Paper by Guillermo Amorebieta (October 2006), presented in the seminar ‘Campaign to
Take Back Jakarta Water from Private Concessionaires’ November 8-10, 2006, Jakarta
Contents:
I.- OUTLINE OF PUBLIC WATER AND SEWER SERVICE IN THE AMERICAS
II.-MANAGEMENT MODEL CONSIDERATIONS
III.-THE CASE OF AGUAS BONAERENSES S.A. (ABSA)
I.- OUTLINE OF PUBLIC WATER AND SEWER SERVICE IN THE AMERICAS
Canada:
CUPE – Trade union of state and municipal workers – affiliated with PSI
Council of Canadians – largest NGO in the country, specialising in civil rights, environment
and ecology.
With other NGOs and trade unions, in 2003 they halted efforts to privatise water service in
the French-speaking region of the country. There have been no further serious efforts to
shift services to the private sector.
United States:
AFSCME – Nationwide trade union of state and municipal employees – affiliated with PSI.
Public Citizen – civil rights NGO
Food & Water Watch – user and consumer rights NGO.
Formed a coalition and coordinate programmes and actions involving the community;
present plans and proposals; advise citizens; and maintain national and international
solidarity mechanisms.
Most water distribution services are municipal; there is state and federal regulation.
In 2002, the Atlanta city government revoked a contract with the French company, Suez,
which had the concession to operate the city’s wastewater treatment plant.
En 1999, former New York Mayor Rudolph Guiliani, a Republican, had to put the city’s
electric company under state control because of the constant breaches of contract and public
pressure.
Mexico:
Most services are managed by the state, some are municipal and a few are
privatised; they are grouped together in the National Association of Water Companies
(Asociación Nacional de Empresas del Agua, ANEA). The private companies include Mexican
and foreign interests. The outgoing Fox administration lobbied for privatisation because of
the lack of organisation and technical capacity on the part of governors and mayors, but
was unable to meet the goal by election time. The new president, chosen in a strongly
challenged election, has not yet defined policy in this area, but it is assumed that he will
continue the outgoing president’s efforts. The French company Vivendi (now Viola) still
operates the services in Aguascalientes, Saltillo and Cancún.
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There are currently two major citizen coalitions in defence of public water: Red
Mexicana and Alianza por el Agua; since before the last World Water Form they have been
making great organisational and political efforts to block the implementation of neoliberal
policies and guarantee the public’s right to access to good-quality water.
Guatemala – Honduras – Nicaragua – El Salvador – Costa Rica – Panama:
Most water and sewer services are municipal. Some were privatised as part of so-called free
trade agreements. Trade unions and NGOs have been engaging in resistance strategies and
making new proposals.
Caribbean:
Cuba has allowed minority private participation in the main companies in this sector.
Aguas de Barcelona and Aguas de Valencia act as technical operators in Havana and
Varadero, among other areas.
Services in the Dominican Republic are in the hands of the state; although the government
has considered granting concessions, this has not been possible because of the large
investment and financing that would be required.
Services in Puerto Rico are managed by the state, and there are no immediate plans to
include the private sector.
St. Martin (Saint Maarten): Services are private in the French sector and state-run in the
Dutch sector.
Lesser Antilles: private and state-run enterprises coexist. The French companies Suez and
Viola operate on some islands.
Venezuela:
The former government dismantled the state-run company, Hidroven, and transferred
services to the states (provinces) under a plan in which the main goal was the concession of
the most profitable services. The country is currently testing a plan to develop and expand
services with citizen participation and technical assistance from Hidroven under a plan
known as “Water Technical Groups” (“Mesas Técnicas del Agua”), and is having significant
success in expanding service to impoverished Venezuelans.
Colombia:
The water companies in Santa Marta and Montería (Spain’s Canal de Isabel II), Cartagena
(AGBAR) and Barranquilla (AAA) were the first to be privatised. They coexist with public
enterprises that operate on a different scale. The Uribe government is encouraging further
privatisation, especially in Medellín and Bogotá.
Ecuador:
Services are basically government-run at the municipal level, with the national government
encouraging private participation and seeking investors to finance expansion, except in
Guayaquil, where Bechtel’s Interagua won the concession in 2004.
