Of Liquid Dreams: A Political Ecology of Water Privatization in Buenos Aires

WATER PRIVATIZATION
Of liquid dreams:
a political ecology of
water privatization in
Buenos Aires
Alexander J Loftus and David A McDonald
Alexander J Loftus recently “Latin America is the region of open veins. Everything, from
completed a Masters degree
at Queen’s University, the discovery until our times, has been transmuted into
Canada (on which this European – or later United States – capital, and as such has
paper draws) and is a accumulated in distant centres of power.”(1)
D.Phil candidate in
Geography at Oxford
University. SUMMARY: The privatization of water and sanitation in Buenos Aires has been
Address: 33 Wolvercote
hailed by its neo-liberal proponents as an unprecedented success. This paper takes a
Green, Oxford OX2 8BD, deeper and more critical look than many of these accounts. It looks at political and
UK; e-mail: economic changes within Argentina in order to explain the troubling findings regard-
[email protected]
ing the performance of Aguas Argentinas, the private company that won the conces-
David A McDonald is sion for most of Buenos Aires. The paper begins with a brief overview of the political
Director of the and economic context in Argentina before describing the process involved in the water
Development Studies
Programme at Queen's privatization in Buenos Aires. It then discusses the outcomes, including changes in
University, Canada and is coverage and charges to end users as well as impacts on labour and the environment.
co-Director of the The paper describes how the promised reduction in water tariffs did not materialize (in
Municipal Services Project
(www.queensu.ca/msp). fact the opposite occurred) and how agreed-upon targets for expanding sewerage
connections and sewage treatment were not met. It also describes how the national
Address: Development
Studies Programme, government intervened to support the water company in conflicts with the regulatory
Mac-Corry Hall, Queen's agency and even by-passed the regulatory agency when the water company wanted to
University, Kingston, renegotiate the contract. Finally, the role of international financial institutions in this
Ontario, K7L 3N6, Canada;
fax: +1-613-533-6122; e-mail: process is discussed.
[email protected]
The authors would like to

thank Itzíar Gomez- I. INTRODUCTION
Carrasco for her translation
work and insights; also
Daniel Azpiazu, Eduardo IN 1989, EMBARKING on a dramatic reversal of his party’s election plat-
Basualdo and Martin form, Argentine President Carlos Menem began a major period of privati-
Schorr of La Facultad zation. This marked the beginning of the era of Menemismo economics.
Latinoamericana de
Ciencias Sociales Nearly all publicly owned enterprises were sold or given over to the private
(FLACSO) and Carlos Vilas sector to manage, including the water service of Buenos Aires which took
of the Instituto Argentino the form of a 30-year concession contract in 1993. Within a year, the World
para el Desarrollo
Económico (IADE) in Bank was proclaiming the success of the Buenos Aires water concession and
Buenos Aires for their it soon embarked upon a vigorous promotion of the model in other parts of
assistance in conducting the
research. The comments of the world. Alongside this, the foreign water corporations involved publi-
two anonymous referees on cized the “success” of their accomplishments in Buenos Aires as part of an
an earlier draft have also aggressive move into water markets elsewhere in the world. Since 1994,
been useful. Funding for
this research was provided however, the concession has proved far more problematic than the World
by Queen's University and Bank’s researchers originally thought, particularly in terms of escalating
Downloaded from eau.sagepub.com at Massachusetts Institute of Technology on October 24, 2016
Environment&Urbanization Vol 13 No 2 October 2001 179
FEEDBACK
costs to the public and environmental degradation. by the Municipal Services

Project through the
In this paper, we offer a brief overview of the political economic context International Development
in Argentina before looking at the process involved in the privatization of Research Centre (IDRC) of
water in Buenos Aires. We then look at the outcomes of the privatization. Canada. The opinions
expressed here remain
The research is based on secondary sources as well as a six-week period those of the authors.
of primary research in Buenos Aires between July and August 2000. The
latter consisted of semi-structured interviews with representatives from the 1. Galeano, Eduardo (1973),
private company, the independent regulator, the International Finance Open Veins of Latin America:
Corporation, national and local government, community groups and repre- Five Centuries of the Pillage of
a Continent, Monthly
sentatives from the main water sector unions. Secondary sources were Review Press, New York,
drawn from academic articles and government documents as well as page 12.
research reports prepared by major donor agencies.
II. THE LEGACY OF PERONISM
IN SPITE OF being the second largest economy in South America, Argentina

is languishing in an economic crisis. Spanish colonialism left a profound
mark, establishing firmly unequal trade relations with the rest of the world
and creating a small élite prepared to work in alliance with foreign interests.
In the last decade, neo-conservative economic reform and rapid privatization
have greatly accentuated inequalities and have led to a deepening of
Argentina’s dependence on foreign capital.
In the first half of the twentieth century, economists confidently predicted
that Argentina would soon be second only to the US in its economic strength
and stature. In marked contrast, from the 1950s onwards, political instabil-
ity and economic stagnation have dominated Argentine history. Many have
lain the blame for the disaster of the last 50 years on the policies of Juan
Domingo Peron, Argentina’s president between 1946 and 1955, and for one
shorter period between 1973 and 1974.
Peron attracted mass support in the country through a curious blend of
socially reformist policies and balancing what appeared to be both leftist
social change and conservative defense of élite interests. Essentially, he was
a populist. Realizing that the largest constituency for him to draw upon was
the working-class, Peron granted some considerable concessions to the poor
and growing middle-class. His second wife, the glamorous Evita, who rose
from the poor barrios of the city to achieve myth-like stature, further consol-
idated the impression that Peronism represented the true interests of the
working-class. Peron did strengthen union power and did, therefore, help to
strengthen a force for change within the working-class, but this seems more
an act of political opportunism than a genuine effort to change power imbal-
ances. David Rock quotes Peron before the Buenos Aires’ stock exchange in
August 1944: “Businessmen: Don’t be afraid of my unionism. Never has capital-
2. Rock, David (1987),
ism been firmer than now…What I want to do is to organize the workers through Argentina 1516-1987: From
the state, so that the state shows them the way forward. In this way, revolutionary Spanish Colonization to the
currents endangering capitalist society in the postwar can be neutralized.”(2) This Falklands War and Alfonsín,
I B Tauris and Company,
close association of the union movement with the state has, we would argue, London, page 257.
been central in aiding the advance of neo-liberalism in the 1990s as well.
Peron’s first period in power was followed by a succession of coups and
military dictatorships. Civilian rule was rare and many blamed Peron’s rapid
realignment of social forces for the climate of political instability. His second
presidential coming was short and largely unsuccessful in improving condi-
tions in the country and, on July 1, 1974 Peron died of heart failure. After his
death, his third wife Isabel ruled for a further two years before a coup
180 Environment&Urbanization Vol 13 No 2 October 2001
WATER PRIVATIZATION
resulted in a new period of dictatorship and the bloodiest period in

Argentina’s recent history.
During the so-called “Dirty War” between 1976 and 1983, mass “disap-
pearances” took place, union laws were suspended, torture was common
and dissent impossible. Anyone labelled a radical was in danger, as the para-
noid military rulers attacked what they claimed was an underground, urban
guerilla movement. For a while, mothers were bewildered by the disap-
pearance of their sons, before having to accept the appalling reality that the
military was responsible for their systematic murder.
The grip of the military began to slip in the early 1980s, as the country
descended further into economic and social crisis. The last of the generals,
Galtieri, spearheaded a last-ditch attempt to consolidate support by invad-
ing the Malvinas (Falkland) Islands. When this ended in defeat, the period
of dictatorships crumbled. In 1983, Raul Alfonsin was democratically elected
as a civilian president and a period of civilian reform began. However,
Argentina’s troubles were by no means over. The debt crisis came to the fore
and convincingly blocked any of Alfonsin’s attempts to lift Argentina out of
the sharp economic depression in which the country seemed to be languish-
ing. High inflation and frequent bouts of hyper-inflation (reaching levels of
over 4,000 per cent a year) led to increasing disillusionment with the
government’s capacity to act. It began to look increasingly likely that mili-
tary intervention would again be the end-result of the chaos. However, the
1989 election saw the return of Peron’s Partido Justicialista, recently
unbanned and under the new leadership of Carlos Menem. In an agreement
with Alfonsin, Menem assumed power without the required interim period,
in order to prevent the growing possibility of serious instability. He then
embarked upon a rapid period of far-reaching economic reforms.
a. A shift to neo-liberalism
Menem’s reforms marked a dramatic turnaround from the Justicialista’s

