Private investment in water management is on the decline in Latin America because of the high political and financial risks, say experts.

A girl pumps water in Belize. - Photo Stock

Demands by governments and social movements as in recent years in Argentina and Bolivia, the impossibility of charging for water services in some countries, and the implementation of legislation that prevents their participation in the water sector, as in Uruguay, have discouraged the transnationals.

So now they are withdrawing from the region, or narrowing the scope of their services, because of what they see as high political and financial risks, says the latest UN World Water Development Report, presented ahead of the 4th World Water Forum, to take place in the Mexican capital Mar. 16-22.

In the 1990s, the water transnationals invested some 25 billion dollars in developing countries in projects related to water management, especially in Latin America and Asia, says the report. But in recent years investment has been on the decline.

It's difficult for private water companies to make money when consumers cannot pay for the service, says Gordon Young, coordinator of the World Water Assessment Program, which produced the report.

Although the study acknowledges that the performance of the private sector has not met the expectations of the donor countries or the governments of developing countries, in a conversation with Tierramérica Young argued that it would be a mistake to rule out private participation in water management.

Observers consulted by Tierramérica said the retreat of the foreign companies from the Latin American water sector, where they arrived in the 1980s and 1990s encouraged by the privatizing reforms of the governments, could be definitive.

“I don't think they'll be back. They're in the middle of a corporate reorganization and shifting their resources to the much more lucrative energy sector,” said Sara Grusky, researcher with the Washington-based non-governmental group Food and Water Watch.

Powerful firms like the French Suez Lyonnaise des Eaux and Veolia Environnement (previously known as Vivendi), the British Thames Water and Spain's Aguas de Barcelona made a path for themselves in the water markets of the developing world.

According to Ralph Daley, director of the Canada-based International Network on Water, Environment and Health at the UN University, the private companies are leaving South America and other regions because the risks are too high.

But water rights activists say that the wave of water privatization is unstoppable, and they are preparing a series of actions parallel to the World Water Forum, an event they charge is promoting transnational participation in water management to the detriment of community participation.

Water is a public good and a basic right that must not be subject to “the logic of cost-benefit”, which is why it should remain under management by the state and with community participation, Javier Bogantes, director of the non-governmental Latin American Water Tribunal, told Tierramérica.

In Latin America, where there are huge water resources, for the most part it has been governments, municipalities and local authorities that have controlled water services. However, they were not able to ensure that everyone had access to the precious resource.

Several studies indicate that around 77 million people in Latin America and the Caribbean lack adequate access to potable water, and just one out of six inhabitants has access to adequate sanitation.

The Forum in Mexico is the fourth global water meet, following Morocco in 1997, Netherlands in 2000 and Japan in 2003. The main purpose is to define appropriate strategies to ensure universal and sustainable distribution of water resources, say the event's organizers.

Hosting the Forum are the Mexican government of President Vicente Fox and the World Water Council, which was founded in the mid-1990s by representatives from the private, academic, scientific and civil society sectors.

Miguel Solanes, regional adviser for legislation on water and public services for the Economic Commission for Latin America and the Caribbean (ECLAC, a UN agency), told Tierramércia that the time has come to recognize that there is “a certain prudence with respect to privatization” of water services in the region.

This cautious attitude is seen not only in the governments, but also in the transnationals, “which did not much enjoy the situation they faced in Argentina or Bolivia,” said Solanes.

In the former, the company Aguas Argentinas, controlled by the France-based Suez, became enmeshed in 2002 in a dispute with the government, bringing a suit before the World Bank tribunal for not allowing adjustment of the high rates charged for potable water services.

Although the firm — accused of doubling its rates in the 1990s without improving or expanding potable water and sanitation services — has withdrawn the lawsuit, it is steadfast in its decision to withdraw from Argentina.

In Bolivia, the Suez transnational ran into problems in 2005. The Bolivian government rescinded the contract for providing services after the company faced massive protests by impoverished residents against the high rates and poor service.

Suez sued Bolivia in the World Bank tribunal, known as the International Center for the Settlement of Investment Disputes.

In Uruguay, however, voters approved a 2004 referendum on a constitutional reform that defines water as a public good and establishes that water for human consumption should be provided “exclusively and directly by state agencies.”

In the case of Mexico, the presence of the private sector in water services “has remained more or less the same,” said Jesús Campos, assistant director of water infrastructure for the government's National Water Commission.

Private companies are involved in water distribution in just three Mexican cities, and a dozen more handle wastewater treatment, Campos said.

He warns against demonizing the private sector. “We shouldn't be fighting against the idea of partnering with a private firm when it may be beneficial.”

ECLAC's Solanes agrees. There is “no problem with someone (private company) making money, even if it's providing a public service.” However, he recommends that governments establish the necessary regulations for private participation in water management, and that they take into account the economic and social contexts of their countries.

“In and of itself, privatization is as good or as bad as the economy in which it occurs, the care with which it is done, and the society around it,” he said.

Solanes pointed to cases like that of Chile, where private companies control 100 percent of the potable water market, and where privatization “has been more or less successful.”

Chile has achieved nearly total coverage of potable water and sanitation services. Operating in the water sector with broad freedom are transnationals and local economic groups alike.