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The limits of insulation: the long-term political dynamics of public-private service delivery


Public-private collaboration is deemed critical for improving service delivery in the global South. This article examines how relations between state and private investors develop over time - and, by extension, how they affect service delivery - in different collaborative arrangements. Through a comparative historical analysis of two mixed-ownership water and sanitation companies in Brazil, the article challenges conventional policy prescriptions that focus on the role of institutional rules in governing public-private relations and insulating service provision from politics. The findings show the importance of understanding how organisational factors - such as the type of private participation - intersect with political processes to (re-)configure public-private relations and the direction of service delivery temporally. The cases both unflatten generic treatments of private participation and problematise the emphasis on institutional solutions that seek to depoliticise service delivery. In fact, insulation may risk closing political channels through which more progressive service outcomes can be achieved.
The Limits of Insulation: The Long-Term Political Dynamics of
Public-Private Service Delivery
Isadora Araujo Cruxên
This is the accepted version of the following article: Cruxên, I. (2022) ‘The Limits of Insulation: The
Long-Term Political Dynamics of Public-Private Service Delivery’, International Development Planning
Review, (2022), 44, (3), 317343,, which has been published in
final form at
Public-private collaboration is deemed critical for improving service delivery in the global South. This
article examines how relations between state and private investors develop over time - and, by
extension, how they affect service delivery - in different collaborative arrangements. Through a
comparative historical analysis of two mixed-ownership water and sanitation companies in Brazil, the
article challenges conventional policy prescriptions that focus on the role of institutional rules in
governing public-private relations and insulating service provision from politics. The findings show
the importance of understanding how organisational factors - such as the type of private participation
- intersect with political processes to (re-)configure public-private relations and the direction of service
delivery temporally. The cases both unflatten generic treatments of private participation and
problematise the emphasis on institutional solutions that seek to depoliticise service delivery. In fact,
insulation may risk closing political channels through which more progressive service outcomes can
be achieved.
I am grateful to Gabriella Carolini, Ben Ross Schneider, Jason Jackson, and Lawrence Susskind for their guidance and
feedback on this work. A special thanks to Asmaa Elgamal, Emilia Simison, and Lucas Gelape for their comments on
earlier versions of this article. I would also like to thank participants at the Harvard-MIT Latin American Discussion
Group, at the 2019 Effective States and Inclusive Development Conference in Manchester, and at the 2017 Conference
of the Association of Collegiate Schools of Planning in Denver for helpful comments on this work. I am grateful to Taiani
Bina and Patricia Cafferky for their help with the figures. My deepest gratitude is to those who agreed to be interviewed
and contribute to this research.
1. Introduction
Public-private collaboration lies at the core of much of the current policy advice on how
governments in the South can more effectively and sustainably provide infrastructure services to their
Granted, private participation is no longer touted as a panaceathe 1990s yielded important
lessons about its equity and accountability challenges (Jomo et al., 2016). Nonetheless, leveraging
resources and expertise from the private sector via public-private partnerships (PPPs), for example,
remains considered critical for overcoming capital shortfalls, enhancing operations, and meeting the
Sustainable Development Goals (SDGs) (Mohieldin, 2018; Garcia-Kilroy and Rudolph, 2017).
Attracting long-term financial capital, specifically, is a seductive option for cash-strapped governments
seeking to address infrastructure gaps by tapping into a large ‘pool of global savings’ (Arezki et al.,
2016)potentially contributing to what Mawdsley (2018) has called financialization-as-
Unsurprisingly, a number of donor-led programs have emerged focused on best-practices for
how governments can create an attractive environment for investors (Bayliss and Van Waeyenberge,
2018). Often, this advice reflects the New Institutional Economics’ development playbook,
emphasizing well-designed contractual arrangements, governance rules, independent regulation, and
judicial support for property rights (Trebilcock and Rosenstock, 2015; Guasch et al., 2014;
Farquharson et al., 2011). The main concern is with structuring rules and incentives so as to reduce
transaction costs and risks for investors related to the breach of contractual commitments, particularly
due to governmental opportunism (Savedoff and Spiller, 1999). Insulating service delivery
arrangements from political interference is, in fact, a crucial concern.
This article is motivated by two important shortcomings of this dominant policy lens. The first
concerns the lack of attention to the temporal and relational character of public-private arrangements.
Despite the long life-cycle of these collaborations (usually between 2030 years), little attention has
been dedicated to examining how relations between state and private actors actually unfold over
timeand, by extension, how they affect service delivery. The normative expectation is that
institutional incentives such as contracts will govern these relationships and balance the goals of both
parties. In practice, however, institutional design has proven to be a difficultif not elusiveart to
master (Sclar, 2015; Miraftab, 2004). Rampant problems with contractual incompleteness, asymmetric
resources between partners, trust-building, and regulatory weakness have called attention to the
limitations of thinking of public-private collaboration simply in terms of rules (Warsen et al., 2019;
Post, 2014). Rather than treat public-private partnership models as static institutional arrangements, I
propose we treat them as relations between non-fixed actors, examining the socio-political and
organizational factors that may impact how state and private actors relate to each other and influence
service provision over time.
I define public-private collaboration as an ensemble of partnership modelsincluding concessions, lease or affermage
contracts, build-operate-transfer (BOT) agreements, and mixed-ownershipin which state and private actors work
together towards goals such as the provision of infrastructure services.
Financialization, here, broadly refers to the increasing imbrication of 'financial logics, instruments, and actors’ into
international development projects (Mawdsley, 2018).
The second limitation concerns the tendency to treat private participation generically, without
greater scrutiny of how different forms of private participation shape the market pressures service
providers face. Critical studies of the global geography of private infrastructure investment have
pushed this boundary by unpacking capital flows and financial arrangements (Siemiatycki, 2013;
Torrance, 2008) that splinter infrastructures (Graham and Marvin, 2001). Political economy scholars
have also shown that variation in investors’ portfolio strategies may influence contractual and
regulatory outcomes (Post and Murillo, 2016). Yet, I argue we also need to understand the concrete
organisational dynamicsincluding ownership and corporate governance structuresthrough which
private investors and financial interests may influence decision-making and affect service provision
(Klink et al., 2019; Allen and Pryke, 2013).