main policy platform. In a cruel twist, the party most closely allied with
labour was the one that would carry through the harshest reforms. Citing
the devastating effects of hyper inflation, Menem declared a “state of
economic emergency” and was thereafter able to make many decisions by
decree. In response, the union movement went through a bewildering period
of transformation and fragmentation. Three main factions have since
emerged. The first, the conservative Confederacion General del Trabajo
(CGT), identifies most closely with Peronist interests and believes the unions
to be best served by the Justicialistas, in spite of their neo-liberal stance. The
second is a dissident faction of the CGT, the Movimiento de Trabajadores
Argentinos (MTA). The MTA have achieved some considerable success in
radicalizing the labour movement around the issue of neo-liberal restruc-
turing but have tried to do this within a more unified workers’ movement.
3. A much smaller Maoist
group, the Corriente In many ways, this has meant that they remain more closely associated with
Clasista y Combativa traditional Peronism than the other breakaway movement, and third main
(CCC), also exists but will labour faction, the Central de los Trabajadores Argentinos (CTA).(3) Whereas
not be discussed in the both the CGT and the MTA are umbrella groups, the CTA is primarily
context of this paper.
composed of dissident unions, the unemployed and individual members.
Factions aside, this corporatist framework of the past seems largely to
have been dismantled during the period of Menem’s reforms. Labour
leaders were still consulted but it seems to have been little more than a
means of guaranteeing their co-optation. As Manzetti writes, “...in what
constituted a watershed in Argentine history, Menem turned the traditional
FEEDBACK
4. Manzetti, Luigi (1999),

confrontation between Peronism and big domestic capital into an alliance for Privatization South American
profit.”(4) Labour leaders joined this emerging alliance and, as unemployment Style, Oxford University
rose to a steady 15 per cent in the latter half of the 1990s, the labour move- Press, Oxford, page 81.
ment found new ways of surviving, in many cases turning its attention more
to raising revenues in private financial markets rather than challenging the
government’s economic reform agenda.
One such revenue-generating opportunity is directly linked to privatiza-
tion in the form of the Programma de Propiedad Participada (PPP), which
offers employees a 10 per cent share in the newly privatized industries;
shares which are administered by the unions. Murillo writes that: “The priva- 5. Murillo, Victoria (1998),
“Union politics, market-
tization of state-owned enterprises had two consequences for unions. On the one oriented reforms and the
hand, union dues and welfare funds dropped, with decreased numbers of members. reshaping of Argentine
On the other hand, privatization increased the opportunities to generate union corporatism” in Chalmers,
resources because it introduced a system of employee ownership administered by D A, C M Vilas, K Hite, S B
Martin, K Piester and M
unions, and opened the possibility for unions to purchase stocks in privatized firms Segarra, (editors), The New
in their industries.”(5) Overall, this process of reform has led to a much smaller Politics of Inequality in Latin
workforce and radically different priorities for the labour movement. America: Rethinking
Participation and
After Menem’s successor failed to win the 1999 presidential elections for Representation, Oxford
the Peronists, losing to the Alliance party’s candidate Fernando de la Rua, University Press, Oxford,
labour militancy has increased once more. This time, protests have been page 81.
focused on the international financial institutions, especially the World Bank
and the International Monetary Fund (IMF). Sometimes, as with Peron, this
has played on a sense of economic nationalism rather than proposing a
radical challenge to global capitalism but the MTA has begun calling for a
complete non-payment of the foreign debt. The CTA has also participated
in these calls and has contributed to the rejuvenation of a radical intellectual
critique of the so-called “Washington consensus”. In November 2000, the
main dissident labour groups mobilized road blocks and yet another
national strike in order to oppose the latest round of IMF-imposed austerity
measures. The current political and economic climate in Argentina remains
tense.
The official level of unemployment in the country lies at 15 per cent, but 6. Cieza, Daniel (1998),
if one includes rural labourers who are not covered by the social security “Argentine labour: a
system, the urban informal sector and those who have given up looking for movement in crisis”,
NACLA: Report on the
work altogether, the figure jumps to over 40 per cent.(6) The official figure Americas 31(6), page 23.
has not dipped below 13 per cent since 1995, when Menem’s reforms began
to take effect and, in 1999, the economy contracted by 3.2 per cent. Growth 7. “Another president
caught in Argentina’s
figures for 2000 predicted by The Economist languish at 1.5 per cent.(7) The economic trap”, The
current president, Fernando de la Rua, has struggled to attain the fiscal Economist, November 6,
surplus demanded by international creditors by cutting public spending and 2000.
increasing taxation, but the economy has not revived. Meanwhile, the cost
of services under newly privatized entities has increased significantly, along
with growing accusations of corruption. There appears to be a general loss
of confidence in the government’s ability to solve the country’s problems.
III. THE PROCESS OF PRIVATIZING WATER
IN AUGUST 1989, the Menem administration rushed through the National

Administrative Reform Law (No 23, 696), declaring a state of economic
emergency with regard to the provision of public services. The law author-
ized the “...partial or total privatization or liquidation of companies, corporations,
establishments or productive properties totally or partially owned by the state,
including as a prior requirement that they should have been declared subject to priva-
WATER PRIVATIZATION
8. Ministerio de Economia y
Obras y Servicios Publicos tization by the Executive Branch, approval for which should in all cases be provided
(1993) Argentina: A Growing by a Congressional Law.”(8) Through such a decree, Menem was able to priva-
Nation, MEOSP, Buenos tize the Buenos Aires water and sewerage network, Obras Sanitarias de la
Aires, page 4.
Nacion (OSN), without public consultation, arguing that it was “urgent” to
press on with reforms. Further presidential decrees 2074/90, 1443/91 and
2408/91 stated that the privatization would take the form of a “concession”.
The programme of economic restructuring was spearheaded by the
finance minister, Domingo Cavallo, who argued that privatization had
become a necessary measure to counter hyper-inflation that had reached
4,923.6 per cent in 1989 – “a statistical record which has scarred the national
9. See reference 8, page 3. consciousness.”(9) According to Prensa Economica: “...for Minister Cavallo,
carrying out the privatization of government-run corporations in record time is a
10. “Argentina racing
against the clock” (1991), must, since the main pillar of his convertibility is a fiscal surplus and therefore rests
Prensa Economica 17 (188), on the inflow of funds arising from the privatizations.”(10)
page 35. By 1993, the World Bank and the Inter-American Development Bank had
been involved in the Argentine water sector for several years, the Inter-
American Development Bank having lent US$ 90 million to OSN in 1989.
Once the government announced its law of administrative reform, the World
11. SGBATOS is the Union Bank funded and appointed a team of private sector technical and financial
for the Water Sector
Workers of Gran Buenos consultants from the UK to advise on the future of Buenos Aires’ water
Aires which itself is a part sector. The World Bank was also responsible for recommending and short-
of FENTOSS, the National listing companies after the submission of bids. At this stage, a privatization
Federation of Water
Workers. Both are in turn
committee was formed, comprising representatives of the Ministry for the
affiliated with the CGT, the Economy and Public Works, the Privatization Board, SGBATOS(11) (the main
General Confederation of water sector union) and OSN.
Workers, the main umbrella Once the decision to privatize had been made, there was no discussion
labour movement referred
to at the outset of this of alternatives. Alternatives within the private sector were discussed but
paper. these were restricted to questions of whether or not to divide the concession
area into competing concessions (a recommendation of the World Bank’s)
or whether to divide the network vertically into different services. The priva-
tization committee was essentially established to discuss how to privatize.
Virtually no information was provided to the public, as the committee relied
on the press publicizing the issues and taking an interest. Public input was
non-existent until a public hearing took place in June 2000, seven years after
the contract had been signed and two years after the second five-year plan
was to have commenced.
a. Co-opting labour
Labour had provided one of the key sources of opposition to initial attempts
at privatization in the mid- to late-1980s. Thirteen general strikes had been
called in order to block the progress of such reforms. However, Menem and
Cavallo recognized the levels of support that their party still had amongst
workers. This meant that union leaders had to be guaranteed a seat in the
privatization discussions. In order to ensure continued support up to and
following privatization, the law of administrative reform offered employees
a 10 per cent share in the privatized companies through the Programma de
Propiedad Participada (PPP).
The key to understanding the union’s co-optation lies in the PPP. As
Artana, Navajas and Urbiztondo argue in an article for the Inter-American
Development Bank and neo-liberal think-tank FIEL(Fundacion de Investi-
gaciones Economicas Latinoamericanas (Latin American Foundation for
Economic Research)): “Allocating 10 per cent of shares to workers through the
Programme for Shared Ownership was intended to ‘buy’ the consent of former OSN
FEEDBACK
12. Artana, Daniel, F

