Resource 8
Łodz, Poland: Successful campaign against water privatisation 1993-4

(Report by PSPRU)

Lodz (pronounced "Woodge")is a large industrial city in western Poland, with a population of around 900,000. It was traditionally a textile manufacturing centre.

Generale des Eaux proposed the privatisation of water in Lodz in 1993, through a plan to finance new investment and then operate the system through a new mixed company. Solidarnosc found out about GdE’s interest from local newspaper, and opposed it. The union campaign against this involved:

• working jointly with the other trade union
• organising meetings of workers, and ballots for industrial action
• an alternative proposal for financing the capital investment
• continuous use of press and media
• intensive lobbying of politicians
• widespread distribution of a leaflet for the local elections.

The elections in 1994 were won by a different party, and the new mayor ended the talks with GdE. In 1998, 4 years later, water was still publicly controlled, the investments had been made, and the council had saved $8m.

Generale des Eaux (GdE) formulated their proposal to privatise the water and sewerage operations of the city of Lodz in 1993.

• In March 1993 they agreed a letter of intent with the mayor and the deputy mayor - the rest of the councillors were not informed.
• The proposal was based on financing the development of a new sewage treatment plant. In return for arranging credits to finance this investment, a new joint company would take over the running of the water and sewage companies. GdE would have got a majority of the shares, so the city would lose control.
• A press report later in the year (September 1993) confirmed the names of the officials involved. It emphasised that GdE was a wealthy company, and that the French export credit agency was involved. The scheme was presented as thought there were 3 sources of credit, bringing 60m.ECU ($60m) of finance.
• In reality, however, the proposal was not for finance, but for credit ‘in kind’ - equipment, works, services etc. The proposals did not involve any significant financial risk for GdE, and the company would have been able to profit from unused credits, unwanted equipment etc.

NSZZ (Solidarnosc) first found out about this proposal from a newspaper report in March 1993. They asked for a meeting with the council. A further press report in May 1993 confirmed that plans were being developed. Again NSZZ wrote complaining of no consultation, but got no reply.

• NSZZ worked together with OPZZ (the old communist trade union) to campaign against the privatisation. This is unique, as usually the two union organisations are opposed to each other. NSZZ represented 25% of the workforce, OPZZ represented 20%.
• The unions organised a ballot/referendum on a strike if privatisation took place. Out of 1400 workers, 1200 voted in favour of a strike, with 40 against: the rest were absent.
• The president of Solidarnosc in Lodz seemed to publicly support the privatisation plan of the council leaders, despite the opposition by the Solidarnosc water workers local branch. An emergency meeting of Solidarnosc in Lodz agreed to replace him.

The trade unions drew up their own business plan on how to finance investment in the sewage treatment plant. If they could show how to find enough money from Polish sources, that should kill the argument for privatisation.

• The plan was drawn up by using trade union members with expertise - economists, engineers etc. Also, the unions co-operated with the management of the water company.
• They found an alternative source of investment finance, the Polish National Environmental Fund. The fund decides if applications meet its criteria for community benefits, and then provides loans for investment in environmental services at zero interest - and, if the work was carried out well, and half of capital would not have to be repaid either.
• (In February 1998 the manager of SAUR-Neptun-Gdansk (SNG), the only privatised water company in Poland, confirmed the trade union view of water finances. He told a PSPRU researcher that, even though SNG was 50% owned by a French multinational: 'we have no need of foreign capital - there is plenty of investment finance in the Polish National Environmental Fund'!)

• The unions' alternative plan was far better value than the privatisation plans. The source of finance was much cheaper than GdE - and the plan included development of the whole sewerage system, not just one sewage treatment plant.
• Part of the plan involved separating the water and sewage into a separate company with its own accounts. At that time, water was part of the city’s general finances, so there were no proper separate accounts.

• The unions issued their statement to all the media in Lodz - newspapers and radio - and got a lot of time and space to state their opinions. This won a lot of public support.
• The mayor responded, on radio, by saying that the water workers were professionally incompetent; that the manager - who was supporting the alternative plan - was senile; and NSZZ was a trade union monopoly afraid of losing jobs, which was lying to public. Workers started calling NSZZ, demanding a response to this offensive radio interview, and the unions started preparing for strike action. They demanded a public apology, on radio, from the mayor - who gave it.