Peru:
The administration of former President Alejandro Toledo implemented a privatisation
policy that crystallised, toward the end of his term, in the concession of the service in
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Tumbes. In that case, the Argentinean company Latinaguas was initially unable to take over
because the guarantee fund required by the contract had not been established, but in recent
months it has begun managing the system. Two criminal complaints have already been
filed against the company because of poor quality water and sewer service. There have been
two unsuccessful privatisation efforts in this country: Pacasmayo and La Libertad.
Bolivia:
There are municipal, cooperative and community services. The former are the most
significant and were privatised, with La Paz - El Alto going to Suez of France (Aguas de
Illimani) and Cochabamba to Bechtel, which is a U.S. company although its official address
is a post office box in Amsterdam. In both cases, public resistance was decisive in forcing
the foreign companies out. Cochabamba became famous for the protest and police
crackdown known as the “Water War,” in which the people took back the service and a
municipal company was created. In El Alto, the government will take over the service in
November 2006, when the concession will be withdrawn from Suez.
Paraguay:
Service is state-run and is provided by public companies. In 2002, grassroots organisations
and trade unions won a law that blocked the privatisation of public services. The current
government is trying to sidestep the law and grant concessions in Asunción and Ciudad del
Este, but is meeting strong resistance from grassroots organisations.
Chile:
Chile privatised all of its major regional companies, with the last ones shifting to private
control during the last administration, although some municipal services remain. The
system is similar to the asset-transfer model used by Margaret Thatcher in Britain, although
in Chile this was accompanied by the sale of water resources to each company. This model,
which has been in place since the Pinochet dictatorship, has been used by several
subsequent civilian governments.
Uruguay:
The state-run company OSE is the main service provider. There were two privatisations,
both in the department of Maldonado — one in the city of Piriápolis and its periphery, to a
consortium consisting of Aguas de Bilbao (at the time a Spanish state-run company) and
Aguas de Barcelona (controlled by Suez), and the other in the tourist city of Punta del Este,
to the French company, Suez. It took Uruguayan citizens two referenda to win a significant
constitutional reform that declares water to be an inalienable right and requires the state to
provide services to the public. Nevertheless, Suez sought to postpone the withdrawal of the
concession that provided it with huge profits while requiring almost no investment. There
are several cooperatives that provide household water service in some small towns.
Brazil:
More than 3,500 municipalities have sanitation services, but many have turned them over to
state control for technical or economic reasons. Brazil is the Latin American country with
the greatest freshwater reserves. There is also increasing conflict in the sector because of
pressure from the IMF and World Bank.
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When President Lula Da Silva first took office, concessions involving the companies
Embasa (Bahia) and Compesa (Pernambuco) were suspended because of strong public
pressure from the National Sanitation Front (FNS), led by the National Federation of Urban
Workers (a PSI affiliate) and a large group of NGOs from throughout the country. During
the previous administration of President Fernando Cardoso, Ondeo (a Suez subsidiary)
took control of the largest private concession in Brazil (Aguas de Amazonas) in June 2000 in
the Amazonian city of Manaus (1.4 million residents). Agbar (Sociedade Generale de Aguas
Barcelona, a Suez subsidiary) and Cobel Engenharia began operating the 30-year concession
in Campo Grande (662,500 residents), the capital of the state of Mato Grosso do Sul, in
October 2000. In 2002, the state had to take back the concession granted to Suez in the
municipality of Limeira because of serious breaches of contract.
Argentina:
There are currently very few water service privatisations under way. In the 1990s, the
largest water companies in 14 provinces were granted in concession. One by one, the
companies were forced out by public pressure and changes in provincial and national
governments. Currently, companies in certain cities or districts of the provinces of La Rioja,
Salta, Mendoza, Córdoba, Corrientes, Formosa and Misiones remain in the private sector.
Five other companies in cities of fewer than 30,000 residents are in private hands. The most
significant concessions that were revoked were in the city of Buenos Aires and the province
of Santa Fe (Suez), in 78 cities in the province of Buenos Aires (Azurix – Enron of the United
States), and in the province of Catamarca (where the government would like to grant a new
concession). The first privatisation to be revoked was in the province of Tucumán, where
strong public pressure forced the government to rescind the contract with the French
company, Viola (formerly Vivendi), and create a new state-run company.