workers for the concession and has been a common practice in other privatizations Navajas and S Urbiztondo
undertaken by the federal government.”(12) They refer to the model as one of (1998), Regulation and
“popular capitalism” and recognize that it has been an effective, if expen- Contractual Adaptation in
Public Utilities: The Case of
sive, means of wearing down union opposition. Argentina, Inter-American
Although enshrined in law, many workers and union leaders felt intense Development Bank,
pressure to cooperate in the PPP in order to guarantee their 10 per cent share. Washington DC, page 211.
In interviews with the authors in 2000, representatives from SGBATOS spoke
of how their support for the process had not only guaranteed that they
received shares but also that they received payments sooner than those in
sectors opposing privatization. The strategy of co-optation seemed to work
and SGBATOS leaders shifted from denouncing earlier privatizations of
public services to offering their fully fledged support, a process which
resulted in a halving of their membership through job losses.
Notably, union leaders had veto rights in the privatization process but
this power was never used. All decisions were made by consensus, includ-
ing the loss of 3,600 workers. Because of links with the Peronists in power,
many of the union leaders at the time were also part of the political élite. As
one interviewee commented: “There is a large difference between union leaders
and union members. Leaders are part of the political élite. They represent the same
interests as those in the various ministries. Everyone who participated in the priva-
tization process was part of an intimate group of friends of the President.” Carlos
Ben, for example, one of the directors of the company that now manages the
water concession, is a former union leader. Similarly, the head of the regu-
lator overseeing the concession is a former director of OSN and is expected
to “police” his former colleagues in this role. The distinction between the
union, the company directorate and the regulator is often hazy and some-
times non-existent. Certainly, the collusion of these interests in the process
meant that the privatization of the Buenos Aires sewerage and water
network was easier to hurry through and was destined to benefit and
strengthen élite groups.
b. “There is no alternative”
Interviews with key decision makers also suggested that there was a general
sense amongst union leaders that privatization was inevitable and that fight-
ing against it was futile. Crucial to this thinking in Argentina was the hyper-
inflationary crisis which essentially disciplined the population into accepting
privatization as a solution. The Ministry for the Economy and Public Works
states in a 1993 document that “...the key to these changes [privatization] was the
realization that the economic model that Argentina followed for decades was
exhausted. The hyper-inflationary crisis was useful to make clear that it was impos-
sible to achieve growth and stability on the basis of a regulated economy closed to
the outside world, with a deficit-ridden public sector operating in many inappro-
priate areas.”(13) 13. See reference 8, page 3.
The water sector was, however, not deficit-ridden (it actually produced a
surplus in 1992) and would be considered by many to be an appropriate,
even vital, area in which the public sector should be involved. This is not to
say that Argentina’s 1980s economic model was “succeeding” or that OSN
was doing a satisfactory job. OSN was suffering from serious under-invest-
ment: unaccounted-for water (leakage) had reached levels of 40-50 per cent;
water shortages in the summer months occurred frequently; and serious
pollution resulted from too few sewerage connections and inadequate
sewage treatment. Crucially, 30 per cent of the population living in Gran
Buenos Aires had no access to the water network. The service was clearly
WATER PRIVATIZATION
ripe for major reform. However, such reform was not considered outside of
the private sector. It seemed there was to be no alternative to privatization.
Several interviewees even suggested that in the few years prior to privati-
zation, the water and sanitation situation was intentionally worsened to
highlight the “inadequacy” of publicly owned services. It is certainly true
that the government increased prices in 1991 and 1992 in order to smooth
the way for public acceptance of privatization, something that we examine
in more detail later in the paper. Again, TINA-thinking (“there is no alter-
native”) was encouraged through the argument at the time that publicly
owned companies overcharged unnecessarily because of bureaucratic
inefficiencies.
c. The bidding process and awarding the contract
Once bids for the concession were called for, and information disseminated
amongst likely bidders, pre-qualification criteria were stipulated. After this
process, five companies emerged; although this was soon reduced to four
as the two main French companies decided to submit a joint proposal. The
bidding process consisted of two stages. The first stage required the evalu-
ation of a company’s technical proposals, the second stage involved an eval-
uation of their financial proposals. One company failed to qualify at the first
stage, leaving three bidders to move into the second stage – the financial bid
– which was assessed on the basis of who could offer the largest tariff reduc-
tions. Aguas Argentinas offered a 26.9 per cent tariff reduction; the runner-
up a 26.1 per cent reduction. The third bidder’s offer was considerably lower
at 11.5 per cent.
On May 1, 1993, Aguas Argentinas signed a contract allowing it to run
the Buenos Aires sewerage and water network for the next 30 years. The
present capital stock breakdown of the company is shown in Table 1.
Table 1: Capital stock breakdown of Aguas Argentinas*
Investor Percentage of stock ownership

Suez Lyonnaise des Eaux 34.73
Aguas de Barcelona 25.01
Employee stock ownership plan (PPP) 10
Banco de Galicia 8.26
Vivendi 7.55
Aguas Inversora 5.2
International Finance Corporation 5
Anglian Water 4.25
SOURCE: Aguas Argentinas 2000.
* One interesting aspect of the figures is the 5 per cent share acquired by the International Finance
Corporation, a member of the World Bank group. The IFC originally lent money to Aguas Argentinas
before exchanging these debts for a share in the company. Not only does this testify to the instant
profitability of the firm (the IFC wanted a share in these profits), it raises questions about the
objectivity of World Bank research into the privatization initiative. It also makes the Bank’s aggressive
promotion of the Argentinian model abroad problematic.

FEEDBACK
Table 2: Coverage and performance levels at the start

of the concession
Water System
Number of connections 1,170,000
Average production (m3/month) 108,950,000
Treatment capacity (m3/day) 3,640,000
Length of water pipe system (kilometres) 11,000
Total population 8,580,000 *
Served population 6,000,000
Sewerage System
Number of connections 700,000
Served population 4,700,000 **
Volume collected (m3/month) 82,232,000
Volume treated (m3/month) 3,413,000
* Quilmes became part of the concession area in 1995, raising the total population to 9,300,000.
** The figures quoted for this range from 4,663,670 (Aguas Argentinas, 1998) to 4,900,000 (Aguas
Argentinas, 2000). The concession contract (perhaps the most reliable source) states that 58 per
cent of the population was connected to the sewerage network. This works out at a population of
4,976,400 with a connection to the sewerage network.
SOURCES: Collated from Jaspersen, F (1997), in The Private Sector and Development: Five Case
Studies, The World Bank and International Finance Corporation, Washington DC, Concession
Contract; also Aguas Argentinas (2000).
The area served by Aguas Argentinas consists of the federal capital area
of Buenos Aires in the downtown core and 17 surrounding municipalities
(see Map 1). Originally, only 14 municipalities were served but expansion
has since taken place through the inclusion of the municipality of Quilmes
and the creation of three municipalities within Moron (formerly only one
municipality). (See Table 2 for a breakdown of coverage and performance
levels at the start of the concession.) Water is purified in the San Martin and
the General Belgrano plants, the former being considerably bigger and
among the largest of its kind in the world. Sewage is currently treated in
two separate plants in the south-west and the north of the city. There are
significant disparities between the levels of coverage in different areas of
the city. In general, the south of the city has much lower rates of both water
and sewerage coverage. 14. Abdala, Manuel Angel
(1996), “Welfare effects of
Of the 2,580,000 people (30 per cent of the population) not connected to Buenos Aires’ water and
the water network in 1993, 95 per cent obtained water from individual wells sewerage services
with pumped or manual motors.(14) For those not connected to the sewer- privatization”, unpublished
age network, 88 per cent disposed of sewage through septic tanks and manuscript, The World
Bank, Washington, DC.
cesspools and the remainder disposed of it directly into rivers, streams or
the ground. This latter activity, in conjunction with poor quality cesspools
and industrial pollution, has led to serious pollution of shallow ground-
water aquifers from which those not connected to the water network obtain
their drinking water. Environmental health risks in poorer areas of the city
have worsened.
WATER PRIVATIZATION
Map 1: Buenos Aires water concession
d. The regulatory agency (ETOSS)
Crucial to the implementation of the concession was the development of an