• The trade unions held a workplace referendum on industrial action, culminating in all out strike. They won general approval from the workers to start protest activity. This was especially significant because trade union membership was less than 100%. The trade unions told the media of this vote, and set up a strike committee.
• In January 1994 the unions organised a meeting attended by 600 workers, and invited the mayor and his deputy to try and convince the workforce of the case for privatisation. The workers asked very clear questions about money and technical expertise, the mayors performed badly, and were jeered out of the room. The meeting agreed that if the city accepted GdE's plans, all forms of industrial action would be taken, up to and including cutting off water.

The campaign involved a major and long-lasting campaign for support from politicians.

• They sent a constant stream of letters to MPs, senators, and local councillors. The result was splits between councillors and MPs from the region, who were then involved in public disagreements.
• They also met with as many MPs and councillors as possible, in secret if necessary - some politicians were afraid to meet the unions formally, because not all parties supported trade unions, and some parties which supported trade unions did not support NSZZ.
• The unions asked councillors and MPs to sign a document opposing privatisation.

Nevertheless, by end May 1994, the council had prepared a privatisation contract which would have handed over the operation and the financing of water to a company controlled by GdE. However, local elections took place the next month.

• In June 1994 the unions produced an information leaflet opposing privatisation. It pointed out that there had been no competitive bidding, the finances were an illusion, and there was a cheaper and better public sector alternative. 200,000 copies were printed at the unions' expense, and distributed to every household in the city by water workers.
• Water privatisation became a major election issue. The mayor complained that the leaflet was an illegal electoral publication, but NSZZ said it was a legitimate trade union weapon as part of an industrial dispute, and the public prosecutor dropped the case.

The election was won by opponents of privatisation, and a new mayor, Marek Talkowski, was elected.

• In August 1994 the unions wrote to the new mayor offering to suspend the threat of industrial action if he agreed to review the plans for water privatisation. MPs and senators wrote to the mayor as well, also asking for a review of the privatisation proposal.

• The mayor met the unions, and agreed to carry out the review. At this point the unions stepped back and left the politicians to continue pursuing the issues. Throughout, the unions consciously acted in the interests of citizens as well as worker.

• The result of his review was to drop the privatisation plan. Finally, in August 1995, the city council passed a resolution formally rejecting GdE's proposals.

• The council are now planning to set up the water and sewerage operation as an arm's-length company with the city council as sole shareholder. They are fully consulting the unions about this.
• The first part of the biological treatment plant is now fully operational. It is slightly later than planned. There is slow but steady investment in the sewerage system.
• NSZZ calculate that the union campaign has saved Lodz water $8m USD, based on the saving from not having to pay for the amortisation of the proposed GdE investment. Finance for investment comes from the council or from the state investment fund.
• In February 1998, the water and sewage rates in Lodz compared very favourable with the rates in Gdansk, where water and sewerage have been privatised.

Note: construction contract of GdE subsidiary OTV

GdE's interest in the water and sewerage concession in Lodz originated from a construction contract held by the engineering subsidiary of GdE, Omnium de Traitement et Valorisation (OTV), before 1993.

The council had started construction of the first stages of the sewerage plant in Lodz in the 1980s, and then transferred the contract for the work to a joint venture works company, 49% owned by the council, 49% owned by OTV.

There were many problems with the contract. The work was being done late and uneconomically - Lodz council brought constant economic cases against OTV for failures.

When OTV bought equipment, it was always from GdE subsidiaries in France - tenders were apparently held, but French companies always won. The equipment sometimes did not work and was invariably late.

Criticism of this contract became part of the political argument around privatisation in 1994. One employee of OTV who refused to sign documents about fictional tenders was sacked, with I hour to clear his desk.

After the election in 1994, MPs and senators wrote to the public prosecutor, asking for OTV to be investigated and sacked. The report was published in February 1995, and said that the company was in breach of contract because they were not keeping deadlines, construction work was not finished on time, and they were paying themselves for work eg instead of buying Polish equipment were buying French equipment which did not fit.

In March 1995 the council terminated OTV's involvement and bought out their interests in the works company, so that it is now once again 100% owned by the council.