|The trickle-away effect
Multinational water companies once beat a path to buy up privatised
operators in Argentina. Now they are desperate to get out, writes
Monday November 21, 2005
More than 1 million residents in the rural Argentinian province of
Santa Fe are facing an anxious wait to discover if their taps will
still flow or their toilets flush over the next few weeks.
Since 1995, the province has had its water supply and sewage services
provided by a consortium led by the French multinational Suez; now the
giant utility wants out, and plans to leave within the month.
The decision, which follows the high-profile collapse of other water
privatisation schemes in countries including Tanzania, Puerto Rico,
the Philippines and Bolivia, has again raised questions about the
viability of privatising utilities in the developing world.
Suez is also preparing an early departure from its formerly lucrative
concession in the Argentine capital, Buenos Aires. The deal, struck in
1993, marked the largest water privatisation project in the world.
In both cases, the French utility is terminating its 30-year contract
a third of the way through. Suez cannot get the concessions to turn a
profit - at least not under the terms of its current agreements.
The company has being trying to renegotiate the tariffs it is
permitted to charge ever since 2002, when Argentina's national
currency was devalued. The original rates were set in pesos, when one
peso equalled one US dollar. After the devaluation, rates were
suddenly worth a third of what they had been.
With regulators showing no signs of budging on a rate increase, Suez
has decided to pack its bags. The government is looking to reprivatise
Suez's 39.9% stake in the operating company, Aguas Argentinas, but no
deal has yet materialised.
"Aguas Argentinas is no longer in a position to assume the risks and
responsibilities linked to the water and waste services operations
provided to the city of Buenos Aires," said Suez in a prepared
The French utility giant snapped up both service agreements in the
mid-1990s when Argentina was undergoing a massive reform of its public
sector, largely at the behest of the World Bank and other lending
The logic was that private companies would bring technology,
management know-how and investment to the failing public water
According to Suez and its backers at the World Bank, the plan worked
well: World Bank figures show that Aguas Argentinas expanded the
delivery of water services to more than 1.5 million inhabitants and
sanitation to 800,000.
But critics argue that much of the promised investment - $4bn (£2.3bn)
over three decades - never took place. According to the environmental
group Friends of the Earth, price rises prevented poor people
accessing the network while underinvestment in the sewage system led
to 95% of the city's waste being dumped into the Rio del Plata.
"Aguas Argentinas refuses to make the promised investment to expand
the infrastructure, while continuing to charge high consumer rates and
cutting off citizens unable to pay," the international campaign Stop
Olivier Hoedeman, of the Corporate Europe Observatory, an
Amsterdam-based research group, notes that all the case studies used
in the 1990s to prove the success of water privatisation are failing
one by one. "There's often a real problem with making these
concessions profitable," he said. "In the cases where they are not
profitable, the companies do not invest as much as they promise."
The problem of underinvestment was evident across Argentina even
before the 2001-2002 economic crisis. In 1998, Veolia Environment
(then Générale des Eaux) had its 30-year concession to supply the
northern province of Tucumán rescinded after failing to deliver on an
agreed investment package. Locals accused the company of doubling
tariffs while turning the water brown during the three years it
managed the region's water supplies.
Another celebrated case is that of Azurix, a subsidiary of Enron. The
Houston-based utility, now disbanded, won a $439m bid to service 70
districts in the province of Buenos Aires in 1999. Complaints of low
investment and subsequent water contamination temporarily led the
authorities to recommend that residents drink bottled water.
Disappointment with the privatisation process is not just confined to
consumers: private sector operators in Argentina have their own list
of complaints. Chief among these are ad hoc government policy, the
lack of legal or contractual security and the absence of a truly
Suez has made its feelings clear in the World Bank's court of
arbitration, where it has filed a multimillion-dollar compensation
claim against the Argentinian government.
It is not only in Argentina where multinational water operators are
disinvesting: Suez also left its contract (albeit forcibly) to supply
a low-income region of La Paz, in Bolivia, last year.
"Across Latin America, we are seeing a tendency of large companies to
leave," says Daniel Nolasco, a Latin American water expert. "And we
don't see them bidding for new concessions either."
He anticipates that Latin American investors are likely to pick up the
concessions left by the departing multinationals. In Santa Fe, for
example, a local consortium consisting of a ceramics firm, a livestock
company and the water union group has put its name forward to take
Whether these new players in the market will have the necessary
expertise or financial clout to sustain Argentina's water
infrastructure is an issue that worries local authorities. The
Argentinian public is worried, too.
· Oliver Balch is a freelance journalist based in Argentina who
specialises in sustainable development