independent regulatory agency, Ente Tripartito de Obras y Servicios Sani-
tarios (ETOSS). ETOSS was established to monitor the quality of service,
represent consumers and ensure the implementation of the contractual
agreements. Members of its board of directors are appointed from the munic-
ipal level (by the mayor of Buenos Aires), from the provincial level (by the
governor of the province) and from the national level (by the president).
ETOSS’ annual budget of US$ 8 million is drawn almost entirely from a
universal 2.7 per cent surcharge on water bills. There are approximately 110
people working for ETOSS (up from an original figure of around 70), most
of whom are former OSN employees.
The regulator has been criticized on many fronts and from many differ-
ent perspectives. Some feel that it has been co-opted by the private sector. It
became clear from interviews that many had strong suspicions that some
personnel may have even been bribed into overlooking certain aspects of
the company’s failure to meet contractual obligations. In contrast, those
interviewed from Aguas Argentinas felt that ETOSS had been unnecessar-
ily tough on the company’s operations. The regulator was viewed as more
of an obstacle to service delivery than a crucial part of a good water system.
One representative from Aguas Argentinas commented that the company’s
“harsh treatment” was based on personal jealousies arising from colleagues
FEEDBACK
15. Alcazar, Lorena, Manuel

“left behind” at the regulator after privatization. A Abdala, and Mary M
Researchers for the World Bank have criticized ETOSS for being too Shirley (2000), The Buenos
“political”.(15) This criticism stems from the fact that decisions are frequently Aires Water Concession,
The World Bank,
delayed by ETOSS, as a consensus must be reached amongst the competing Washington DC.
interests of the six member board. These decisions regularly go beyond
deadlines, and often there is difficulty in finding agreement even between
two representatives from the same level of government. More alarming,
however, is the lack of respect the government has shown for ETOSS. As will
be discussed later in the paper, decisions made by the regulator that appear
to threaten the dominance of private capital are frequently overridden by
the state, to the extent that government rewrote the contract in 1997, consid-
erably softening many of Aguas Argentinas’ contractual commitments.
Significantly, ETOSS was not part of this renegotiation.
IV. OUTCOMES OF THE PRIVATIZATION
TO ASSESS THE outcomes of the concession, it is necessary to look first at

the performance targets stipulated in the original concession contract. In
assessing the outcomes, it should be noted that considerable confusion
surrounds these original targets. Different sources produce drastically differ-
ent numbers. To a large extent we have relied on the company’s figures as
these are the most up-to-date. However, some biases are evident in these
figures and where this is clearly the case we say so. Confusion also prevails
in that the company’s first “five-year period” was extended to the year 2000
(a seven-year period in which to fulfill some of the criteria). This extension
was granted partly because of the renegotiation of the contract in 1997 and
partly because of difficulties in agreeing regulatory measures. The second
five-year plan was still being negotiated at the time of writing.
a. Network expansion
Since signing the contract, Aguas Argentinas claims to have increased the
number of clients receiving water by 1,500,000. This figure includes the
expansion of the concession area to the municipality of Quilmes in 1995 and, 16. Aguas Argentinas
therefore, the addition of 650,000 new users, many of whom were already argues that prior to
connected to the water and sewerage networks (see Table 2 for the popula- privatization, water
coverage was 67 per cent
tion covered in 1993). A better measure is the percentage of the total popu- and sewerage coverage
lation covered by the network. As Table 3 shows, water coverage at the start 54 per cent, suggesting
of the concession was 70 per cent and sewerage coverage 58 per cent.(16) By even greater levels of
1999, Aguas Argentinas claims that water coverage had reached 82.4 per cent improvement.
and sewerage coverage 61 per cent.(17) 17. Aguas Argentinas
These are significant increases and the figures for water coverage meet (2000), http://www.
the performance target of 81 per cent for the first five-year period. Sewerage aguasargentinas.com
coverage, however, has not increased at the same rate and the figures for this
fail to reach the 64 per cent coverage specified in the contract. Most impor-
tantly, the level of sewage treatment has barely increased in the first seven
years of operation. According to interviewees, the level of primary and
secondary sewage treatment is still hovering at around 5 per cent. In other
words, although the sewerage network has expanded, very little of the
sewage that is being collected is being treated. Most of it is simply being
dumped raw into the Rio del Plata via a 2.5 kilometre long outlet pipe. The
environmental implications of this neglect are serious and are taken up later
on in this paper. What is important to note here is the complete failure of
WATER PRIVATIZATION
Table 3: Aguas Argentinas’ five-yearly performance targets
Year of Per cent of Per cent of Per cent of collected Network renovation Per cent of
concession population population sewage that is treated* (cumulative) % unaccounted
serviced by serviced by for water
water sewerage
Primary Secondary Water Sewage
treatment treatment
0 70 58 4 4 0 0 45
5 81 64 64 7 9 2 37
10 90 73 73 14 12 3 34
20 97 82 82 88 28 4 28
30 100 90 90 93 45 5 25
* Primary treatment merely involves the settling-out of undissolved solids from suspension in the form of sludge. Secondary treatment
involves bringing the effluent into contact with oxygen and micro-organisms. This breaks down much of the organic matter into harmless
substances.
SOURCES: Collated from Concession Contract, Idelovitch, E and K Ringskog (1995), Private Sector Participation in Water Supply and
Sanitation in Latin America, The World Bank, Washington DC.
Aguas Argentinas to meet its sewage treatment targets, which should have
been 64 per cent for primary treatment and 7 per cent for secondary treat-
ment by the end of the first five-year period.
The expansion of water coverage through new investments has been
18. See reference 15, page
more successful and has received considerable acclaim from lending agen-
42. cies. Alcazar et al., for example, argue that the company’s investment record
has been “impressive”.(18) They admit that investment has not met the levels
19. It is interesting to note committed to but that “...as a result of this investment, new [water] connections
the researchers’
exaggeration of connection increased by 11 per cent over the five years and coverage increased from 70 per
rates in this case. The figure cent of customers in the service area in 1992 to 83 per cent by 1997.”(19) With
of 83 per cent was not regard to the actual size of the network, Aguas Argentinas has expanded
reached until 2000.
water pipelines by 1,700 kilometres and the sewerage network by 300 kilo-
20. See reference 17. metres.(20) Much of the old network has also been rehabilitated and cleaned.
Water production has also increased through initiating some fairly basic
repairs at the San Martin water treatment plant.
Although some of these improvements are indeed impressive, there is
absolutely no reason to believe that similar reforms could not have been
made by OSN had adequate funding been available to the public sector in
the early 1990s. Moreover, most of the new investments by Aguas Argenti-
nas have come via loans from the IFC and new surcharges to consumers,
finance vehicles that could have been equally accessible to a publicly owned
water entity.
b. Cost of water
The most frequently cited benefit of water privatization in Buenos Aires is

