Argentina Water Privatization
Scheme Runs Dry
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
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
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
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
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
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
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
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.