This article develops these lines of inquiry through a comparative historical analysis of mixed-
ownership utilities, that is, utilities in which assets are jointly owned by state and private actors. I
compare the trajectories of two of the largest water and sanitation utilities in Brazil, Copasa (Companhia
de Saneamento de Minas Gerais) and Sanepar (Companhia de Saneamento do Paraná), over nearly twenty years
(19982016) to examine how relations between the state and private investors unfolded following the
transition to mixed models and how these, in turn, shaped utility decision-making and service
outcomes. Sanepar transitioned to mixed-ownership in 1998, when the privately-held company
Dominó Holding became its main minority shareholdera model I refer to as concentrated private
In contrast, Copasa adopted a dispersed model, listing shares on the Brazilian stock
market in 2006. State governments remained the controlling shareholders in both companies. The
variation in form of private participation allows for unflattening generic treatments of private
engagement in service delivery, while the temporal sensibility reveals how public-private relations are
(re-)constituted historically through political processes that infuse into the state different planning
rationalities, that is, value systems and policy commitments.
Defying the prescriptions of dominant institutional frameworks, the cases demonstrate that
contractual agreements and governance rules were neither able to fully disrupt historical service
delivery practices nor capable of insulating service provision from politics. Rather, I argue that
observed temporal variation in public-private relations and the direction of service delivery in each
case reflected intersecting organizational and political dynamics. I find that the type of private
participation in ownership structure shaped the nature of relations between partners and the opportunity
space for investors to influence company activities. However, whether service provision became more
or less market-oriented depended crucially on the political approaches to service provision adopted
by different state government administrations over time and translated into the day-to-day activities
of utilities through the work of political appointees and allied managerswhat I call political modulation.
The article is organized as follows. In the next section, I engage critically with economic
frameworks that have been influential for thinking about how public and private actors behave in
collaborative arrangements such as mixed-ownership companies and situate how my own approach
departs from conventional analytical schemes. The third section explains the case selection and
I constrain the comparison to 19982016 because in late 2016 Sanepar went public and moved to a model closer to
Copasa’s, with dispersed private participation.
research methods, while the fourth and fifth sections develop, respectively, the empirical analysis of
ownership structure and political modulation in both cases. Finally, I consider the implications of the
study for international planning debates on forms of public-private collaboration for the provision of
infrastructure services in the global South. Specifically, I discuss the importance of recovering the
analysis of organizations as spaces in which the politics of service delivery takes place and problematize
depoliticizing policy solutions and institutional reforms that attempt to improve the effectiveness of
public-private collaborations by attempting to remove politics from the equation.
2. ‘Best of two worlds’ or ‘two-headed monsters’?
To examine the temporal dynamics of public-private relations, I deploy an interdisciplinary
lens that bridges economic theories of business ownership and governance with debates about the
politics of service delivery and the role of the state in development. From an economic standpoint,
mixed-ownership models have mainly been examined through the lens of agency theory. From this
perspective, corporate governanceor the rules and structures that organize firm activityis about
aligning the behaviour of firm actors to reduce transaction costs and maximise returns for owners
(Jensen and Meckling, 1976). In the case of mixed companies, the concern is with economically
inefficient outcomes derived from so-called principal-principal problems, that is, from potentially
divergent interests between the state and private shareholders (Musacchio and Lazzarini, 2014; Vining
et al., 2014; Young et al., 2008).
Agency theory suggests relations between public and private partners in mixed-ownership
companies will lean towards one of two main scenarios. In a best of two worlds scenario, public and
private actors discipline one another: the private sector reins in unwarranted government intervention
that hurts economic efficiency; the state restrains the private sector’s thirst for profits and directs its
ability to generate capital to socially desirable goals (Castro and Janssens, 2008). In contrast, a less
hopeful scenario suggests that state and private actors have disparate goals that cannot be easily
reconciled (Vining and Weimar, 2016). Rather, mixed models are more likely to become two-headed
monsters, with state and private investors disagreeing over service objectives. In the water sector,
such tensions may emerge when utilities undertake investments that fall outside their business strategy
or price services below cost to support extraneous policy or electoral goals (Boada, 2011). A third
scenario is also possible: Vining et al. (2014) call attention to a profit collusion model, wherein the
state acts in a self-interested manner and supports profit-maximisation in order to increase political
benefits or rent extraction.
However, as I will discuss, none of these scenarios fully capture the changing dynamics of
public-private relations at Sanepar and Copasa over time. This is because agency theory suffers from
important limitations for understanding complex, on-the-ground political dynamics (White, 2020).
First, this framework treats the private sector and the state generically, as undifferentiated and
coherent actors whose preferences can be deduced a priori, without greater scrutiny of the changing
organisational, political, and historical contexts in which these actors operate and interact. Corporate
governance is thus often reduced to a structured and sanitised exchange among principals or between
principals and managers (Soederberg, 2010: 4), tending to neglect how power asymmetries and
political processes affect decision-making and firm performance (Zingales, 2017). Importantly,
ownership and governance structures shape power dynamics. Shareholders may not only have
different objectives, but also differ in how likely it is that they can realise their objectives (Kang and
Sørensen, 1999: 135). Power imbalances may be especially salient when concentrated ownership is
coupled with governance arrangements that grant certain shareholders strategic positions within
management or other decision-making bodies within companies.