the reduction in price to end-users, demonstrated by the 26.9 per cent tariff
reduction implemented at the very beginning of the concession. Supporters
also point to the terms of the initial contract, which stipulate that prices
should only be reduced in the first ten-year period. It would seem, therefore,
that the privatization process has guaranteed access to cheaper water in
FEEDBACK
Buenos Aires.
On closer examination, however, this is not the case. In fact, the current
president of Argentina, Fernando de la Rua, speaking in March 1999 when 21. Quoted in Latin America
Press, 32 (7), (2000).
he was mayor of Buenos Aires, stated that: “Water rates, which Aguas Argenti-
nas said would be reduced by 27 per cent have actually risen a total of 20 per cent.”(21) 22. Although this cannot
The following paragraphs attempt to unpackage some of this confusion. necessarily be argued to be
In February 1991, after OSN had been earmarked for privatization, a 25 part of a strategy of
artificially increasing water
per cent tariff increase was announced. This increase, it was said, was to rates, the tax certainly led to
compensate for inflation, as was the 29 per cent increase in April of the same the further perception of
year. In April 1992, a goods and services tax was then added to water bills.(22) public service inefficiency
by increasing costs to the
Initially, it was set at 18 per cent, later increasing to 21 per cent in April 1995. end-user.
A further 8 per cent increase was granted a few months prior to privatiza-
tion.(23) The effect of these increases was to allow the company to offer what 23. Ferro, Daniel (2000), El
seemed to the public to be a 27 per cent decrease in costs, even though in reality servicio de agua y saneamiento
en Buenos Aires: privatización
it was a manufactured reduction. As consultants to the Inter-American y regulación, CEER, Buenos
Development Bank state, this was a useful strategy for stemming possible Aires, page 10.
opposition to the privatization process.(24)
24. Wenyon, Sylvia and
A similar strategy is reported on, and recommended to other govern- Charles Jenne (1999),
ments, by Mark Dumol, a Filipino government official, in a World Bank “Water and sewerage
publication on the Manila water concession. Dumol writes, in a chapter enti- privatization and reform”
in Basanes, Federico,
tled “Need to have bids lower than the existing water tariff” that: “In August Evamaria Uribe and Robert
1996, about five months before the bid submission, the water tariffs were increased Willig (editors), Can
by about 38 per cent. This tariff increase was actually long overdue and would have Privatization Deliver?
been implemented regardless of privatization… Nevertheless, it gave us a substan- Infrastructure for Latin
America, Inter-American
tially greater chance that the bids would be lower.”(25) Dumol also states that the Development Bank,
importance of this price hike prior to privatization was learned from the Washington DC, page 198.
Buenos Aires water concession.
25. Dumol, Mark (2000), The
It is also useful to note here that the Argentine government acted simi- Manila Water Concession: A
larly with the privatization of the state telephone company, ENTEL. In this Key Government Official’s
instance, Maria Julia Alsogaray, the trustee for ENTEL, attempted to raise Diary of the World’s Largest
tariffs by 2,300 per cent in the first quarter of 1990 and guaranteed bidders Water Privatization, The
World Bank, Washington,
a net profit margin of 16 per cent for the first two years after privatization.(26) DC, page 42.
Though Alsogaray was overruled in this case, a 700 per cent increase in
charges was still permitted prior to the privatization of ENTEL.(27) 26. See reference 4, page
109.
Since the 1993 “cost reduction” in water, the cost for services increased in
both 1994 and 1998. Additional charges were added in both cases and the 27. Azpiazu, Daniel (1999),
renegotiation of the contract in 1997 allowed for a significant revenue gener- “Las privatizaciones en la
Argentina y la
ator for the company in the form of a universal surcharge, the SUMA (Servi- concentración del poder
cio Universal y Medio Ambiente, meaning “universal coverage and the económico” in Seminario
environment”). Nacional 1999, Escuela
As to why the regulator allowed these price increases is unclear. Accord- Nacional de Formación
Política, Buenos Aires,
ing to the original contract, prices can be adjusted according to a mix of page 366.
“price-cap” and “cost plus” pricing regulation, with prices subject to adjust-
ment every five years in line with the company’s investment plans. Prices
can therefore go up or down, except in the first five-year period when they
had already been fixed and also in the second five-year period for which the
contract stated that prices could only go down. This means that in the first
ten years no increases should be permitted by the price-cap system.
Between these five-year periods, however, prices can be adjusted accord-
ing to the company’s composite cost index. If costs for the company rise
above 7 per cent, then it can file for an increase. The index itself is based on
ten cost categories such as fuel, chemicals, electricity, labour, debt service
and so on, and the relative value of each of these is assigned a weight accord- 28. See reference 15,
ing to each of the five-year plans.(28) pages 28-29.
WATER PRIVATIZATION
29. To give some idea of

what other consumer prices These contractual agreements would imply that the price increases from
were doing over this 1993 to 1999 must have been the result of an increase in the company’s cost
period, it is useful to index.(29) This is not the case, however, for the 1994 increase. This increase
consider the annual rates of
inflation as measured by
was granted because of what the company argued were extra-contractual
the consumer price index demands, namely ensuring immediate service provision in very poor neigh-
(CPI). For the 12 months bourhoods and accelerating the expansion schedule for one of the munici-
ended 31 December 1993, palities. The company argued that the new government demands would
1994, 1995 and 1996, the
figures were 7.4 per cent, increase their costs by 15 per cent, leading to a 13.5 per cent increase being
3.9 per cent, 1.6 per cent charged for consumption, disconnection and reconnection and a 42 per cent
and 0.1 per cent increase in the infrastructure surcharge.
respectively. The CPI has
remained stable at around 0 That ETOSS should grant this increase is confusing in several respects.
per cent (and often negative First, it was awarded on the basis of what the extension would cost Aguas
levels) since. Argentinas on a once-off basis. Presumably, the work would be finished in,
at most, a few years time but the tariff increase would still hold, providing
the company with additional revenues long after the work was complete.
Second, by granting Aguas Argentinas guaranteed revenues, the govern-
ment has, in effect, nullified the raison d’être of privatization by killing any
entrepreneurial incentive for the company to finance its own extension work
to create new customers. In fact, the incentive for the company now is to
30. Rivera, Daniel (1996), bank the tariff increases and earn interest while delaying the cost of exten-
Private Sector Participation in
the Water Supply and
sions for as long as possible. As Rivera notes, “...it has been estimated that its
Wastewater Sector: Lessons savings in costs from delaying the Berazategui wastewater treatment plant are
from Six Developing about US$ 100,000 per day.”(30) Finally, as Artana et al. state, the Buenos Aires
Countries, The World Bank, concession was considered to be the most profitable water concession in the
Washington, DC, page 52.
world, with rates of return approaching 40 per cent.(31) To demand a price
31. See reference 12, increase and surcharge under these highly profitable conditions is prob-
page 21. lematic at best. What was really required was tighter regulation on the part
of ETOSS to ensure that necessary re-investments were made.
Most significant of all, perhaps, is that these price increases in the first five
years set a dangerous precedent. They implied that the contract was nego-
tiable and that the company could push for tariff increases whenever it
wished to, particularly if they could show that new demands were extra-
contractual and had to be paid for by the consumer. As a result, the tariff
increase also had the effect of shifting the cost of expansion from the private
sector to end-users.
c. The crisis of the “infrastructure charge” and the

introduction of the SUMA
The introduction of an infrastructure charge at the start of the concession has

