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Special Series/ARGENTINA: Water and Sewage Privatisation Gone Sour

Viviana Alonso

BUENOS AIRES, Aug 15 2003 (IPS) - Ten years after the privatisation of the sewage and water systems in the Argentine capital, many areas of the greater Buenos Aires have not yet been connected to the water and sewer mains, and services have not improved, despite the fact that rates have doubled.

Untreated waste continues to be dumped into rivers and to leak into the water table, ruining people’s basements, according to complaints filed with the Buenos Aires Office of the People’s Defender (ombudsman) against Aguas Argentinas, the privatised company that serves 10 million people in the greater Buenos Aires.

In fact, only complaints filed with that Office against the privatised telephone companies surpass the number lodged by clients of Aguas Argentinas.

Nevertheless, the company is demanding reparations for the losses it suffered as a result of the crash of the local currency since early 2002, when the government scrapped the ”convertibility” system that pegged the peso to the dollar for over a decade. The local currency now stands at 2.9 to the dollar.

The company, which blames the Argentine government for the devaluation, has brought a complaint before the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank.

People’s Defender Eduardo Mondino has called for the cancellation of the contract under which the water and sewage services were privatised, and is demanding indemnification for the communities that have been hurt by the privatisation.

Residents of the outlying Buenos Aires districts of Morón, San Isidro, Quilmes, Avellaneda, San Fernando, Tigre and La Matanza are all demanding compensation.

Many homes in those low-income and working-class neighbourhoods are still not hooked up to the water and sewage systems, and waste treatment plants are urgently needed.

According to the United Nations Committee on Economic, Cultural and Social Rights, access to water is a fundamental human right.

In La Matanza, an impoverished district of 1.2 million people, ”sanitary vulnerability” – a concept that takes into account access to clean water and sewage services, the state of the water table, and the poverty level – is high.

La Matanza resident Teresa Heredia told IPS that ”cases of hepatitis and diarrhea have mushroomed. There are also many children with parasites, because the water is pumped from a well, and it is contaminated.”

Another local resident, Guillermo Navarro, said he presented a complaint with the Office of the People’s Defender because the basement of the building where he lives is constantly flooded due to the level of the water table.

For the past two years, ”the basement has been rendered useless. There is a constant smell of humidity and mildew, and we are always worrying about the gas, electricity and telephone connections,” complained Navarro, an Aguas Argentinas client.

A document sent to the Buenos Aires government by a group of La Matanza residents complains that Aguas Argentinas is not operating in compliance with local laws.

In 1991, then-president Carlos Menem, who began to privatise public enterprises upon taking office in 1989, issued a call for bids for the state-owned water and sewage company Obras Sanitarias de la Nación (OSN), under the argument that a well-run privatised company would ensure better and lower-cost services, and would be better able to expand the water and sewage network.

”The water sector was, however, not deficit-ridden…and would be considered by many to be an appropriate, even vital, area in which the public sector should be involved,” states a study by researchers Alexander Loftus and David McDonald at Queen’s University in Ontario, Canada.

In fact, the authors add, the utility even posted a surplus in 1992, the year before it was privatised.

However, OSN had been unable to respond to demand. Only half of the nine million residents of outlying districts had piped water, and 65 percent were not connected to the city’s sewage system.

The World Bank played an active role in the privatisation of OSN, which it later held up as a model for privatisation programmes in the Philippines, Indonesia and Australia.

The water and sewage services in the Philippines were privatised in 1997. And although 87 percent of the population of that country now has access to running water, there have been serious problems with supplies and pollution due to a lack of water pressure and leaky pipes.

In addition, the rates charged by the privatised company amount to 10 percent of the income of the poorest households, according to a study by the Centre for Public Integrity, a U.S. organisation.

One of the main stakeholders in the privatised utility in the Philippines is French giant Suez Lyonnaise des Eaux, which is also the top shareholder in Aguas Argentinas.

Argentina was a pioneer in the privatisation of water and sewage services. At the time, the concession contract for OSN was the biggest in the world, covering metropolitan Buenos Aires and 14 outlying districts, and serving a total population of 9.3 million people, stated a report by Andrea Catenazzi at the General Sarmiento National University.

