Public money for private greed

In 1996 as the Jubilee 2000 campaign for debt cancellation got going, Bolivia received a minor tranche of debt relief. Hidden in the faustian pact was an agreement by Bolivia to privatise its water supplies in the city of El Alto.

Almost ten years later, Bolivia remains highly indebted and the consequences of its agreement to privatise its water supplies has brought about a major rebellion by citizens of El Alto and raised serious questions about the IMF and World Bank’s supposed commmitment to democracy.

A couple of weeks ago, I helped translate a letter from a residents association in El Alto to the World Bank and IMF, which tells a compelling story of how Western Government pressure and public money has been used to enforce privatisation and to provide profits for large multinational water companies, in this case, Suez of France.

Privatisation was pushed by institutions like the World Bank and IMF with great promises of foreign investment. Yet as the letter shows (detailed in full below), this rarely materialised.

In El Alto, 70-80% of all investment came from International Institutions and Western Governments, yet the water company still failed to deliver on its commitments to extend water coverage to poor residents whilst increasing its rates for connections to drinking water and sewage systems to the equivalent of nine times the local minimum salary.

Not surprisingly, in January 2005, people in El Alto said enough was enough, and brought  the city to a halt, forcing the Government to agree to end the contract.

But the story doesn’t end there. Despite, the obvious failure of water privatisation, the International Community is forcing the Bolivian Government to agree to a deal that includes private involvement, despite local residents coming up with a workable alternative of an accountable and public water system.

As the residents state clearly at the end of the letter:

"In the world, only 5% of drinking water utilities have been privatized. Why, then do you make it a condition that we follow this path after having seen the abuses we have suffered? Why don’t you reflect and analyze the errors that have been made in the process of privatizing the water in Bolivia? Why not take some responsibility and help us build a new type of company where private greed and corruption of whatever nature are absent?"

Why indeed?

Take action

Both War on Want and WDM are running good campaigns saying privatisation should not be enforced by donor governments using aid money, and should not be the only option on the table for developing desperately needed public services.

Letter to the World Bank, Inter-American Development Bank, and KFW calling on them to stop promoting the privatization of Water.

EL Alto, 5 April 2005

Mr. James D. Wolfensohn
President of the World Bank
Mr. Enrique V. Iglesias
President of the Inter-American Development Bank
Mr. Hans W. Reich
President of the Board of KFW

Re.: Need to change the conditions of International Cooperation.

Dear Sirs,

We are writing as representatives of more than 80,000 residents from the City of El Alto in Bolivia, who for more than 8 years have challenged and acted to overturn the privatization of drinking water in the city of La Paz and El Alto, due to their negative consequences for our community and our rights as citizens. We are writing to you because the international organizations which you lead, have supported and promoted the concession of our water supplies to the Aguas del IIlimani company, which includes its principal shareholders: the transnational French company Suez and IFC of the World Bank.

The aim of this letter is to show the grave mistakes that have been made in the process of privatization, to call for reflection and ask – in both a respectful but very firm way – that international aid should not be conditioned on the continued involvement of the private sector in the provision of drinking water either by Suez or any other private company in El Alto or La Paz.
The support that the international aid community gives, which is based on the contributions of citizens of countries in the North, should be used to resolve poverty and in particular enabling access to water, and not as a means for providing business opportunities for private and transnational companies.

The main mistakes of privatization

1) The privatization of the Municipal Water and Sewage Authority (SAMAPA) for La Paz and El Alto was part of the conditions imposed by the World Bank, IADB, and IMF on Bolivia in negotiations on external debt relief in 1996.

2) Only one company, Aguas del Illimani-Suez, made an offer at the tendering stage. Despite this, and instead of arranging a second tendering, the terms of reference were changed and the company’s bid was accepted. The organizations that you lead supported this privatization process with different loans and financial support to the Ministry of Capitalization and SAMAPA to prepare it for privatization.

3) Before SAMAPA was privatized, the water rates were dollarised. In 1996, the rates increased between 21% and 51% in different categories. At the same time as the awarding of the contract, rates rose again by 19%. In the eight years of privatization, rates rose 35% in Bolivian pesos due to the devaluation of our national currency. To this we must add, that privatization established the highest commercial rate ($1.18 dollars per cubic meter) for water provided to the public sector, i.e. schools, hospitals, parks and other state facilities.

4) During the process of tendering, it was said that privatization would be a way of attracting private investment in order to increase access to water services. Carlos Yeregui, legal representative of Aguas del Illimani, said to the press on 27 June 1997, that they would ”invest 80 million dollars in the next 5 years and 350 million dollars in the 30 years of the concession.” But when they signed the contract, they changed their promises of investment in terms of new connections.