Second, the agency view depoliticizes the analysis of service delivery outcomes by privileging
concerns with efficiency and neglecting the social and environmental ramifications of ownership and
governance. In the water sector, critical studies have shown that private participation may generate
perverse incentives for utilities to prioritise profits over equitable service delivery and sustainable
management of water resources (Bakker, 2010, 2000; Hall et al., 2005; Swyngedouw, 2005). In
particular, private engagement may generate pressures for utilities to augment tariffs and discontinue
service to non-payers, adversely impacting low-income citizens for whom affordability is a central
My analysis aims to depart from generic readings of public-private collaboration within mixed
models by calling attention to intersecting market and political logics. First, I examine variation in the
structure of private minority ownershipthat is, whether it is dispersed or concentrated. Most
analyses of mixed enterprises focus on assessing their performance relative to fully public or private
firms, thus failing to account for differences in ownership structure that exist among mixed companies
themselves. Here, I build on insights from scholarship suggesting that the extent to which ownership
is fragmented has important repercussions for corporate governance and firm performance (Young
et al., 2008; Kang and Sørensen, 1999; Shleifer and Vishny, 1997) as well as durability of partnerships
(Colli, 2013). Specifically, I suggest ownership concentration impacts the degree to which investors
can exert decision-making influence over companies as well as the potential for tension between
Second, I take issue with how the state is often conceptualised as a coherent actor that either
operates according to pre-established goalsa common depiction in economic frameworksor has
been co-opted under the perverse logic of the marketa recurrent portrayal in critiques of water
privatization. Instead, I explore the mediating role of politics in shaping how the state relates to private
investors and approaches service provision at different points in time. By politics, I do not mean
simply electoral behaviour or partisan ideology. The fragmentary and personalistic nature of Brazil’s
political system often makes it difficult to draw clear distinctions between the ideological programmes
of different parties. Moreover, as Abers and Keck (2006: 604) have noted, Brazilian politicslike
elsewhere in the global Southis perhaps better understood as a hybrid culture in which formalism
coexists with informality, and patronage-based standards of authority with meritocratic ones. This
hybridity is particularly relevant at the level of bureaucratic politics and makes salient the role of
political appointees in shaping policy-making (Abers and Keck, 2006).
Politically, then, I am interested in the planning rationalities guiding state action and the
processes through which these rationalities are translated into the day-to-day activities of utilities. I
argue this occurs through a two-stage process of political modulation. First, newly elected
governments may pursue distinct political approaches to service provision. I broadly distinguish
between two approaches: a market-oriented one that encourages efficiency and financial gains, and a
society-oriented one that is more attentive to social equity concerns. Second, rather than assume these
approaches automatically shape service delivery outcomes, I draw attention to the translation role
performed by bureaucratic political appointees. I highlight how the state is not a monolithic entity,
but rather acts through specific sets of politicians and state officials (Jessop, 2016: 247) as well as
company allies (such as appointed managers) who infuse into state agencies and organizations
different planning rationalities. While in some instances these conform to techno-managerial, market
rationalities (Watson 2009), in others they reflect commitments to forms of redistributive politics.
3. Design and methods
Brazil offers a fertile empirical terrain for this analysis. Although water and sanitation services
are mostly publicly-owned, closer inspection blurs the boundaries between public and private. Since
the 1970s, state-owned companies have dominated service provision, currently providing water
services to nearly 75% of Brazil’s urban population (AESBE, 2020). Legally, however, most of these
enterprises have adopted mixed-ownership models in which state and private investors may share
ownership of assets. This article builds on a comparative historical analysis of two of the largest mixed
water and sanitation companies in Brazil: Sanepar and Copasalocated in the states of Paraná and
Minas Gerais, respectively.
Following a diverse case study strategy (Seawright and Gerring, 2008), the two companies
were selected to explore both variation in forms of private participation across companies and political
changes across time.
Table 1 summarises relevant information for each company along these two
dimensions. Both companies were relatively similar in size and total population served.
They also
ranked highly among Brazilian water utilities in terms of operational performance (Albuquerque,
2011). It is worth noting that, throughout the period analysed, regulation was either lacking or patchy.
In Minas Gerais, the state government created a regulatory agency, ARSAE (Agência Reguladora de
Serviços de Abastecimento de Água e de Esgotamento Sanitário do Estado de Minas Gerais), in 2009, two years
after the enactment of the national Sanitation Law (Law nº 11.445/2007), which required the creation
of regulatory agencies to monitor operations and regulate prices. Nonetheless, as I will discuss, for
several years Copasa sought to keep ARSAE at bay, limiting the regulator’s ability to oversee its
activities. In Paraná, the regulatory agency, Agepar (Agência Reguladora de Serviços Públicos Delegados de
Infraestrutura do Paraná), was only created in 2017.
In 2016, when the study was designed, 30 water and sanitation utilities were legally classified as mixed-ownership
companies in the National Information System on Sanitation (SNIS)23 of which were state-owned companies that
provided services to several municipalities. Despite their legal form, not all companies featured substantive private
participation in their ownership structure. My selection focused on companies in which private investors owned a non-
trivial percentage of shares.
Copasa and Sanepar provided water to 11.2 million and 9.6 million people, and sewerage services to 7.5 million and 6.8
million people, respectively (Ministério das Cidades, 2015).
Table 1. Case summaries
Type of private
Political Transitions
Approach to service
minority ownership
(until 2016)
Dispersed minority
Prepared by the author.
My argument relies on qualitative data gathered through in-depth interviews and documentary
analysis of company reports and financial statements, transcripts of investor calls, assessments by
financial analysts, and news articles. I conducted fieldwork in Paraná and Minas Gerais in January
2017. Throughout the research, I spoke to 16 interviewees, including company employees and
managers, union members, and officials in government and regulatory agencies. Respondents were
selected through a combination of purposive and snowball sampling. Because I sought out
interviewees who could comment on company history, most respondents held senior or mid-level
positions within their organisations and / or had several years of experience working for the
companies, the public sector, or in the water and sanitation sector broadly. I am a native of Brazil and
have studied water issues in the country for several years. My cultural background, existing networks,
and my position as a PhD student at a well-renowned foreign university likely facilitated access and
trust-building with interviewees. Due to confidentiality, I use the codes S1S9 to refer to the nine
interviews related to Sanepar’s case and the codes C1–C7 for the seven interviews related to Copasa’s.
With the exception of interviews S8 and S9, held in JulyAugust 2019, all others were conducted in
person or via phone between JanuaryFebruary 2017.
I complement the qualitative analysis with
company data on service coverage, operational efficiency, investments, and financial performance
retrieved from annual company reports and from the National Information System on Sanitation
(SNIS), a database maintained by the Brazilian government (Appendices 1 and 2 summarise this data
for each company).
4. Concentrated vs. dispersed private participation
Sanepar’s transition to mixed-ownership is an archetypical 1990s story. Internationally,
multilateral organisations like the World Bank extolled the merits of private participation (Idelovitch
and Ringskog, 1995). Domestically, the Brazilian government advanced a broad privatisation agenda.
