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ARGENTINA:
A GRAND EXPERIMENT IN WATER PRIVATIZATION THAT FAILED
PROTESTING OVER
WATER
In Argentina, frustration with high water rates
and new connection fees was beginning to materialize
into street protests. A congressional commission
found that Aguas Argentinas had “committed
serious and grave breaches of contract” and
ordered the company to suspend new connection charges
for 800,000 new users in metro Buenos Aires. It
also found that Aguas Argentinas was not meeting
its goals for renovating water and sewage networks.
In February 1997, in a move to centralize
power with the national government, President Menem
passed Decree 149, which took the power to negotiate
with the water companies away from the regulatory
body, ETOSS, and gave it to Maria Julia Alsogaray,
who by that time was Minister of Natural Resources
and Sustainable Development.
After a visit to Buenos Aires by French
President Jacques Chirac, Alsogaray agreed to review
the water contract. She did so despite warnings
from the public regulator, ETOSS, that Aguas Argentinas
had only built about a third of the new pumping
stations and underground mains it had promised to
finish by 1997, and had only invested $9.4 million
of a promised $48.9 million in sewage networks.
WATER RATES
RISE BY 177%
In November 1997, Alsogaray’s ministry finalized
a new contract with Aguas Argentinas. It gave the
company new opportunities to raise rates, additional
time to expand coverage, and cancellation of some
investments originally agreed to. Subsequent contracts,
including another one signed in 1999, allow for
more increases in water rates and removed sanctions
for not fulfilling investment and expansion promises.
By 2002, water rates in Buenos Aires
had increased 177 per cent since the start of the
private concession. Meanwhile, the Argentine economy
was in crisis. Several interim presidents took power
then quickly resigned. Bank accounts were frozen and
the peso was devalued by two-thirds. People who were
once middle class became poor overnight.
In early 2002, the new Argentine president
Eduardo Duhalde passed an “economic emergency
law” which froze all utility rates. Arguing
the rate freeze violated their contracts, some of
Argentina’s privatized utilities, including
Aguas Argentinas, took the government of Argentina
to the International Centre for Settlement of Investment
Disputes. The court is part of the World Bank group,
whose investment arm, the IFC, still owns a 5 per
cent stake in the concession.
The World Bank considers the private
water concession in Buenos Aires a success and blames
any lack of investment on the economic crisis.
The World Bank’s Director of Energy and Water,
Jamal Saghir: The issue
of Argentina in particular is a market economic-related
issue, it’s not a water related issue. …
If you look at prior to the Argentina crisis, 1.6
million people were connected, that’s a lot
of people. (read an on-line
interview with Jamal Saghir)
Argentine economist
Karina Forcinito disagrees: Let’s
face the facts. The concession began in May, 1993
and until the beginning of 2002 had stable operating
conditions. Completely stable. Stable prices, stable
exchange rate, completely stable relations with
the rest of the world. … In no way can you
justify the non-compliance.
NEGOTIATING
A NEW CONTRACT
In 2003, the IMF and World Bank sent a delegation
to Buenos Aires to assist the government in renegotiating
the private utility contracts. The IMF made structural
reform, including increases in utility tariffs,
a condition for any new loans to the country. When
French Foreign Minister Francis Mer visited the
new Argentine president Nestor Kirchner in 2003,
he too insisted utility rates be raised. The French
Minister said that the decline of the peso’s
value has cost French companies 10 billion dollars
in Argentina. But President Kirchner said he wouldn’t
bow to pressure from any foreign government, including
the French.
Argentina signed a new IMF agreement
in September 2003 and promised to address the rate
issue. The Argentine Congress said there will be
no increases without newly negotiated contracts.
RE-EXAMING PRIVITIZATION
In 2003, Maria Julia Alsogaray, who by that time
was reviled by the Argentine media as a symbol of
the corrupt Menem government, was charged with several
counts of misappropriating government funds and
other corruption and embezzlement-related charges.
She is being held by police until her trial begins
in April 2004.
In November 2003, the Argentine government
said it is re-examining all privatization contracts,
including Aguas Argentinas.
Miguel Saiegh,
head of ETOSS, the public regulator: Aguas
Argentinas is in default right now. They’re
paying very little of their debt. The World Bank,
the International Development Bank, and the European
Bank aren’t demanding that they pay. But the
company is technically in default. Right now this
contract is in deep crisis. We are debating whether
to continue with the concession.
The water company is in default on
$700 million worth of loans to international financial
institutions. Millions of people in greater Buenos
Aires are still waiting for water and sewage connections.
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