Economy & Trade, Headlines, Latin America & the Caribbean

ECONOMY-ARGENTINA: De-Privatisation Purely Pragmatic, Say Observers

Marcela Valente

BUENOS AIRES, Apr 5 2006 (IPS) - Although the Argentine government of Néstor Kirchner has re-established state ownership of four originally public companies that were privatised in the 1990s, observers say this does not imply an express policy towards “de-privatisation”, but rather an attempt to regain control over public services that have fallen into a critical state.

During the two presidential terms of Carlos Menem (1989-1999), state-owned enterprises in sectors like oil, gas, water, telecommunications, railways, the postal service and electricity generation and distribution were sold off to the private sector, along with highway and airport administration services.

As time passed, violations of the contracts signed with private firms for the provision of these public services began to pile up. In some cases, the breaches of contract were limited to steep hikes in user fees, far above the amounts agreed upon. But there were also numerous cases of failure to make needed investments, mismanagement, and an accumulation of customer complaints and government fines for poor service.

Six months after he took office in May 2003, Kirchner ordered the resumption of state control over the Argentine postal service. Under Menem, it had been turned over to a national private company that had failed to live up to the terms of its contract and had fallen into arrears with the taxes it was obliged to pay the Argentine state.

In early 2004, the same fate befell Thales Spectrum, a French company that had purchased the rights to operate the airwaves used by mobile phone and radio and TV stations in Argentina for 15 years. In this case as well, the reason for cancelling the contract was the company’s failure to keep up with its commitments to the state coffers.

That same year, the government took over the operation of the San Martín passenger train line, which runs from the Argentine capital to the suburb of Pilar. As a result of a growing number of accidents, non-existent investment and continued passenger complaints, the Argentine-owned Taselli Group lost its contract with the government to run the railway line.

And now, several weeks ago, relations between Argentina and France were strained by the Kirchner administration’s decision to rescind the concession granted to the French water company Suez to operate Aguas Argentinas, which is responsible for supplying piped water in the city of Buenos Aires and outlying neighbourhoods.

The government announced that it would create a new company, Aguas y Saneamiento Argentinos (AySA), which will make a series of investments over the next two years.

The French foreign ministry protested the Kirchner administration’s “sudden” decision, despite the fact that Suez had been threatening to pull out of Aguas Argentinas for two years.

The Argentine Ministry of Federal Planning, Public Investment and Services reported that Suez had fallen behind on its commitment to expand the drinking water supply and sewage disposal networks, in addition to causing a public health problem by providing users with contaminated water.

In Lomas de Zamora, on the southern fringe of Buenos Aries, residential customers were receiving water that had nitrate levels an average of 44 percent over the highest permissible level. Local residents appealed to the national Ombudsman’s office, which found that in some cases the nitrate level was as much as 222 percent higher than the limit allowed.

The company admitted to the problem and issued warnings that the water was not safe to drink for pregnant women and infants, as well as distributing bottled water for use in these cases. Nitrate, which is sometimes found in well water, causes a condition that reduces the blood’s capacity to carry oxygen.

“For 15 years they took away hundreds of millions of dollars in profits, while the people of Argentina have to beg for a drop of water,” declared Kirchner in a public address in the area affected by the contamination.

This return to public control over firms privatised by Menem has been accompanied by other decisions pointing in a similar direction.

Kirchner created a state-owned airline, Líneas Aéreas Federales, which absorbed the employees of two private airlines on the verge of bankruptcy. And in the midst of the 2004 energy crisis, he launched the joint private-public venture Enarsa (Energía Argentina S.A.).

In an interview with IPS, legislator Claudio Lozano, an adviser to the Central de Trabajadores Argentinos (CTA) trade union federation, maintained that there have been two clearly marked stages in the Kirchner administration.

“In the beginning there was a clear will for debate with the privatised companies, leading towards the state retaking some control of the sectors involved,” said Lozano, an economist. The second stage was the “reprivatisation” of companies in trouble, he added.

“Today there is no visible intent to regain public control, but merely to assume a temporary role until a new candidate in the private sector appears, willing to invest in the business,” explained Lozano.

In the case of the postal service, the government announced in 2003 that it would only administer it for six months, and then pass it back into private hands. In the end, state management proved effective, financial recovery was achieved, and after 28 months, it remains under public control, although the original plan has not changed.

With regard to the airwaves, the Ministry of Federal Planning has stated that they will be exempt from further privatisation, given their “strategic importance.” Minister Julio de Vido stressed that control of this sector is a “nondelegable duty of the state.”

In the meantime, the concession for operating the “de-privatised” railway line has been granted to a group of private companies that administer railway service with a state subsidy.

The centre-leftist Argentine government’s policy towards privatised companies is purely pragmatic. “There is no express will to establish state control,” cabinet chief Alberto Fernández emphasised.

Former congressman Héctor Polino, founder of the non-governmental organisation Free Consumers, said that the government’s policy regarding privatised companies is “full of contradictions.”

“There is no clear, coherent strategy. Decisions are adopted according to each particular situation,” he commented.

For Lozano, the creation of the AySA water company demonstrates that “there is no intent to rebuild the state’s role in the administration of public services.”

AySA was founded as a limited company which is therefore ruled by private sector law and will not be subject to the same controls as a public enterprise, he pointed out.

“Up until the very last minute, the Kirchner administration tried to keep Suez in control of water services, despite the fact that it was the epitome of contractual non-compliance. And then it attempted to find a replacement, also from the private sector, to take over control of the company,” said the lawmaker.