Utilities also faced financial constraints that rendered private participation attractive. In the 1980s
1990s, resources for infrastructure investments dwindled due to Brazil’s economic and fiscal crisis,
hampering utilities’ ability to expand coverage and improve operations. Against this backdrop, in 1998
the administration of governor Jaime Lerner (19952002) in Paraná decided to place 39.71% of
Interviews lasted between 30140 minutes (median time of 90 minutes) and were transcribed and analysed through a
combination of deductive and inductive coding.
Sanepar’s common stock for sale through a public auction (Murara, 1998). The privately-held firm
Dominó Holding won with the highest bid. Its main shareholders were a combination of foreign and
domestic investors: the French multinational Vivendi (now Veolia), the Brazilian construction
company Andrade Gutierrez S.A, and Opportunity Daleth S.A. (a holding company owned by the
private equity fund CVC/Opportunity).
The new ownership structure led to a model of corporate governance in which private
investors had significant influence over company decision-making. The shareholder agreement
between Dominó and the state government afforded Dominó the right to appoint three of the nine
members of the Administrative Boardthe decision-making body tasked with determining business
strategy and investment plans, electing managers, and deciding on shareholder dividends. The other
six members were appointed by the government, but were required to vote as a bloc. In practice, this
meant the minority partner had de facto veto power within the Board (Castro, 2003). Dominó also had
the right to nominate three of the company’s seven managers, including the financial and operations
managers. This governance structure, several documents and interviewees noted, empowered minority
private investors, allowing them to hold strategic positions within the company and to maintain a close
rein on its strategy and operations (Interviews S2, S3, S5, S6, S7, S8). As one senior manager observed,
Dominó was literally there, working with them, on a daily basis (Interview S3).
The scenario was different at Copasa, where semi-privatisation resulted in more passive
investor engagement in company decision-making and management. Copasa opted to semi-privatise
by selling 30.56% of shares on São Paulo’s stock exchange, Bovespa, through an initial public offering
(IPO) held in February 2006. By that point, the political-economic context in Brazil had shifted. The
administration of President Lula da Silva (20032010) began to channel resources into infrastructure
investments, breathing new life into the water and sanitation sector. Nonetheless, the administration
of governor Aécio Neves (2003–2010) in Minas Gerais shared with Lerner’s in Paraná a belief in
market discipline and in the potential for private participation to improve service provision. As soon
as Neves took office, Copasa’s new administration began to prepare for an IPO (Oliveira, 2015). A
majority (73.7%) of the shares issued on Bovespa were purchased by foreign investors, while the rest
were acquired by domestic investment funds, financial institutions, and individual investors (Copasa,
The new ownership structure entailed governance changes in line with neo-institutional
prescriptions. Following the IPO, Copasa chose to comply with the Novo Mercado listing
agreement—Bovespa’s highest level of corporate governance. In addition to transparency and
financial disclosure requirements, the agreement establishes a two-year term limit for Board
members20% of which must be independent (Musacchio and Lazzarini, 2014). The rules aim to
increase companies’ financial independence and reduce political interference. Indeed, Copasa’s
management at the time argued the new structure would minimise the influence of political
appointmentsa problem considered pervasive among state-owned companies (Andrés et al., 2011).
According to one long-time employee, the aim was to use private capital as a regulator of [company]
Dominó Holding’s ownership structure at the time was as follows: Vivendi (30%), Andrade Gutierrez (27.5%),
Opportunity (27.5%), and Copel (15%)—Paraná’s state-owned energy company.
management (Interview C5). However, this scenario did not materialise. As the same employee
observed: In spite of the oversight of minority shareholders, of private capital, the administration did
whatever it wanted to do.
The dispersed nature of private minority ownership at Copasa helps account for why private
investors in the company did not have the same level of influence over decision-making and
management that Dominó enjoyed at Sanepar. Copasa’s dispersed private investors mainly exerted
indirect pressure over the company through market signals such as share prices on the stock market.
In fact, based on quarterly earnings conference calls, intermediaries such as financial analysts and
investment banks were the most important interlocutors and sources of market pressure on the
company. In light of the relatively passive and distant participation of dispersed private investors, the
Minas Gerais’ state government continued to call the shots within the company through Board
appointments and allied managersjust as it had done prior to the IPO. In fact, whereas private
participation occupied a central role in interviewees’ retellings of Sanepar’s history, in Copasa’s case
respondents generally shrugged off the effects of semi-privatisation on company practices (Interviews
C3, C5, C6, C7). A senior government official in Minas Gerais, for example, noted: Look, it would
be unfair for me to say, given what I observed, that Copasa underwent a big change or that the
company’s rationale (raciocínio da companhia) totally changed after it opened itself to private capital. It
didn’t’ (Interview C3). As some of my respondents observed, in many instances the interests of
private investors were evoked only when convenient for the company to justify what were otherwise
political decisionsan issue I explore further below (Interviews C3, C4, C5).
5. Political modulation
Distinct forms of private engagement—close and active in Sanepar’s case, distant and passive
in Copasa’s—reveal how ownership structure and corporate governance shape the opportunity space
for private investors to influence how utilities behave. While concentrated private participation
amplified this space in Sanepar’s case, dispersed participation contracted it in Copasa’s. However, the
extent to which private participation influenced the direction of service delivery requires
understanding how political processes shaped state action and relations to investors over time.
Under the watchful eye of its new private partner, Sanepar pursued sweeping operational
changes. Following the ownership change in 1998, a new results-oriented approach (política de gestão
por resultados), championed by the minority partner, was introduced with the goal of pushing managers
to meet performance targets and decrease capital expenditures and operational costs (Sanepar, 2001).
The approach produced quick financial results. Sanepar’s operational revenues grew from R$318
million in 1995 to R$925 million in 2002, four years after the ownership transition (Sanepar, 2002).
Net profits also increased from approximately R$22 million in 1997 to R$145 million in 2002 (Figure
1). Annual tariff increases indexed to inflation and measures to increase efficiency contributed to these
results. The number of employees per thousand connections dropped from 3.13 in 1999, the first year
after semi-privatisation, to 2.33 in 2002. Billing losses decreased from 28.17% to 25.34% in the same
period (Appendix 1).
