1963-2018 - 55 years of Research for Social Change

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Back | Programme Area: Markets, Business and Regulation (2000 - 2009), Social Policy and Development (2000 - 2009)

Water Services in Finland: Competition for Non-Core Operations - Not for Monopolies (Draft)

In Finland local authorities provide about two thirds of all public services and the State (the central government) about one third. The model for providing basic services is built on the responsibility and autonomy of the local governments. The autonomy of municipalities is based on their right to levy taxes and impose user service charges. The municipalities have a constitutional autonomy and the possibility to design their administration and service production according to what their democratically elected government considers to be the best. At the same time they have statutory obligations to provide basic services in health care, social services and education for their population.

The role of central government (State) has always been rather minimal in the development of water and sewerage services in Finland. For rural areas first central government subsidised systems were built in the 1950s. For the development or water infrastructure in urban areas there has practically never been any government subsidies available, but the systems have been financed entirely by the municipalities.

Finland has a long and extensive experience in public-private cooperation in the water supply and sewerage sector, although perhaps not in the narrow and partly misleading sense that public-private partnership is too often understood (i.e. private finance initiative). Outsourcing of services – especially non-core services – of public water undertakings in Finland is very extensive. Outsourced services can form as much as 60-80 percent of the undertaking’s turnover (cash flow) in many public undertakings. Outsourcing is based on the competitive bidding. Nearly 100 percent of the expenditure with the regard to capital investment projects is going to the private companies based on the competitive bidding.

The new Water Services Act allows delegation of water service production also to private operators, if the municipality will so desire. Also the previous legislation did not prevent the possibilities to use private operators. Finland has good experiences from autonomous and incorporated municipal water utilities. Adequately reformed and autonomous public enterprises could in most cases be a more viable option than privatised utilities also in developing and transition economies. Outsourcing of various non-core services to the private sector – as is extensively done in Finland – could be a potential form of gradually building the capacity of the private sector. Most developing and transition economies do not have substantial current private operator potential, but there are yet often a lot of private enterprises that could provide various services to public water utilities.