also proven to be highly problematic. Originally intended to finance the
company’s expansion plans, this charge was specifically directed at those
newly connected to the network, the argument being that these consumers
were the ones directly benefiting from the expansion. The charge frequently
affected those least able to pay, however, as these households were more
likely to not have had a previous water or sewerage connection.
The infrastructure charge ranged from US$ 43 to US$ 600 for water
(depending on the total property area and taking into account the type of
soil and level of repair needed to streets and sidewalks) and a charge of up
to US$ 1,000 for sewerage; there was also an additional connection fee. A
further water services charge (the SUMA) of US$ 6 plus tax, payable every
32. In the poorer areas of
the city, average household two months, was also introduced. Not surprisingly, many households were
incomes are in the range of simply unable to pay such costs.(32) Pirez, quoting figures from Ambito
US$ 200-245 per month. Financiero, writes that: “Already facing constraints to its survival, the population
FEEDBACK
has become increasingly sceptical about its continued access to services. Information
in the media suggests that some users are abandoning essential privatized utilities 33. Pirez, Pedro (1998),
such as water; it is estimated that 30 per cent of the population which was incorpo- “The management of urban
services in the city of
rated following the recent expansion of the network has stopped paying”.(33) Buenos Aires”, Environment
Aguas Argentinas’ inability to collect these fees from the poor quickly led and Urbanization Vol 10, No
them to call for a renegotiation of the contract. The company argued that 2, October.
revenues after three years of the concession were US$ 217 million lower than
expected, in large part because of the non-payment of the infrastructure
charge. They also demanded that the regulator, ETOSS, suspend some of the
fines for its failure to meet the 1994 accelerated investment targets. 34. OFWAT (2000),
“Financial performance and
It must be remembered at this point that Aguas Argentinas was reaping expenditure of the water
large profits from the concession. A report from the Universidad Argentina companies in England and
de la Empresa stated that profits in 1995 were 28.9 per cent of revenues, in Wales 1999-2000”, accessed
1996 they still reached 25.4 per cent and in 1997 they were 21.4 per cent. This 15 February, 2001 at
http://www.ofwat.gov.uk/
compares with average profit rates in the water sector in England and Wales pdffiles/capex2000.pdf.
(often cited as the model of privatization) which averaged 9.3 per cent in According to Americo
1999-2000 and 9.6 per cent in the preceeding year.(34) Yet, Aguas Argentinas García, Jr’s submission to
the public hearing in June
still argued that it was necessary for its contractual obligations to be weakened 2000, the figures for
and for new tariffs to be introduced in order to increase revenues. In this England and Wales are as
instance, the government assumed responsibility for the negotiations and a low as 6-7 per cent and the
international average
team of engineers was appointed around the Minister for Natural Resources between 6.5 and 12.5
and Human Development, Maria Julia Alsogaray. Alsogaray’s appointment per cent.
was justified by the government by claiming that it wanted to use the rene-
gotiations to address environmental concerns, including measures to reduce
contamination of the Matanza and Riachuelo rivers.(35) However, the team 35. See reference 15,
of engineers assigned to the project lacked both experience and the close page 37.
knowledge of the concession that ETOSS had developed over the previous
four years (and before that working within OSN). The government was
therefore seen to be directly snubbing the independent regulator and the
consequences proved serious. 36. Hardoy and
A new agreement was eventually reached in 1998 with the introduction Schusterman put the figure
of a universal surcharge, the aforementioned SUMA. This US$ 3 surcharge at US$ 8 bi-monthly. See
(US$ 6 paid every two months) is divided into two parts, with US$ 1 going Hardoy, Ana and Ricardo
Schusterman (2000), “New
to environmental clean-up and US$ 2 going to extending services to new models for the privatization
users. (Since its introduction, it too has increased).(36) Although allowing for of water and sanitation for
cross-subsidization, the SUMA came as a shock to many consumers, being the urban poor”,
Environment and
regarded as the equivalent of a water “poll tax”. This led to the defensor del Urbanization Vol 12, No 2,
pueblo (ombudsman) for Buenos Aires challenging the charge in court. At pages 63-75.
first, the court conceded that the introduction of this surcharge was illegal
but Minister Alsogaray appealed and the charge stayed in effect. Since the
introduction of the SUMA, expansion of the network has continued, albeit
at a much slower pace, and the environmental clean-up is scheduled to take
place in the company’s integral sanitation plan (PSI).
The introduction of the SUMA raises some other troubling questions. In
his submission to the public hearing on the concession in June, 2000,
Americo García, Jr (son of the late Senator García and a member of the
senate's administrative staff) pointed to some inconsistencies in the SUMA
and the expansion plans presented by the company. Within five years, the SU
element of the SUMA (i.e., the universal coverage component of the
surcharge) will raise US$ 312.8 million. A further charge on members of the
public to be incorporated into the sewerage network (the CIF) will bring this
total to US$ 340.4 million. The company’s investment plans, however, are
only in the order of US$ 450 million, meaning that the company is only going
to invest US$ 100 million of its own money over the five-year period. (This,
WATER PRIVATIZATION
incidentally, is a level of investment that OSN, the original public sector

water provider, could easily have managed.) With regards to the MA
element of the SUMA (i.e., the environmental component of the surcharge),
37. Since the public hearing
these plans have been
an additional US$ 156.4 million will be raised over the five-year period.
revised slightly but it However, the company’s investment plans in the PSI (its key environmen-
remains unclear whether tal plan) were only US$ 142.2 million.(37)
increased investments will In his submission, García also highlighted further charges introduced by
actually be forthcoming.
Aguas Argentinas, in particular the OPCT which is paid by residents
wishing to accelerate their connection to the network. Residents are given
the option to pay for works to be done sooner than they would ordinarily.
In many instances, García claims, connections are delayed until the OPCT is
paid, making it a “subversive” infrastructure charge.
Another fundamental difference in the government’s re-drawing of the
contract is that Aguas Argentinas is allowed to charge prior to conducting
extensions to the network, thereby further reducing the company’s expo-
sure to financial risk as well as reducing the regulator’s leverage to ensure
that work is carried out. This pre-payment system has now become an incen-
tive for the company to delay investments as long as possible.
It is also important to mention here two other changes to the contract. The
first is a shift from a price-cap system of tariff increases to what Alcazar et
al. describe as “rate of return regulation” in that “...the new rules require the
38. See reference 15, regulator to evaluate the impact of regulatory changes on the company’s level of
page 40. indebtedness.”(38) The second change is a clause which offers Aguas Argenti-
nas protection of revenues in the event of a devaluation of the peso. Though
illegal under the country’s convertibility laws, this clause means that deval-
uation could result in crippling water bills for the vast majority of those
living in Buenos Aires
This renegotiation proved decisively that the government was not
prepared to fine the company for its failure to meet targets. Moreover, it
showed the alarming lack of respect the government had for the original
contract. The consequences of this renegotiation immediately played them-
selves out when, in 1998, emboldened by its previous ability to garner tariff
increases, Aguas Argentinas called for a further 11.7 per cent increase, some-
thing it claimed to be a “cost pass-through”. Those directors of ETOSS who
represented the mayor of Buenos Aires fiercely opposed this increase,
arguing that Aguas Argentinas’ figures were fictitious. ETOSS finally agreed
to a 1.6 per cent increase but the national government intervened once again
and ordered a 4.6 per cent increase in tariffs. The regulator was left humili-
ated. A further tariff increase of 15 per cent for the period 2001-2003 was also
granted by the government at the end of 2000. This was said to reflect the
announcement of new investment levels of US$ 1,006 million for the second
five-year period.
d. Corruption
Many of the people interviewed for this research suggested that attempts to
buy the support of both the regulator and the government were not uncom-
mon. The fact that the minister in charge of the 1997 tariff renegotiation,
Maria Julia Alsogaray, has been tried for accepting multi-million dollar
bribes in the privatization of the Buenos Aires port system only raises suspi-
cions further. Several interviewees suggested that the cost of the 1997 rene-
gotiation was in the multi-million dollar range. Others stated that the
support of local councillors had been bought with free trips to World Cup
football matches in France in 1998. Although no concrete evidence was
FEEDBACK
provided to this effect, there would appear to be growing concern around the
issue of corruption. Furthermore, as Alsogaray’s name becomes increasingly
tarnished with other scandals, several interviewees stated that it is only a
matter of time before the anti-corruption office links her to improper deal-
ings with Aguas Argentinas.
Corruption charges also haunt most of the world’s top ten water corpo-
rations, with Suez Lyonnaise des Eaux, Vivendi and their subsidiaries being
amongst the worst offenders (both of them and their subsidiaries being
involved in Buenos Aires). Vivendi, for example, has faced no less than six
separate corruption cases. Suez Lyonnaise and one of its subsidiaries have
39. Council of Canadians
been charged with tampering with water-pricing in Indonesia, illegally intro- (2000), “Corruption charges
ducing “...entrance fees in St. Etienne in France and having paid the mayor of haunt the world’s top ten
Grenoble up to US$ 6 million in ‘gifts’ during a period in which the town’s water water companies”, accessed
bills went through a three-fold increase.”(39) Sue Hawley writes that: “If corrup- 15 February, 2001 at
http://www.canadians.org
tion is growing throughout the world, it is largely a result of the rapid privatization /blueplanet/pubs-fact2.html.
(and associated practices of contracting out and concessions) of public enterprises
worldwide. This process has been pushed by Western creditors and governments and 40. Hawley, Sue (2000),
“Exporting corruption:
carried out in such a way as to allow multinational companies to operate with privatization,
increased impunity.”(40) Many of those interviewed felt this to be the case in multinationals and bribery.
Buenos Aires. Corner house briefing 19”,
accessed 20 January, 2001 at
http://cornerhouse.icaap.
e. Environmental effects org/briefings/19.html.
In spite of arguments from the World Bank and the IFC that privatization 41. See, for example,
Idelovitch, E and K
would ensure the necessary investments for environmental clean-up oper- Ringskog (1995), Private
ations, very little has been invested in this critical area.(41) In field interviews, Sector Participation in Water
the environmental situation in Buenos Aires was continually cited as the area Supply and Sanitation in
Latin America, The World
most ignored by Aguas Argentinas. One of the main concerns is the lack of Bank, Washington DC; also
sewage treatment. As noted earlier, at the start of the concession only 4 per Rivera, D (1996), Private
cent of collected sewage was going through primary and secondary treat- Sector Participation in the
ment and this has barely increased, to 5 per cent. Perhaps even more worry- Water Supply and Wastewater
Sector: Lessons from Six
ing is that only 58 per cent of the population of Buenos Aires were connected Developing Countries,The
to the sewerage network at the start of the concession and this too has only World Bank, Washington
increased nominally, to 61 per cent. Uncollected sewage is being disposed DC; and Jasperson, F (1997),
“Aguas Argentinas” in The
of in septic tanks, cesspools or directly into rivers and streams. As a result, Private Sector and
surface water supplies (especially the Matanza and Riachuelo rivers) are seri- Development: Five Case
ously contaminated, posing a substantial health risk. Studies, The World Bank,
Washington DC and
As outlined in Table 3, an ambitious plan was set out in the original International Finance
contract for the expansion of the sewerage network and for rapid increases Corporation.
in primary and secondary treatment of sewage. Since signing the contract,
however, Aguas Argentinas has failed to provide concrete plans for sewage
treatment investments and has failed to meet any of its first five-year targets
for sewerage network expansion. One interviewee described how the
company had provided the regulator with four revisions of its environ-
mental plans (in the form of the PSI) within the space of one month. This, he
said, meant that they had become “a moving target”, virtually impossible
for ETOSS to regulate.
One of the starkest examples of Aguas Argentinas’ environmental
mismanagement lies in the problem of the napas. This refers to the problem
of rising water tables, which has had some serious consequences for low-
lying areas since the start of the concession. A report prepared for the public
hearing on the concession in June 2000 cites three primary causes of the
problem: the influence of hydrological cycles; human settlement in low-lying
areas; and the transfer of water from the Rio del Plata to the aquifers on
WATER PRIVATIZATION
42. Saltiel, Gustavo, (2000),

