Why is this such a "all or nothing" argument. Why can we not have privatisation with budget from the government to pay for the first 2000 litres for each person under a certain income level each month. That way the private sector can run it smoothly, and people's rights are still protected.

In addition, I understand your argument to be that we cannot privatise water because no person should be allowed to go without. Now it seems that a lot of people are going to go without anyway, despite the majesty of State.

If the private sector ran the water supply and your distopian future came true, the government only needs to give money to the private sector in order to provide water to those who are deprived. We call this a subsidy. It is more common than you imagine.  This is a substantially easier task than building and maintaining infrastructre that the government is incapable of building and maintaining.