Drinking water supply and sanitation services on the threshold of the XXI century
Figure 2
LATIN AMERICA AND THE CARIBBEAN: INVESTMENT IN DRINKING WATER AND SANITATION PROJECTS WITH PRIVATE PARTICIPATION, 1991-2002 (Billions of dollars per year)
5
4
3
2
1
0 1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Source: World Bank (2004).
Characteristics of the process of incorporating the private sector include the speed with which privatization programmes have been carried out, prejudices and ideological notions of the regulatory role of the State (see page 43), the imbalance of power between different sectors of society, the weakness of civil society entities, macroeconomic instability, limited regulatory experience, low rates and the absence of efficient tariff systems. These aspects have given rise to numerous controversies, conflicts, renegotiations and even to a few failures, for example in Cochabamba, Bolivia (see Box 6), and the provinces of Buenos Aires and Tucumán in Argentina.24 This has resulted in concerns about issues such as excessively permissive regulatory frameworks (see page 41), dissatisfaction with consumer protection mechanisms, control of transfer prices in transactions with associated companies, regulators vulnerability to capture, ambiguity concerning their independence, failure to apply the concept of reasonable returns, and also opportunistic behaviour, postponed investments, ignorance of social and environmental interests and, in some cases, technical failures (Peña and Solanes, 2002). The drinking water supply and sanitation concession of the city of Buenos Aires is paradigmatic on account of its scale, age and influence. The Argentine experience is therefore
24
38
In 1995, the province of Tucumán, Argentina, granted a concession for its drinking water supply and sanitation services. In 1997, however, the contract was rescinded following two years of serious dispute. “The conflict between the concessionaire and the province began in September 1995, a mere two months after privatization. Conflict broke out when users received bills with a 104% rate increase. The dispute worsened in January 1996, when the concessionaire was accused of providing unsafe drinking water” (Elsinger, 1997). These problems led the concessionaire to apply to the International Centre for Settlement of Investment Disputes (ICSID), suing the Argentine State for the value of its investment, damages, credit for unpaid bills, payments and compensation to third parties and loss of potential earnings for the 30 years of the concession.