“Análisis de riesgo sanitario which Buenos Aires sits. This final point is linked to the rapid expansion of
y vulnerabilidad sanitaria the water network with the concomitant neglect of the sewerage network.(42)
en los municipios del area Uncollected wastewater is draining into overflowing aquifers instead of
regulada por el ETOSS:
indicadores sanitarios y
being carried for treatment, or at least for dumping in the Rio del Plata.
socioeconómicos”, In the past, OSN committed itself to extending the sewerage network at
unpublished manuscript the same rate as it extended the water network. Now, the two services are no
prepared for the ETOSS longer linked by Aguas Argentinas, a point dramatically shown in the
public hearing on the
Buenos Aires Concession, figures for extensions to the water network (1,700 kilometres since 1993) in
June 2000. comparison to the figures for extensions to the sewerage network (300 kilo-
metres). The company’s argument for this has been the urgent need to
extend the water network to areas where people are still drinking from
nitrate-contaminated waters (an ironic response given that the reason for
these nitrate polluted waters is the lack of sewage treatment). A more truth-
ful reason for extending the water and not the sewerage network may lie in
the different costs for the two services. It is roughly twice as expensive to
remove and treat sewage from a household than it is to bring treated water
to a household. Meanwhile, the tariff for sewerage services (not connection
costs) is the same as it is for water. Aguas Argentinas have pursued the more
profitable route by connecting more people to the water network than to the
sewerage network.
One municipal councillor who spoke out at the public hearing in June
2000, and who is responsible for infrastructure works in his municipality,
complained that 50 per cent of the work his department does is caused by
these high (and rising) water tables. This, he said, was the responsibility of
Aguas Argentinas and a sign of its “disregard for the true needs of the
municipalities”. In fact, this subject ignited some of the most heated and
angry exchanges at the public hearing and has become a point around which
43. “Afloran las napas en el many community groups are rallying, in spite of the company’s denial of
conurbano” La Nacion, 22 responsibility.(43)
July, 2000. In addition to the sewerage network extension problem, the present
sewerage network is incapable of dealing with its own levels of sewage.
Tide-controlled sewage outlets (espiches) are still being phased out even
though this was demanded several years ago. An expansion of sewage treat-
ment facilities is desperately needed (and again required by the contract) but
the plans for this seem to change too frequently for interviewees to be able
to comment on whether they will be built or not. In many of the poorer areas
of the city, there are serious problems with sewage pipes backing up because
of the low capacity of the present network. The poorest households have
been most negatively affected by this neglect, whether it be by their homes
being flooded by rising groundwater levels or through the contamination
of aquifers.
f. Labour
Since the concession came into operation, the workforce in the water sector
has been roughly halved, from 7,600 employees to 4,000. These layoffs were
largely conducted through voluntary early retirement schemes, the first
being jointly funded by the government and Aguas Argentinas, the second
being paid for solely by Aguas Argentinas. The company argues, however,
that 15,000 new jobs have been created around the concession on a sub-
contracting basis and in other sectors. This figure has been criticized as a
wildly ambitious company estimate but it does serve to demonstrate the
importance of sub-contracting or, as Cieza puts it, “the proliferation of
44. See reference 6. ‘garbage contracts’” (short-term contracts for the now desperate workers).(44)
FEEDBACK
Such jobs are non unionized and do not have to conform to the same health
and safety standards fought for by the main water sector union. These new
jobs have also been criticized for contributing to a general weakening of
union organizing across Buenos Aires. Whilst the main water sector union,
SGBATOS, is struggling to ensure the unionization of these jobs, it seems an
impossible task, with many contracts lasting only between three and six
months.
The actions of SGBATOS have also become somewhat problematic, acting
as it was as a full supporter of the privatization process, and with the head
of the union holding a key position within the privatization committee. Since
privatization, the union has itself become something of a neo-liberal “success
story”, co-editing publications with the World Bank and visiting other coun-
tries whose water systems have been targeted for privatization, in order to
promote its benefits for labour.
Representatives from both SGBATOS and FENTOSS argued, in field inter-
views, that their role shifted in the 1990s from being antagonistic to capital
to fulfilling a more “social position”, in which they provide health care plans,
retraining programmes and private pension plans for their members.
Indeed, it would appear that both health and safety standards and other
benefits for unionized workers have improved under the private company.
But with official unemployment hovering at around 15 per cent (and unof-
ficial employment as high as 40 per cent) the union’s claim that the tradi-
tionally antagonistic relationship to capital had to be shelved in order to
serve the “wider community interest” rang hollow for some of the people we
interviewed, who see the union as solely serving the interests of a narrow
working élite.
SGBATOS has become a good example of what is termed in Argentina a
sindicato-empresa or union-business. Its headquarters are based in a glass-
fronted, air conditioned building in a wealthy residential area of the city. Its
training facilities are impressive, a result of the union’s ability to garner
funds through the PPP. (During our visit, the “training” session consisted of
a six-hour audiovisual display on the legacy of Peron.) When asked if they
were distinguishable from the private company anymore, the vice-secretary
of SGBATOS argued that, “...yes, meetings were often heated” and “...doors
would be slammed”. Whether these differences constitute a genuine strug-
gle for collective rights on the part of the union or merely a “lover’s tiff” (as
implied by some of our interviewees) is a moot point. What is clear is that
the union representing workers in the water sector has been fundamentally
transformed by the privatization process.
g. Community organizations
And what of community organizations? What has been the political impact
of water privatization in Buenos Aires on these groups and what, if anything,
have community organizations done to address service failures in low-
income neighbourhoods?
For the most part, community groups have had little interaction with
Aguas Argentinas. There is a mechanism for “consumer groups” (as they
are called) to register complaints with the independent regulator but rela-
tively few organizations and individuals have made use of this option. This
lack of public activity may be due to the logistical difficulties of lodging a
complaint with ETOSS (e.g. transportation, literacy), a lack of public aware-
ness about the existence of the regulator or perhaps a lack of faith in the
ability of the regulator to act on a complaint. Whatever the reasons, the
WATER PRIVATIZATION
opportunity to register a complaint has not been an effective participatory