II.-MANAGEMENT MODEL CONSIDERATIONS
Current models: a) State-run: 1.- Federal, state or municipal
2.- Centralised bodies
3.- Decentralised or autonomous bodies
4.- State-run companies
5.- Corporations in which the state is the majority shareholder
6.- State corporations
7.- Corporations run by the state and workers.
b) Mixed: 1.- State – Private
c) : 1.- Neighbourhood Associations
2.- Development Centres
3.-Civic Associations
4.- Cooperatives
5.-Municipal initiatives with community management.
d) Private enterprise : 1.- National
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2.- Multinational
3.- Mixed
a) 1.- Offices or departments of the Executive Branch – internal divisions of public
service, health or community action areas.
2.- Autonomous (autarchic) bodies or entities with their own management, under
Executive Branch oversight. Their directors are appointed by the Executive Branch.
Oversight by official state agencies.
3.- Companies with state capital and with the restrictions imposed by laws that
regulate state action. Legally established enterprises overseen by independent state
auditing bodies. Their directors are appointed by the executive branch.
4.- Mixed enterprises (private corporations) in which the state is the majority
shareholder and overall manager, in which private enterprise plays a role. In some
countries, there are mixed enterprises in which the majority of shares are in private
hands with a golden share (veto power) held by the state’s representative on the
Board of Directors, as well as corporations in which the state has a formal presence
without decision-making power and merely exercises oversight of private
management.
5.- State-run privately established companies. Their directors and/or managers are
appointed by the Executive Branch and there is public sector oversight of these
private entities. In some countries, the legislative branch must also approve
appointment of managers and the company’s budget.
6.- This model has been implemented after the state has regained control over
privatised companies; it encourages participation in shareholding and
representation of workers on the Board of Directors.
b) These companies, known as mixed companies, are private corporations in which the
state contributes a substantial part of the capital to set up the company, while the
private sector is responsible for comprehensive management. While the Board of
Directors includes representatives of the state, most members represent the private
sector. Oversight is difficult because of political implications and the possibility of
corruption.
c) 1.- These models are generally ambiguous; they have simple by-laws and broad
participation by users of the services, and are not for profit. They are overseen by the
executive branch of the municipal government and play a specific role in precisely
defined geographic areas.
2.- Established by a group of neighbours, they are legally established and offer one or
more services to the community where they are located. There can be dual oversight by
the municipality and the body that grants recognition. It is managed by assemblies of
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the system’s beneficiaries. The members of the Board of Directors of such entities may
or may not receive remuneration, generally depending on the scope of the service.
3.- This model is implemented in various ways: agricultural water users may organise
in this way, as may small consortia for expansion and maintenance of community or
household services. There is dual oversight by the executive branch of the municipal
government and the agency responsible for licensing the entity. Such entities are subject
to the specific laws and regulations of the municipality and the water or public service
regulatory agency.
4.- Cooperatives are a model in which the recipients of a service that includes a certain
number of household connections are shareholders. They have their own by-laws and
are overseen by a licensing agency and the regulatory body responsible for overseeing
water and sewer services. They are managed by a board of directors that is paid and
directly elected by the cooperative members at an assembly or by secret ballot. In some
countries, works are financed and coordinated by the state (with public funds or
through external loans), and once they are completed a cooperative is formed among
the residents who will receive the service; they then take over integral management of
the service. Loan repayment is part of the rate structure, and there is dual oversight: by
the public service regulatory agency and the cooperative system’s development and
oversight body. Such systems can be small or large, in terms of number of connections
or geographic area. While cooperatives are considered non-profit entities, they can
generate revenue and their assemblies can establish remuneration for their directors, as
well as significant reinvestment of revenues. Some cooperatives have funded the
development and expansion of their services with contributions from their members. In
general, they provide more than one service to the community and in some cases they
manage all services in the city, including some delegated by the municipal government.
In general, they include regional and national federations and have relations with
international organisations.
5.- There are isolated neighbourhoods in a community that receive assistance from
municipal authorities to implement small units that provide basic water services whose
costs are subsidised by the municipality; the unit is responsible only for operation of the
system. This fully subsidised model is common in rural communities.
d) 1.- There are domestic economic groups in several countries that entered the water
sector as junior partners of multinational companies that won concessions. In other
cases, they were construction companies that received special treatment even though
they had no experience in operating or managing public services. The best known
examples operating in several Latin American countries are Latinaguas (of Argentina,
with concessions in that country and Peru) and SANEPAR (Brazil, state-run and with
operations in Argentina).