Figure 1. Sanepar’s net profits (1995-2015)
Prepared by the author. Source: Annual company reports.
Whether these changes constituted positive improvements, however, was disputable in the
eyes of company employeesillustrating the co-existence of different value systems within utilities.
Some interviewees lauded the operational gains and reminisced about the early years of concentrated
private participation with satisfaction, with one manager referring to them as the good old days
(Interview S3). However, others bemoaned its detrimental effects on what they considered to be
Sanepar’s social mission. Long-time, front-line company workers observed that during this period
(19992002) the company focused on contracts with potentially lucrative municipalities and placed
less emphasis on expanding coverage to poorer urban and rural areas where provision was costlier and
generated fewer returns (Interviews S5, S6, S7). Indeed, overall investment in water supply and
sewerage collection did not increase substantially in the first few years after semi-privatisation and
improvements in access to services were small (Appendix 1). Even the most nostalgic manager
recognised that the emphasis on attaining performance metrics produced both good and bad
memories: Some extreme things ended up happening, such as turning lights off, turning equipment
off to save energy… So, we had to stop and think: what’s inefficiency and what isn’t?’ There were
places receiving no service because the equipment was turned off (Interview S3).
This ambivalent account of Sanepar’s initial years post semi-privatisation matches, to a large
extent, the mixed outcomes of water privatisation experiments elsewhere in the world, marked by a
divide between efficiency and equity issues.
Despite the concerns of some rank and file employees,
concentrated participation enabled Dominó to exercise influence over management and play an
For reviews, see Bakker (2010); Budds and McGranahan (2003).
undeniable role in fostering an efficiency-at-all-costs ethos within the company (Interviews S3, S5,
S6, S7, S8).
Nonetheless, it would be simplistic to attribute service outcomes during this time to inherent
biases from private participation alone. Rather, Sanepar’s practices reflected the service dynamics
resulting from the combination of concentrated minority ownership and the government’s approach
to service provision during Lerner’s administration. Lerner advanced a market-friendly political
program, oriented towards attracting private investment and shrinking the role of the state. Within
Sanepar, a circumscribed role for the state meant an expanded role for private investors in shaping
the direction of service delivery. The state sought to maintain a relationship of synergy with its private
partner (Interviews S2, S3, S8), while government appointees did little to balance Dominó’s influence
over management or restrain the company’s growing focus on economic performance. In fact,
company reports show the government stimulated Sanepar’s profitability (Sanepar, 2002).
This relationship shifted dramatically following a change in political administration in 2003,
when Roberto Requião replaced Lerner as governor. During Requião’s administration (2003–2010),
synergy gave way to conflict, configuring a clear two-headed monster scenario. Requião favoured a
statist and society-centred approach to service provision, opposing his predecessor’s privatisation
agenda. Government appointees within the company reflected the change in policy orientation. The
President of Sanepar’s Administrative Board, Pedro Xavier wrote in a 2005 statement that for this
government, a [company] committed to making every effort to maximise profits and assure the
greatest possible return to shareholders (…) simply has no reason to continue existing’ (Xavier, 2004).
The new administration moved to curb Dominó’s influence within Sanepar. The government changed
company management, maintaining only one manager previously appointed by Vivendi, one of
Dominó’s main shareholders (Portal Saneamento Básico, 2003). It also sanctioned a decree attempting
to rescind the shareholder agreement with Dominó, arguing the agreement conceded Sanepar’s
management to the minority partner, thus violating, in practice, the state law requiring the government
to have control over the company (Xavier, 2004). Following a judicial battle, in 2004 Dominó managed
to reverse the decree, maintaining the original agreement in place. Nonetheless, the legal disputes
continued in subsequent years, as the state government sought to reduce Dominó’s participation in
the company.
Unlike the laissez-faire approach of Lerner’s administration, Requião’s team sought to play a
more active role in steering company practices towards the achievement of social goals. Sanepar
launched a social tariff aimed at increasing affordability for low-income customers and implemented
a sanitation program designed to expand service coverage to 25 thousand households in rural Paraná
(Sanepar, 2003). These efforts also catered to the governor’s constituents, primarily located in rural
and lower- to middle-income regions of the state. Total investments in water and sewerage in the first
four years of Requião’s administration increased relative to Lerner’s (Appendix 1), albeit investment
figures also reflected greater ease of access to federal credit during President Lula’s government.
Concomitantly, Sanepar’s financial performance took a hit. Profits declined during Requião’s
two consecutive terms. One reason was the lack of tariff adjustments indexed to inflation. Between
2006 and 2010, the governor refused
to adjust tariffs, arguing the company could pursue investments
and remain financially sustainable without transferring costs to customersfor example, by reducing
operational costs (Castro, 2008). The tariff freeze did not bode well with market analysts. The credit
rating agency Moody’s changed Sanepar’s outlook to negative, citing concerns about ‘the company’s
ability to generate adequate cash flows given the lack of tariff adjustments (Soares and Hess, 2009).
Tariffs are a key driver of shareholder value (Interview S2).
But the market outlook changed in the aftermath of the 2010 state elections. The newly elected
governor, Beto Richa, reintroduced a pro-market orientation and worked swiftly to re-negotiate the
shareholder agreement and restore friendly ties with Dominó (Sanepar, 2015). The minority
shareholders regained influence within Sanepar’s Administrative Board as well as authority over
operational and financial management (Interviews S2, S3, S5, S6, S7, S8). Sanepar’s business strategy
was also revamped with an eye toward growing the company and increasing liquidity in preparation
for a potential IPO, which occurred in late 2016. In just one year (20102011), net profits augmented
from R$149 to R$284 millionan increase of approximately 91%.
