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Argentina Water Privatization Scheme Runs Dry

by Sebastian HacherSpecial to CorpWatch
February 26th, 2004

Cartoonist: Khalil Bendib

Rio de la Plata ("the Silver River") separates Buenos Aires, the capital of Argentina, from Montevideo, the capital of Uruguay. For 500 years, it has also been called "la Mar Dulce" as visitors, confused by its beauty and size, mistook it for a freshwater sea. Today, though, the river has another distinction: it is one of the few rivers of the world whose pollution can be seen from space.

"Living by the river is a curse," says Alejandra, a mother of three with sad eyes. "I am a single mother, with no work, and I don't know what to do with my children." Alejandra lives in a very poor neighborhood known as "Villa Inflamable."

The district has been given this name for a chilling reason: surrounded by chemical and petroleum industries, the zone's combustibility is considered a time bomb. Villa Inflamable is in the heart of the South Dock Petrochemical area, where, as of 1997, some 3000 companies continuously dump their sewage into Riachuelo, "the little river".

Adding to this intense pollution is the sewage waste of five million customers of the privatized water company Aguas Argentinas, which is dumped directly into the river each day without treatment. Three kilometers upstream Aguas Argentinas treats the very same water for use by the same population.

A World Bank case study

Aguas Argentinas is a case study of the rush to privatize water services in the last decade by European and U.S.-based companies, backed by the International Monetary Fund (IMF) and World Bank.

The deal made between Argentina's water authority and a consortium that includes the Suez group from France, the largest private water company in the world, and Spain's Aguas de Barcelona, in May 1993, established a new private entity, named Aguas Argentinas, with the help of the World Bank which also bought a small stake in the consortium. According to a study by Dr. Malpartida's Ecology and Environment Foundation, the new company was "the biggest transfer of a water service and watershed into private control in the world" encompassing a region with over 10 million inhabitants.

Privatization Plans Plummet

Today 460 million people around the world are dependent on private water corporations for their daily supply - compared to 51 million in 1990 - because of the privatization polices promoted by the World Bank and IMF.

However now the world's primary water corporations have decided they're not willing to take risks in developing countries. Suez has declared a policy of "preparing to depart" developing countries so as to concentrate on profitable possibilities in North America and Europe. A profile of Suez by Canada's Polaris Institute explains "Suez is adopting a policy of abandoning projects which are problematic, risky or not as lucrative - mostly in the developing countries."

David Hall of Public Services International Research Unit describes Suez' new attitude as "challenging the very reasons for involving the private sector in such an essential public service - the capacity to take on risks, to bring in their own capital, and to provide the 'benefits' of competition. As it turns out, these multinationals are unable to do any of this."

In February of 2003 the water and sewage concession in the capital of the Phillipines, of which Suez owned over twenty percent, was terminated. In March of 2003, blaming a "global financial pitch", Suez backed out of a contract they'd won in Ho Chi Minh City to provide Vietnam's first build-operate-transfer water treatment plant. In January 2004, Ondeo, Suez' water management subsidiary, pulled out of what was to have been a ten year contract to manage water services for all of Puerto Rico. Ondeo released a statement stating "Faced with economic realities very different from initial projections, and within the framework of its parent company's action plan, Ondeo of Puerto Rico has put an end to its water management contract in agreement with the Puerto Rican government."

As a result, according to Daniel Azpiazu, a researcher at the Latin American Faculty for Social Sciences, residential water rates increased 88.2% between May 1993 and January 2002 although there was "no relationship between this rate and the consumer price index (inflation rate), which was 7.3% for the same period."

Azpiazu says this provided the company with net profits of 20%, which he says is far higher than is "acceptable or normal" for the water industry in other countries: "In the United States, for example, water companies earned between 6-12.5% profits in 1991. In the United Kingdom a reasonable rate of profit for the sector is between 6-7%. In France, 6% is considered a very reasonable return on investment."

Yet this rate increase did not translate into higher quality or quantity of service. In 1997, the company was found to have failed to honor 45% of its contract commitments for improvement and expansion of services, resulting in massive pollution.

Unfit for human consumption

Aguas Argentinas transports sewage waste of 5,744,000 people, but according to a December 2003 study by the Argentine Auditor-General (AG) only 12% of the total receives full sewage treatment. The rest, according to the auditor, is dumped tin the Rio de la Plata in the Berazetegui zone.