2.-The major multinationals are:
Ondeo (Suez), which operates services or has contracts for public works or the sale
of technology in more than 100 countries. Efforts are currently under way to
privatise the French gas company through a strategic merger, so as to avoid a
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takeover by the German company E.ON. Corruption scandals in Grenoble (France)
affected the company, however, and it had to accept legal responsibility.
Viola (formerly Vivendi): This is the oldest consortium that has benefited from
water privatisation; its original owners were French aristocrats, and it is currently in
the hands of a group of banks that managed its finances and became its main
creditors through a business policy of investing in the European and US media and
film industries. The company has been accused of various acts of corruption and
faces legal proceedings in several countries.
RWE (Thames): This German company controls many of the privatised services in
its home country. With the purchase of Thames Water (England), it added several
concessions in the United Kingdom, Latin America and Africa. In Chile, in
particular, it is selling its assets to companies in that country.
Bechtel (USA, with formal headquarters in Holland): This company gained
worldwide notoriety during the “Water War” waged by grassroots movements in
Cochabamba, where it was embroiled in a privatisation effort that became
scandalous because of its characteristics.
SAUR (France): Operates in former French colonies and has purchased concessions
from other multinational groups in other developing countries. Tends to have a low
exposure profile.
Aguas de Barcelona (Spain): This company includes Spanish and French capital. La
Caixa (a Catalonian financing firm) is the major formal shareholder, but the French
company Suez holds the controlling interest and defines the group’s policies. It has a
major presence in Latin America, with Suez or on its own.
3.- INTERNATIONAL ORGANISATIONS THAT FAVOUR THE PRIVATISATION OF
WATER SERVICES
1) World Water Council. Created in 1996 to design a worldwide strategy for water
privatisation. Its financing comes from international financial institutions,
multinational corporations, multilateral bodies and governments.
2) Global Water Partnership (GWP). Created in 1996 by the World Bank,
the UN Development Programme and the Swedish International Development
Agency. It directs the strategy for promoting water as an “economic
good” and encourages reforms in public water, drainage and sanitation
systems. It is financed by associations of businesses operating abroad,
the Ford Foundation, the UNDP and the World Bank, whose vice president,
Ismail Serageldin, is first president of the GWP board of directors.
3) World Commission on Water for the 21st Century. Established in 1998. Financed
by the Canadian and Dutch international cooperation agencies, as well as
multilateral UN agencies (UNDP, FAO, UNICEF and UNESCO). Supports and
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promotes the agenda designed to open up water to the market. It consists of 21
well-known figures, including director William J. Congrove, who was an adviser
to the World Bank and currently works for Vivendi, and Ismail Serageldin, who
served as president of the board of directors.
III.-THE CASE OF AGUAS BONAERENSES S.A. (ABSA)
Brief Introduction:
In 1999, after more than 80 years of centralised state management and autarchic
management, the water and sewer service that had been provided by the company Obras
Sanitarias de la Provincia de Buenos Aires (OSBA) in more than 81 cities in the province
was privatised. It is important to note that national statistics show that under state
management, the company achieved the highest levels of coverage and quality of service,
despite poor political administration by the state. The main foreign negotiator was Mr.
Marvin Bush, brother of the current U.S. president and of the governor of the U.S. state of
Florida.
Two areas were granted in concession, so as to avoid a monopoly — according to
government officials — and ensure rate competition. The larger concession consisted of 74
cities in 46 municipalities, and was granted to the company Azurix Buenos Aires S.A.,
controlled by U.S.-based ENRON. The second unit was granted to a consortium called
Aguas del Gran Buenos Aires S.A. (AGBA), formed b the then-state-run Aguas de Bilbao
(Spain) and the Italian construction company, Impregiglio.
Within two years, the companies began to demonstrate a complete inability to manage
services and a lack of willingness to make the investment to which they had committed in
the concession contracts.
The first to give up its concession was the U.S. company, which had been sanctioned
various times by the government regulatory agency (ORAB) and had been fined millions of
dollars for contamination of its water networks, rate errors, the deactivation of 45 of the 47
wastewater treatment plants, personnel conflicts, lack of technical ability to operate the
service, and other problems. Azurix Buenos Aires took its case against the Argentine
government to CIADI, arguing that the government had not allowed it to set rates high
enough to manage the service appropriately and that it was a company independent from
the ENRON group, which was being investigated for large-scale fraud.