While the change in administration marked a return to laissez-faire, politics was far from
removed from the equation. Interviews with managers and government officials in Paraná illuminated
the markedly different value systems of company allies and state agents during Richa’s administration
compared to Requião’s, illustrating the modulating role of political dynamics in shaping how these
actors construed company goalsand, at the same time, (re-)inscribed public-private boundaries. One
senior government official, for example, criticised Sanepar’s previous administration for its ‘ideological
bias and socialist behaviour, arguing that Sanepar was a market firm and should behave as such
(Interview S1). Top managers at Sanepar echoed this viewpoint. While one praised Richa’s
administration for placing the company’s financial sustainability above ‘populist impulses (Interview
S2), another sought to construe the emphasis on efficiency as central to the company’s social mission:
You have to be economically efficient so that efficiency will become the interface (ponto de contato)
between the public and private sides. (…) When something is public, it has a greater obligation to be
efficient because the money is not my own, it belongs to the whole collectivity (coletividade) (Interview
The role of state agents in shaping service delivery rationales was even more pronounced in
Copasa’s case, where dispersed minority ownership limited the role of private investors. As previously
noted, Copasa’s model enabled the state government to retainthrough political appointeesthe
level of influence over the company it had enjoyed prior to semi-privatisation. For the majority of the
period analysed, company practices followed a business as usualor, perhaps more adequately,
politics as usual’—tone. For example, reflecting on the role of the state within the company, one
senior official at ARSAE, the state’s regulatory agency, highlighted how political motives continued
to shape investment decisions following the IPO: ‘‘Oh, the governor wants to build a wastewater
treatment plant in a small town of 2,000 inhabitants,’ that isn’t a priority but then the priority changes
In the absence of a regulatory agency, the governor had the last word on tariffs.
These results reflected cost-reduction measures such as voluntary layoffs, a reprisal of the performance-oriented
management policy, and a 16% increase in tariffs granted by the governor in March 2011.
to meet a demand from the governor. (…) A lot of money was thrown away in projects that ended up
not becoming reality (Interview C7).
Figure 2. Copasa’s net profits (1995-2015)
Prepared by the author. Source: Annual company reports; Ministério das Cidades (2015).
In fact, the most significant changes to company management and practices appeared to occur
in the years leading up to semi-privatisation, when Copasa was being prepared for the market
(Interview C6). In 2003, governor Aécio Neves appointed Mauro Costadescribed by one
interviewee as a right-wing guy, very tough, but someone who makes things happen (Interview C5)
to serve as Copasa’s new president. Costa implemented a series of rebranding and efficiency-
enhancing measures designed to revamp the company: he came in and he really began to apply the
make-up (modelagem) of a firm to Copasa. He got the company to focus on training, on technological
development. He placed greater responsibility on the management team and more effectively
demanded results (Interview C6). Service-wise, Costa and his management team sought to expand
Copasa’s customer base by investing in new water and sewerage connections and fostering
relationships with municipal mayors. They also expanded its funding sources through the issuance of
R$600 million in debentures. Perhaps most noticeably, the company enacted two consecutive tariff
increases in one yearat 29.8% and 35%, both were well above inflation at the time. Taken together,
these changes helped boost the company’s financial performance. After eleven years of continuous
deficits, Copasa ran a profit of R$94.1 million (Figure 2) in the first year of Neves’ government
(Copasa, 2003). The make-up effort is exemplary of how administrative and organisational reforms
can arguably play just as fundamental a role in infusing market rationalities into public utilities (Davis,
2004) as private participation itself.
Operational and financial gains following the IPO built on these earlier efforts (Appendix 2).
While investments in water supply and sewerage collection increased following the change to mixed-
ownership, service coverage growth rates did not change substantially, remaining steady over time.
Copasa also benefitted from greater ease of access to credit at the federal level and from other sources
of finance, making it difficult to disentangle how much funds obtained through the sale of shares to
private investors contributed to capital investments (Oliveira, 2015). Several interviewees suggested
that resources from the IPO were actually spent unwisely and contributed little towards coverage
expansion (Interviews C2, C3, C4, C5, C7). Interestingly, in 2007 Copasa created a subsidiary, Copanor
(Copasa Serviços de Saneamento Integrado do Norte e Nordeste de Minas Gerais S/A.), focused on providing
services in low-income areas in the north and northeast of the state. But according to interviewees the
overarching aim was to prevent operations in these areas from weighing on Copasa’s balance sheet
(Interview C6).
Copasa’s case complexifies the analysis of how public-private relations unfold over time.
Unlike at Sanepar, where the ownership structure configured possibilities for synergistic or conflictual
relations between the state and minority private investors, at Copasa public-private relations were
more one-sided—almost a marriage of convenience. Despite the government’s market-orientation,
throughout Neves’ tenure and during the subsequent administration of Antônio Anastasia (2011
2014), the interests of private investors were mobilised erratically and often in accordance with
political strategies. An example shared by one company employee illustrates this process:
Whatever didn’t align with the administration’s interests, they would say: ‘No, we can’t do it because
of our minority shareholders, we can’t justify it to them.’ [For example], a tiny city called Fruta de Leite
had a hepatitis outbreak because of the city’s water supply and the mayor came to Belo Horizonte to
ask Copasa to take on the water system there. [Copasa] said ‘no’ because it was inviable: ‘I can’t, it’s a
publicly-traded company, your city isn’t lucrative and it’ll hurt us [financially].’ This kind of stuff. I
mean, it isn’t in the archives but you have witnesses. (Interview C5)
Copasa’s ‘business as usual’ trajectory was disrupted in 2015, following the election of
governor Fernando Pimentel (2015–2019) of the Worker’s Party (PT). His victory marked the first
time in over twenty years that a left-wing administration took control of the state government in Minas
Gerais. The political transition reshaped Copasa’s governance structure. Pimentel appointed a number
of Board members and company managers who generally favoured a strong role for government in
the provision of public services and the promotion of social development (Interviews C2, C3, C4, C5,
One of the main effects of the change in administration concerned Copasa’s relationship to
its regulator, ARSAE, and to other state agencies. During my fieldwork in Minas Gerais in 2017,
Copasa was working with ARSAE to develop a new tariff structure. But while in the past interactions
between the company and the regulatory agency were marked by distrustwith Copasa at times
attempting to hide information—during Pimentel’s tenure the company sought to collaborate more
with the agency. ‘We now have this dialogue, this proximity with Copasa’s management in a very
transparent way, observed a senior official at ARSAE. ‘We won’t open our legs to Copasa, so to speak,
but we try to understand their difficulties and needs (Interview C7). The company also began to work
more closely with the State Secretariat of Urban and Regional Development (SEDRU) to develop a
state-wide sanitation plan and to prioritise investments in vulnerable regions in the north and northeast
of the state (Interviews C2, C3, C4). In part, this entailed adopting a new approach to Copasa’s
subsidiary, Copanor, which had struggled financially since its inception. The state government gave
up a portion of its profit share to support Copanor’s restructuring and eventual re-integration into
Copasa (Interview C6).