vehicle.
Nor has there been any meaningful public engagement in the form of
public meetings. As noted earlier, the only public meeting to have taken
place concerning the concession was not held until seven years after the
concession began and even this appears to have been a failure in terms of
public input. Several community groups attended the meeting and some
45. ETOSS (2000), made presentations but, according to people interviewed for this research
“Audiencia publica”, as well as the transcript of the public hearing proceedings, there was very
accessed 2 January, 2001 at little opportunity for discussion and debate.(45) Representatives from Aguas
http://www.etoss.org.ar/
contenidos.htm Argentinas managed to fill much of the initial day of the meeting with
tedious discussions of their achievements to date, with the result that by the
second day, many of those wishing to voice complaints either had insuffi-
cient time or had left due to other commitments (or out of sheer frustration
with the process). To make mattes worse, the hearings were held midweek,
meaning that most working-class residents were unable to attend.
But not all residents have been silenced. There are a growing number of
community organizations attempting to have their voices heard, with actions
ranging from petitioning the regulator to the storming of a meeting of Aguas
Argentinas by residents of Lomas de Zamora to spill contaminated flood
waters onto the tables of company executives. These community actions
have gained considerable media attention in Buenos Aires and have forced
Aguas Argentinas to respond to some consumer demands (e.g. longer
payment options for those in serious arrears and changes in the applicabil-
ity of some of the surcharges).
There has also been some collaboration between residents’ groups and
larger non-governmental organizations and efforts have been made to
propose new models of water governance that would improve channels of
46. See reference 36, Hardoy communication between Aguas Argentinas and residents of low-income
and Schusterman (2000). communities in particular.(46) However, much of this community mobiliza-
tion activity remains within the conceptual realm of public private partner-
ships, looking for ways to ameliorate – rather than eliminate – the profit
seeking motives of Aguas Argentinas.
The potential for a more fundamental challenge to the commercialization
of water in Buenos Aires is unclear. To date, the combination of “there is no
alternative” politics and Aguas Argentinas propaganda has had a deaden-
ing effect on grassroots resistance. The fact that the main water sector union
in Buenos Aires, SGBATOS, has abandoned any serious criticism of the water
concession does not help matters either, making a more radical community
challenge to privatization that much more difficult in terms of solidarity and
resources. But there is a growing cauldron of discontent in low income
neighbourhoods and if Aguas Argentinas’ ameliorative efforts to address
service delivery demands remain less than satisfactory – as the profit motive
suggests they will – then it can only be a matter of time before a more
complex and hostile landscape of resistance takes shape in the city. The
newly emerging and more critical wings of the Argentine labour movement
may also prove to be important here, tapping into the growing civil unrest
over water provision in the barrios of Buenos Aires.
V. CONCLUSIONS
TO CLAIM, AS Aguas Argentinas does, that the water concession has aided
in the alleviation of poverty in Buenos Aires is misleading. Although there
FEEDBACK
47. Indeed, one interviewee

have been some impressive gains in the extension of water infrastructure, from ETOSS denied that
the majority of the concession’s negative impacts have been most deeply felt disconnections even took
in the poorest sections of Buenos Aires. Many poor households have fallen place. Aguas Argentinas on
the other hand preferred to
into serious arrears and have been disconnected from the network, espe- talk of service
cially prior to 1998. Exact figures on the number of disconnections could not “regularization” rather than
be found(47) but if, according to Pirez,(48) 30 per cent of those newly connected disconnections.
had stopped paying by 1996, it is likely that disconnection rates would be
48. See reference 33,
approaching that figure.(49) page 220.
Environmentally, those living in the poorest areas of Buenos Aires have
also been faced with the negative effects of rising groundwater (worse since 49. The period allowed
between the first
1998) and the health risks associated with nitrate-contaminated aquifers. connection and
These municipalities have some of the lowest average incomes in the Greater disconnection in the
Buenos Aires area and yet a large part of the financial burden for extending residential sector is
the network has fallen on these households. 180 days.
The argument that privatization is the only way to generate sufficient
capital for service improvements and extensions is also misleading in the
case of Buenos Aires. Although capital investment has increased since priva-
tization, the main reasons for the increases have been higher surcharges and
higher debt burdens (which the former public sector company could have
managed). It should also be remembered that a significant portion of these
new surcharges is generating additional profit for the company.
Power relations shifted dramatically within Buenos Aires in the 1990s and
the water concession was a contributing force. Elite international and
national groups have gained, whilst poor groups have lost. Whereas under
OSN there were the trappings of accountability, in that elected representa-
tives had some control over appointments within the company, this seems
largely to have faded after privatization. ETOSS was seen as the independ-
ent regulator necessary for monitoring performance levels and for ensuring
that the company abided by its contractual obligations, but ETOSS has
proven to be largely toothless in a process in which élite groups in govern-
ment and the private company (and to some extent in the union) make deci-
sions amongst themselves. As one representative from ETOSS commented,
“...the government turns first to the private company if there is a problem, not to the
regulator.” The role of the independent regulator would appear to be virtu-
ally meaningless.
Aguas Argentinas has been able to capture both the state and labour (and
largely avoid public dissent), thereby anaesthetizing the main bodies that
might have acted to keep its activities in check. Even the June 2000 public
hearing appears to have had limited impact, with concessions that were won
at that meeting being effectively nullified by new tariff increases. A telling
example of the lack of respect for the public hearing is the disinterested
response of the International Finance Corporation’s representative in Buenos
Aires when asked about the meeting in July 2000. Not only was she unaware
of the event but she also seemed to care little about its outcome, despite the
fact that the IFC has supported the concession with over US$ 500 million in
loans.
Even in the eyes of many of its proponents, the sustainability of the
Buenos Aires concession seems far from certain. Alcazar et al., writing for
the World Bank, state that “...information asymmetries, perverse incentives and
weak regulatory institutions could threaten the long run sustainability of the conces-
sion.”(50) In their eyes, the concession is salvageable but needs refinement. 50. See reference 15, page 2.
They go on to argue that efforts to save the concession by the government
and the private companies will continue, not necessarily because of the need
to secure clean water for all and improve environmental standards in Buenos
WATER PRIVATIZATION
Aires, but for reasons of reputation:

“An important factor enhancing the credibility of the government’s commitment
to the concession was the concern of the Argentine government with its reputation
in global financial markets. Menem’s market-oriented reforms had made the economy
open and introduced a currency board that fixed the peso to the dollar. This openness
to global economic influences meant that any future federal executive would be
concerned about how foreign private investors might react should government renege
on the regulatory promises it had made to Aguas Argentinas as part of a large and
visible transaction. Reputation can be a powerful tool for contract enforcement but
also somewhat ephemeral. In this case, the force of reputation would depend on how
salient investors perceived the concession contract to be when compared to other
reputation factors, as well as whether the firm appears to have reneged on its part of
the bargain. As we shall show…the executive branch has intervened repeatedly to
support Aguas Argentinas in conflicts with the regulator and to by-pass the regu-
lator entirely in renegotiating the contract.
Reputation concerns of the company also have an effect on the sustainability of
the contract. The concession is one of the largest and its success is important to the
reputation of the consortium partners that are competing in global markets for water
51. See reference 15, contracts.”(51)
page 32. The extent to which efforts to protect the “reputation” of the firms that
make up the Aguas Argentinas consortium mean a serious commitment to
expanded service delivery, as opposed to continued manipulation of service
targets and investment figures, remains to be seen.


Of Liquid Dreams: A Political Ecology of Water Privatization in Buenos Aires

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Of Liquid Dreams: A Political Ecology of Water Privatization in Buenos Aires

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WATER PRIVATIZATION

Alexander J Loftus and David A McDonald

The authors would like to

costs to the public and environmental degradation. by the Municipal Services

II. THE LEGACY OF PERONISM

IN SPITE OF being the second largest economy in South America, Argentina

resulted in a new period of dictatorship and the bloodiest period in

Menem’s reforms marked a dramatic turnaround from the Justicialista’s

4. Manzetti, Luigi (1999),

III. THE PROCESS OF PRIVATIZING WATER

IN AUGUST 1989, the Menem administration rushed through the National

12. Artana, Daniel, F

c. The bidding process and awarding the contract

Table 1: Capital stock breakdown of Aguas Argentinas*

Investor Percentage of stock ownership

SOURCE: Aguas Argentinas 2000.

Downloaded from eau.sagepub.com at Massachusetts Institute of Technology on October 24, 2016

Table 2: Coverage and performance levels at the start

Map 1: Buenos Aires water concession

d. The regulatory agency (ETOSS)

Crucial to the implementation of the concession was the development of an

15. Alcazar, Lorena, Manuel

IV. OUTCOMES OF THE PRIVATIZATION

TO ASSESS THE outcomes of the concession, it is necessary to look first at

Table 3: Aguas Argentinas’ five-yearly performance targets

The most frequently cited benefit of water privatization in Buenos Aires is

29. To give some idea of

c. The crisis of the “infrastructure charge” and the

The introduction of an infrastructure charge at the start of the concession has

incidentally, is a level of investment that OSN, the original public sector

42. Saltiel, Gustavo, (2000),

opportunity to register a complaint has not been an effective participatory

47. Indeed, one interviewee

Aires, but for reasons of reputation:

Downloaded from eau.sagepub.com at Massachusetts Institute of Technology on October 24, 2016

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