The other concession, which covered seven large cities in four municipalities in
metropolitan Buenos Aires, continued operating the service until mid-2006. when it decided
to ask for the contract to be rescinded, alleging a lack of rate guarantees by the government.
BIRTH OF AGUAS BONAERENSES S.A. (ABSA)
In January 2001, when the country’s financial crisis was already visible on the horizon, the
government of the Province of Buenos Aires had to take over services that the U.S.-based
company Azurix Buenos Aires S.A. had been providing, when the company gave up the
concession and filed a complaint with CIADI to recover its alleged investment.
The state had no technical structure to enable it to take over such a large service (this
was the second-largest company in the country in terms of users and the first in terms of
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geographic area) because of the dismantling that had occurred during the government that
privatised the services; as a result, it had no choice but to call on the Sanitary Works Trade
Union of the Province of Buenos Aires (Sindicato de Obras Sanitarias de la Provincia de Buenos
Aires, SOSBA, a PSI affiliate) to reach an agreement that would enable it to respond to the
challenge of efficiently re-establishing state control over the service.
A sustainability agreement was signed for the new company, with the
government committing to provide the workers with the means to guarantee the
development of the services, even without external financing; this meant that the workers
and SOSBA would be the technical operators of the new company, and the users, through
legally recognised organizations, would have direct representation and access to all
information and operations.
A corporation was set up with the state as majority shareholder and the workers as
shareholders. The company is directed by a president appointed by the government and
four directors (two from the government, one representing the workers and one
representing the users). Instead of management positions, the company has management
units: an economic and financial unit, an operations unit, a technical unit, a users’ unit and
a planning and quality unit.
The most significant achievements for a service that has been in existence for nearly
100 years have included the implementation of all wastewater treatment plans, the
renovation of nearly 20 percent of the oldest water systems (those dating back more than 50
years), the first arsenic elimination plants, a 45 percent reduction in leakage, a 92 percent fee
collection rate, holding rates at 1992 levels, optimising financial operations, improving
contact with users and having offices for user and consumer NGOs within the company, as
well as increasing water production by 26 percent and improving quality control by 12
percent.
Although no evaluation was requested, the World Bank informed ABSA that
according to its studies, the company would qualify to receive loans from that entity.
The workers (all affiliated with SOSBA and at all levels of the company) carry out
their activities with the respect and responsibility necessary for providing integral water
and sewer services. They hold regular assemblies to discuss the operation of the various
areas and plans for improving and expanding the system based on a master plan designed
by the National University of La Plata.
ECONOMIC – FINANCIAL UNIT: Directed by a representative of the state, as the
assistant director is nominated by the workers.
OPERATIONS UNIT: Directed by a representative of the workers, with assistance from a
technician proposed by the president.
TECHNICAL UNIT: Directed by a representative of the workers, with external assistance
from a technical team from the workers’ “5 de septiembre” company.
USERS’ UNIT: Directed by a representative of the legally recognised users’ and consumers’
NGOs. This management unit carries out education and awareness-raising programmes
and organises users. It has access to all ABSA management.
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PLANNING AND QUALITY UNIT: Controlled by the state; this unit is in constant contact
with the technical and operating units, as well as the “5 de septiembre” workers’ company.
It establishes daily quality levels for water and for wastewater treated in the plants, based
on the National Food Code and the Concession Contract between the government and
ABSA.
CONCLUSION: In nearly five years of technical management by workers, the state has reestablished its responsibility for water and sanitation services, regaining control of water
resources and encouraging a policy shift in which a preventive health approach plays a key
role in sanitation, health and education systems, especially for the most at-risk sectors of the
population.
The workers have assumed their natural role as technical operators of the service; this
came after much internal debate, which united workers, technical and professional
personnel, including management and staff, respecting the responsibilities of all and
stimulating ideas and initiatives for improving the service.
The users realised that they had to organise to defend their rights and make a
commitment to good management of the service, understanding that they are a
fundamental part of the system and offer the best oversight of the management of a public
service company. They understood that they are not “clients,” but are “users” and citizens
who have a right to knowledge and participate.
We realise that much remains to be done, and we must seek new and intelligent
solutions to challenges in each sector or area, planning for the future, but we are sure that
the model combining government and worker control is the only one in which each party
plays a decisive role in the functioning of the society that benefits from the services.
Guillermo Amorebieta (October 2006)
Red de Sindicatos del Sector del Agua
Affiliate of Public Services International
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