Individuals and municipal authorities in Berazategui, together with the nearby municipalities of Quilmes and Berisso, recently sued Aguas Argentinas for the contamination of the river, asking for $300 million in compensation.

"From the beginning of the year", said Fernando Gerones, mayor of Quilmes, "we have been trying to bring attention to the problem that the drinking water for the region, which is drawn in Bernal by Aguas Argentinas, has its source just 2.8 kilometers from the coast where sewage is dumped in Berazetegui."

Aguas Argentinas is terse in denying that the pollution present in the water at its source is passed on to consumers. "The possible increase in contamination of the water of Rio de la Plata does not affect the quality of the water produced and distributed by the company," a company spokesperson said.

However, a study published in El Porteo magazine showed that the water in "seven districts of Greater Buenos Aires is unfit for human consumption, containing nitrate levels that are three times too high." The findings were corroborated by a study conducted by the Environmental Chemistry and Biogeochemical Laboratory at the Faculty of Natural Sciences in La Plata, which went even further, revealing that some of the fish of the zone were contaminated with PCBs. This highly carcinogenic, and consequently banned substance, is a component in various chemical weapons, including napalm and the defoliant "Agent Orange".

One month ago, when the courts commanded Aguas Argentinas to fulfill its contract and construct a water purification plant in Berazategui within 18 months, company spokespeople first replied that "technically, this is not a responsibility of the company, but of the government." In a later communique, after this argument was refuted, the company changed its mind: "we are complying with the judge's wishes, but environmental improvements require more than a treatment plant: they require a much wider plan."

Pocketing rate hikes

The company has long promised to finance major improvements and even hiked rates twice to pay for the expected costs. But in 2003, ETOSS, the regulatory body that oversees Aguas Argentinas, slapped the company with a 55 million peso fine when they discovered that the company had never implemented their construction plans.

Indeed Aguas Argentinas has invested mostly in small improvement schemes rather than major investments in additional production capacity that a government operator might have undertaken.

The World Bank's Operations Evaluation Department praised this approach in a 2003 report, which says: "Under the same contract, the concession managed to postpone indefinitely costly additions to the capacity of the sewage interceptors simply by accelerating maintenance of the existing interceptors."

However, Aguas Argentinas' frugality in matters of infrastructure has created a vacuum where the core service of providing water for drinking and sanitation should be. Liliana de la Serna, proprietor of a popular dining room for children in Quilmes, a province of Buenos Aires, describes the daily reality. "There's almost no water here. Several blocks in the district aren't connected to the network, and were contaminated after a break in the sewage lines."

Aguas Argentinas promised to provide bottled water, but ignored their commitment after one delivery. In the meantime, the rest of the district receives "intolerable,contaminated water, and not much of it at that."

When contacted about the rate hikes, Aguas Argentinas refused to comment on the propriety of continual rate hikes.

Cancel the contract?

Four months ago, when the government of Nestor Kirchner cancelled the privatization of the Argentine Postal company, Aguas Argentinas, was believed to be next on the list. In the influential newspaper Clarin, the the Minister of Economic Planification Julio del Vido said it would take a hard line in its negotiation with Aguas Argentinas, demanding substantial new investment, maintenance, improvement of the network, as well as the quality of service. "And if they don't sign, the contract will be cancelled."

There was even talk of prosecution. Leandro Despouy, president of the AG, also pointed to the existence of cases of "non-fulfillment of contracts that must be investigated by the Department of Justice, to determine whether there is criminal or administrative culpability on the part of the company."

Aguas Argentinas soon found themselves with another surprise: at the end of 2003 the government informed them that they faced new penalties of 8.6 million pesos for non-fulfilment of contract. Weeks before, the company had been charged with a penalty of 3 million pesos, partly as punishment for a short, unpredictable cut in the service that affected 6 million people in September 2003.

On February 13, following a meeting between the Argentinian goverment and Suez' board of directors, the company issued a press release announcing the achievement of "the basis of a negotiation to set down in a lasting way an economically balanced agreement for all parties, thus confirming its will to continue with the Aguas Argentinas mission."

It remains to be seen whether the government will back down from the confrontation, force the company to clean up its act, cancel the contract or if the company will pull out altogether, as it has in several other countries. (see box)

Sebastian Hacher is an independent journalist and photographer currently based in Argentina. Justin Podur is a writer and translator on Latin American issues.