According to the contract, the consortium that won the 30-year concession would not have to pay a thing, but would have to promise to expand and improve services, while pledging not to raise rates for 10 years. In addition, one of the keys to winning the bid was to offer the greatest reduction in rates.

However, the government actually increased rates by 74 percent prior to the privatisation, thus making the concession more attractive to investors.

The winning consortium was led by Suez Lyonnaise des Eaux, which holds a 25.3 percent stake in the new company, Aguas Argentinas.

The consortium signed a contract in May 1993 in which it agreed to invest four billion dollars to improve the water pipe and sewage systems and expand them to an additional 4.2 and 4.8 million people, respectively. It also offered a 26.9 percent reduction in rates.

The privatisation of OSN went ahead despite the initial staunch resistance put up by the employees of the state-owned company, grouped in the Greater Buenos Aires Union of Sanitary Works Employees (SGBATOS).

By offering a special programme that left 10 percent of shares in the hands of the workers, administered by the union, the government won support from the union leaders, who did not even make use of their veto power during the privatisation process. The union even accepted a reduction in the company’s personnel, from 7,600 to 4,000.

A regulatory body was also created, whose budget came from a 2.7 percent surcharge that Aguas Argentinas added to its customers’ bills.

But ”The distinction between the union, the company directorate and the regulator is often hazy and sometimes non- existent,” says the study by Loftus and McDonald.

”Certainly, the collusion of these interests in the process meant that the privatisation of the Buenos Aires sewerage and water network was easier to hurry through and was destined to benefit and strengthen elite groups,” it adds.

As soon as it took over the utility, Aguas Argentinas lowered rates by 26.9 percent. However, the reduction was deceptive, given the fact that rates had been raised 74 percent before privatisation.

Just one year later, the company asked to be allowed to increase rates, even though it had pledged not to do so for 10 years.

The Office of the People’s Defender reports that the rates charged by Aguas Argentinas rose 103.2 percent between May 1993 and January 2001, while inflation amounted to just 7.3 percent in that period.

The negotiations for the privatisation were put in the hands of a group of advisers headed by then-minister of natural resources María Julia Alsogaray, who later faced accusations of corruption.

Over a decade later, the trials in which she has been charged with illicit enrichment are still before the courts.

Aguas Argentinas now provides service to Buenos Aires proper and 17 surrounding districts, an area of 1,830 sq kms that has a population of 10 million people.

The company claims to have invested 1.7 billion dollars, and to have connected nearly two million people to the water system and 1.15 million people to the sewer network between 1993 and 2001.

But Buenos Aires province’s minister of infrastructure, Raúl Rivera, says 50 percent of potential Aguas Argentinas clients in the areas served by the company, or 3.5 million people, still lack water and sewage services, which amounts to a breach of contract.

The report by Catenazzi at the General Sarmiento National University states that ”The concession-holder has tended to concentrate its investment mainly in the maintenance of the infrastructure that it inherited.”

That infrastructure came to the consortium free of cost, ”since the contract that was based on an offer to cut rates meant that the concession was granted free of charge for 30 years, and as a monopoly,” the study adds.

The Office of the People’s Defender reports that Aguas Argentinas saved 35,000 dollars a day in costs by failing to build a wastewater treatment plant in the neighbourhood of Berazategui, and by continuing to dump untreated wastewater into the Rio de la Plata estuary.

According to researcher Martín Schorr at the Latin American Faculty of Social Sciences, Aguas Argentinas enjoyed a 23 percent profit rate in the 1990s, compared to average rates of eight and seven percent among water companies in the United States and Britain.

Complaints against Aguas Argentinas filed with the Office of the People’s Defender focus on the company’s failure to expand the water and sewage systems to unconnected neighbourhoods, excessive fees for connections, heavy interest rates, unjustified extra charges, and cut-offs of services.

The company failed to respond to attempts by IPS to contact it for this article. Any information provided about Aguas Argentinas was already in the public domain.