Argentina has suffered through decades
of military rule, dictatorships, corruption and
a collapsed economy. When Carlos Menem was elected
president in 1989 the country was relying heavily
on advice and loans from the International Monetary
Fund. With the IMF’s backing, Menem passed
the “National Administrative Law,” a
declaration of a state of emergency that gave him
the power to privatize public utilities by decree.
The blanket privatization of public assets was meant
to be a cure for the country’s hyper-inflation,
which at that time was close to 5000%.
President Menem put a political ally
and tabloid favourite in charge of the privatization
of the state telephone and steel companies. Maria
Julia Alsogaray was the daughter of the pro-market
and army-supported former Minister of Economy, Alvar
Alsogaray. She was known for her lavish lifestyle
and high-level political connections. Alsogaray
would go on to have a major role in the country’s
water privatizations as well.
WATER PROBLEMS IN BUENOS AIRES
By 1991, Buenos Aires’ public water utility,
Obras Sanitarias de la Nación (OSN), was
rife with problems. Up to 50 per cent of the system’s
water was lost through broken pipes, water shortages
in the summer were frequent, and there were too
few sewerage connections and inadequate treatment.
Thirty per cent of people in the greater Buenos
Aires area had no access to the water network.
One of them
was Lydia Chavez, a mother of eight who lives in
a poor area of Buenos Aires called La Matanza. Lydia
and her family get their water from a pump in the
backyard that is dangerously close to their sewage
pit. Her children often visit the local hospital
with stomach problems. She has been waiting for
a water connection for 14 years.
READ ABOUT THE MILLENIUM
DEVELOPMENT GOALS FOR WATER >
In 1991, the head of the public utility
announced that the state could not undertake the
billions of dollars of investments needed in order
to avoid a collapse of the water and sewer networks.
He said the public water company was a model for
privatization.
After the utility was ear marked for
sale, water rates started to climb. Double-digit
increases throughout 1991 and a new sales tax significantly
increased water bills. The World Bank funded and
approved a team of private sector technical and
financial consultants from the U.K., the birthplace
of water privatization under Margaret Thatcher,
to advise on the future of Buenos Aires’ water
sector.
When former World Bank president Lewis Preston visited
Argentina in 1992 he declared that Argentina’s
“process of adjustment” was “an
example for all of Latin America.” Throughout
the nineties the World Bank and its lending arm,
the IFC, loaned close to one billion dollars for
three water and sewage projects in Argentina. The
IFC even bought a 5 per cent stake in the private
water concession, and became a part owner.
AGUAS ARGENTINAS WINS THE
WATER CONCESSION
When Buenos Aires’ water utility was open
for bidding, the lobbying heavyweights stepped in.
French dignitaries visited Buenos Aires on behalf
of a consortium led by France’s two powerful
water companies, Vivendi and Suez. The consortium,
called Aguas Argentinas, won the concession in May,
1993 after promising a 26.9 per cent reduction in
water rates.
The concession was one of the largest
water privatizations in the world. It included 9.3
million people and covered downtown Buenos Aires
and 14 surrounding municipalities. A new public
regulatory body, ETOSS (Ente Tripartito de Obras
y Servicios Sanitarios) was created to oversee Aguas
Argentinas. Its mission was to monitor the quality
of service, represent customers and ensure the private
company lived up to its contract.
After winning the contract, Aguas
Argentinas did reduce rates by 26.9 per cent, mostly
by reversing the increases of 1991. The new private
water company also committed to a $1.4 billion investment
in the system, and to connecting more than 4,200,000
people to water and 4,800,000 to sewage in 30 years.
The concession contract stated that
rates were subject to change every five years. In
the first five-year period rates were fixed, and
in the second five-year period, rates could only
go down. The company could only apply for a rate
increase if costs for fuel, chemicals, electricity
or labour went up.
WATER RATES
START TO RISE
Only eight months after the contract was signed,
Aguas Argentinas wanted permission from ETOSS for
a rate increase. The company claimed operational
losses of $23 million for “extra-contractual
costs,” such as speeding up service in very
poor neighborhoods.
ETOSS granted the rate increase in exchange for
making certain investments, including getting water
and sewage to “villas de emergencia”
(shanty towns) sooner, as well as a plan to eliminate
the use of well water, which was heavily contaminated
with nitrates.
By 1996, however, Aguas Argentinas
had invested $300 million less on expansion of services
than promised, or approximately 45 per cent of the
original contract. The company used bad debt, late
payments, and a downturn in the Argentine economy
to justify the difference. Despite this, the company’s
profit margin remained above 20 per cent.
THE FRENCH CONNECTION
French companies had won several of the Argentine
privatization contracts and relations between Argentina
and France were close. In February 1996, Argentine
president Carlos Menem visited French president
Jacques Chirac in Paris, where he received an honorary
degree from the Sorbonne. While in France, Menem
and Argentina’s Minister of Economy, Domingo
Cavallo, met with the president of Suez, Jérome
Monod, who indicated he would like to renegotiate
the entire water contract in return for speeding
up the water and sewer connections in Argentina.