The change in company orientation was not accompanied by a hostile stance towards private
participation. Unlike the administration of Sanepar during Requião’s tenure, Copasa’s new
management under Pimentel sought to develop a more balanced relationship with private investors.
Transcripts of earnings conference calls, for example, indicate that managers were committed to
ensuring Copasa’s financial sustainability and creating shareholder value (Copasa 2015, 2016). The
administration also took steps to restore the company’s financial health, which had declined during
the administration of governor Anastasia due to growing debt and to a water supply crisis precipitated
by a drought between 20132014. Steps included reducing the number of high-level, high-paying
positions, implementing a voluntary dismissal program, and renegotiating debts. According to one
employee, the Administrative Board also adopted a more active role in guiding company activities
as opposed to simply offering its tacit support for directives already agreed to with the governor
(Interview C5). The changes were viewed positively by financial analyststhe main intermediaries
between the company and dispersed investors—and increased Copasa’s market credibility (Interview
C1). Within a year company shares appreciated 150% in 2016, whereas Bovespa appreciated less than
40% in the same period.
These politically-driven changes to governance and company strategy signalled an attempt to
balance social and financial goals, attending to both the interests of market investors and the
government’s own society-oriented approach to service provision. That corporate governance and
regulatory improvements were happening under the administration of a left-wing government is not
necessarily surprising. Cioffi and Höpner (2006: 463) find that rather than favour markets over
politics, centre-left parties in advanced economies used corporate governance reforms to undermine
political economic elites and to establish alliances with the financial sector. In Brazil, however, changes
within Copasa cannot be reduced to partisan politics alone, since the Worker’s Party (PT) was not
programmatically consistent in the last two decades. Much like in Sanepar’s case, the aligned values of
appointed allies within the company were a crucial dimension of political modulation. Take, for
instance, a story shared by a senior advisor at Copasa about the challenges the new management team
faced after arriving at the company in 2015:
We were complete outsiders, people like me, the [current president], the financial manager (…). We
were not from Copasa, nor from the [sanitation] sector, nor from the political parties that had been in
charge all of this time. Although we aren’t affiliated with the PT, we arrived and everybody here hated
the PT. ‘If Pimentel wins, I die’, some said. You know, we heard this at the time. So, we arrived and
there was an enormous information boycott—I don’t even know if it’s still going on. So, we asked
some people who in the company was more ideologically aligned with us so that we could place them
in key positions. (Interview C4)
This account illustrates the organisational tensions emerging from the encounter of old and new
planning rationalities, as well as the importance of having allies within the company to support the
implementation of different service delivery agendas. Both at Sanepar and at Copasa, the company
floor was an important political space of struggle over the direction of service delivery.
6. Conclusion
This article illuminates the role of organizational and political factors in shaping the long-term
relational dynamics of public-private arrangements for service delivery. First, my analysis of Sanepar
and Copasa reveals that different types of private participation may either expand or constrain the
space for investors to influence organizational decision-making and service delivery strategies.
Concentrated ownership in Sanepar’s case enabled closer and more active investor participation in
company decision-making, while dispersed ownership in Copasa’s case precluded this. In fact,
Copasa’s case illustrates how private participation may serve to mask other political processes driving
company decision-making.
This analysis underscores the need to move beyond commonplace analyses that simply pit
private against public provision and to interrogate the conditions under which private interests
influence the governance of service delivery across different financial arrangements. Bringing greater
empirical nuance to the study of private participation is particularly pressing as the turn to finance
becomes a more important feature of development advice and practice (Mawdsley, 2018). O’Brien
and Pike (2017) argue that the financialization of urban infrastructure is not a ‘monolithic juggernaut
rolling-out in the same way everywhere’ but a differentiated and uneven process. However, we still
lack a deeper understanding of the mechanisms through which such differentiation occurs in practice,
particularly outside of traditional investment geographies in advanced economies. This study points
to the analysis of ownership concentration and corporate governance as one pathway for disentangling
modalities of financial investment and their effects on service delivery.
Second, contra the assumption that profit maximization will override other service objectives,
I find that states retain an important role in shaping the direction of service delivery through what I
call political modulation. In the cases of Sanepar and Copasa, I argue that modulation occurred
through transitions in government that shifted political approaches to service delivery, which were
then translated into the activities of utilities and state agencies through the work of politically
appointed managers and bureaucratic officials. In some instances, these approaches were aligned with
market rationales, strengthening the interests of private investors and contributing to extreme
scenarios such as, in one example from Sanepar, turning off equipment to meet efficiency targets. In
others, new administrations pushed companies to prioritize socially desirable goals.
The concept of political modulation is useful for capturing the mutable nature of planning
rationalities guiding state action and service provision. Scholars have observed that state capacity is
crucial for steering private engagement towards redistributive service outcomes (Miraftab, 2004; Baer,
2014). However, the capacity to act in the public interest may be temporally constructed (or
destructed) through political processes that infuse into the state varying policy commitments. Other
studies have described similar processes of modulation, driven by policy ideology, in shaping the
distribution of city-wide infrastructure investments (Marques and Bichir, 2003) or, more broadly, the
content of infrastructure privatization reforms in Latin American countries (Murillo, 2009). However,
beyond partisan ideology or politicians’ policy preferences, I stress the need to examine the role of
bureaucratic politics within the state (and within utilities) as a modulation mechanism for shaping
organizational values and decision-making around service priorities.
