and sanitation services.

CASE STUDY 4

Ecuador's water wars

• Vast social insurrection lesson from the Cochabamba (Bolivia) case.

• Water sources were being polluted by open air mining activities.

• The corrupt officials looked the ‘other way’.

• Succession of protests brought Evo Morales to presidency.

CASE STUDY 5

Buenos Aires, Argentina Water Concession in 1992

• Attracted worldwide attention and has

been the subject of considerable controversy in Argentina.

• Information asymmetries, perverse incentives and weak regulatory institutions could threaten the long-run sustainability of the concession.

CASE STUDY 5 CONTINUED

- Politicisation of the regulator.

- A poor information base.

- Serious flaws in the concession contract.

- An obscure tariff system and a general lack of transparency in the regulatory process

- Have created opportunities for the company to act opportunistically, and the regulator arbitrarily.

- Public confidence is eroded.

THANKS VERY MUCH

● THANKS VERY MUCH FOR LISTENING TO ME

• Asante sana

• Zikomo pambiri

• Tangi unene

• Danke zur

NB: This presentation is based on attendance of two Water Integrity short courses. Slides Adapted from the Training Manual on Water Integrity. See also www.watergovernance.org