More broadly, attention to political modulation helps to problematize prevailing neo-
institutional development policy frameworks that treat politics with suspicion, positioning it as a
barrier to more effective service delivery (Dubash and Morgan, 2012). My analysis not only indicates
that institutional remedies for political interference hardly remove politics from the equation, they also
reveal a potentially positive role for politics in orienting service delivery towards more equitable and
progressive outcomes. Without minimizing challenges posed by clientelism (Herrera, 2017) or
corruption (Davis, 2004), I argue that institutional reform efforts that seek to ‘depoliticize’ public-
private service delivery arrangements by reducing the influence of political appointments, for example,
risk closing channels through which redistributive concerns enter into the state and shape private
participation. Here, it is worth recalling Hirschman’s (1967: 144) warning that the price of insulation
‘can be loss of easy access to political power, and this loss may be crippling, especially for agencies
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Appendix 1. Sanepar’s Operational and Financial Performance
Total population
in municipalities
with water
% population
with household
water connection
% population
with household
Employees per
% billing
Total investments in
water and sewerage
services (R$ Million)
% financial
Net profits (R$
Debt service
(R$ Million)
Beto Richa
Beto Richa
Sources: Ministério das Cidades (2015); Annual company reports (1999-2016).
Note: Data on net profits was compiled from company reports for all years; the shaded row indicates the year in which the company was semi-privatized.
Appendix 2. Copasa’s Operational and Financial Performance
Total population
in municipalities
with water
% population
with household
water connection
% population
with household
Employees per
% billing
Total investments in
water and sewerage
services (R$ Million)
% financial
Net profits (R$
Debt service
(R$ Million)
Sources: Ministério das Cidades (2015); Annual company reports (2002-2015).
Note: Data on net profits was compiled from annual company reports for the years 2002-2015; the shaded row indicates the year in which the company was semi-privatized.
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The aim of this timely work, which appears in the wake of the worst global financial crisis since the late 1920s, is to bring together high quality research-based contributions from leading international scholars involved in constructing a geographical perspective on money. Topics covered include the crisis, the spatial circuits of finance, regulation, mainstream financial markets (banking, equity, etc), through to the various ‘alternative’ and ‘disruptive’ forms of money that have arisen in recent years. It will be of interest to geographers, political scientists, sociologists, economists, planners and all those interested in how money shapes and reshapes socio-economic space and conditions local and regional development.
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Most of the world’s population lives in cities in developing countries, where access to basic public services, such as water, electricity, and health clinics, is either inadequate or sorely missing. Through the lens of urban water provision, this book shows how politicians fail to provide reliable and high quality public services because they often benefit politically from manipulating public service provision for electoral gain. In many young democracies, politicians exchange water service for votes or political support, attempting to reward allies or punish political enemies. Surprisingly, the political problem of water provision has become more pronounced in many young democracies, as water service represents a valuable political currency in resource-scarce environments. When do politicians forgo the clientelistic manipulation of water services and invest in programmatic and universal service provision? Water and Politics finds that middle-class and industrial elites play an important role in generating pressure for public service reforms. Based on extensive field research and combining process tracing with a subnational comparative analysis of eight Mexican cities, Water and Politics constructs a framework for understanding the construction of universal service provision in these weak institutional settings.
Development consulting companies are pivotal actors in bilateral projects, yet they are largely invisible in policy documents, and little researched. Their business model is a combination of ‘doing good’ and profit. This article examines the history, business logics and working relationships of consulting companies in development cooperation, taking the case of Finland. It asks ‘Why are consultancy companies needed in development cooperation?’ Their relationship with donors appears to represent a principal–agent relationship, yet they often share the donor’s ethos, and even exchange staff. The dramatic decrease in technical assistance budgets over recent years, along with increasing bureaucracy, has caused profits to diminish and many companies have disappeared, taking institutional memory with them. However, if the donors wish to assert some policy guidance and have contact with work on the ground in developing countries, there is a need for technical assistance via consulting companies.
Water supply privatization was emblematic of the neoliberal turn in development policy in the 1990s. Proponents argued that the private sector could provide better services at lower costs than governments; opponents questioned the risks involved in delegating control over a life-sustaining resource to for-profit companies. Private-sector activity was most concentrated—and contested—in large cities in developing countries, where the widespread lack of access to networked water supplies was characterized as a global crisis. In Privatizing Water, Karen Bakker focuses on three questions: Why did privatization emerge as a preferred alternative for managing urban water supply? Can privatization fulfill its proponents' expectations, particularly with respect to water supply to the urban poor? And, given the apparent shortcomings of both privatization and conventional approaches to government provision, what are the alternatives? In answering these questions, Bakker engages with broader debates over the role of the private sector in development, the role of urban communities in the provision of "public" services, and the governance of public goods. She introduces the concept of "governance failure" as a means of exploring the limitations facing both private companies and governments. Critically examining a range of issues—including the transnational struggle over the human right to water, the "commons" as a water-supply-management strategy, and the environmental dimensions of water privatization—Privatizing Water is a balanced exploration of a critical issue that affects billions of people around the world.
The revenues of large companies often rival those of national governments, and some companies have annual revenues higher than many national governments. Among the largest corporations in 2015, some had private security forces that rivaled the best secret services, public relations offices that dwarfed a US presidential campaign headquarters, more lawyers than the US Justice Department, and enough money to capture (through campaign donations, lobbying, and even explicit bribes) a majority of the elected representatives. The only powers these large corporations missed were the power to wage war and the legal power of detaining people, although their political influence was sufficiently large that many would argue that, at least in certain settings, large corporations can exercise those powers by proxy. Yet in economics, the commonly prevailing view of the firm ignores all these elements of politics and power. We must recognize that large firms have considerable power to influence the rules of the game. I call attention to the risk of a “Medici vicious circle,” in which economic and political power reinforce each other. The possibility and extent of a “Medici vicious circle” depends upon several nonmarket factors. I discuss how they should be incorporated in a broader “Political Theory” of the firm.
This paper examines the recent resurgence of interest in public-private partnerships (PPPs) to provide infrastructure in developing countries. First, the paper demonstrates that there has been a revival of support for private sector participation in infrastructure. Second, the paper argues that this revival differs from earlier attempts to increase the involvement of the private sector in public service provision in a number of respects. In particular, the current support for PPPs is related to an increased availability of global financial capital. Third, the paper considers the implications of this distinct feature of the revival for development.