5) The contract established a guaranteed profit of 13% for the private concession.

6) The contract guaranteed a double payment to the private concession for its investment. On the one hand, Annex 10 of the contract said that the calculation of the rates could be made taking into account the costs of operation and maintenance, depreciation, investment and profits. On the other hand, clause 26.3 stated that termination of the contract for whatever reason would require payment worth the value of the company’s net fixed assets.

7) Despite these irregularities and abuses, you granted credits, to Aguas del Illimani and the World Bank (through the IFC), so that it could be an associate with the company with an 8% share.

8) The primary responsibility for the signing of the contract lies with the Ministry for Capitalization, the Superintendent of Water, the Municipal Government and the National Government, but we must ask: Why did you make no comment or question the contract before becoming associates and granting credits to Aguas del Illimani?

9) The organizations which you lead presented Aguas del IIlimani as a great example to the international community, and publicized the “Condominial System” as a “pro-poor” solution. Even this failed dismally in El Alto because it is not possible to establish a second-rate sewage system that runs through properties and allows feces to flow back into houses. We invite you to come to El Alto and see what has happened with this “condominial system” and understand why they didn’t extend services to the rest of the city. We may be poor but we still have dignity.

10) At the end of the first five years (1997-2001) Aguas del IIlimani did not complete the promised 71,752 drinking water connections that were agreed in the contract with El Alto. They only achieved 52,000. Aguas del Illimani argued that the residents did not link to the network and that it wasn’t their responsibility. So with the complicity of the Superintendent of Primary Health, they changed the criteria from number of connections to that of coverage, that is to say that they were responsible for the area covered by pipes even if residents weren’t connected. Aguas del Illimani publicised to Bolivia and the world that they had reached “coverage” of 96% in El Alto.

11) Aguas del Illimani said that they invested approximately 50 million dollars during this first five years, that is to say 30 times less than what they had announced publicly before gaining the concession. Nevertheless, what stands out is that the majority of this investment was money from the World Bank, IADB, KFW and CAF. In other words: the privatization did not bring new money from the private sector as had been promised. Instead it was the international aid community that provided between 70 and 80% of the investment for Suez-Aguas del Illimani.

12) During the negotiation of targets for expansion and rates for the second five-year contract (2002-2006), Aguas del IIlimani and the Superintendent of Basic Health agreed, initially, that the private concession would deliver 15,000 new connections outside the area served by the company but inside the area of the concession within the city of El Alto. But then, Aguas del IIlimani asked for a rise in rates for consumption of water of 25%. As a result of a poorly transparent process, the company agreed with the Superintendent to a rise in rates of 12.5%, along with a rise in costs for connections and a reduction in the afore-mentioned new connections.  As a result of this, the rates for connections to drinking water and sewage systems rose to between $335 and $445 dollars, which is the equivalent of nine minimum wage salaries in Bolivia.

13) These two decisions (the rise in rates for connections and the elimination of 15,000 connections) affected 208,000 people, which was noted in correspondence sent by the Superintendent Ing. Franz Rojas to the Manager of Aguas del IIlimani on 5th January 2005.

14)  As Aguas del Illimani announced that it wasn’t going to make new investment in the second contract 2002-2006 (according to reports by Ficht Raiting), the State law Nº 2642 was passed on 9 March 2004, in which the State granted concessional credits and international aid donations to Aguas del IIlimani. The Swiss government made a donation of $3 million dollars covering 13% of Aguas del IIlimani’s fixed profits and the World Bank, European Union, KFW and IADB announced that they would provide further resources for Aguas del IIlimani. 

15) Faced with this situation, the Federation of Neighborhood Committees of El Alto (FEJUVE) reiterated its demand for the end of the contract with Aguas del Illimani, a demand that was approved by all our congresses since 1997. For us, it is absolutely unjustifiable that more than 200,000 people should remain without water in order to guarantee the profit rates for Aguas del Illimani or that international aid cooperation for the poor should be used to enrich transnational companies.

16) After exhausting all possibilities for dialogue, we started an indefinite blockade of El Alto on the 10th January. On the 12th January, the Government passed a special decree ending the contract with Aguas del Ilimani explaining that: “the Government has responsibly taken the appropriate actions to revise the contract with the aim of meeting the needs of the population of the city of El Alto and to enable the extension of service to the 200,000 people who need service, after exhausting all approaches to the Company Aguas del Illimani S.A.”  In a speech on 6 March, the President of the Republic of Bolivia said: “I believe that Aguas del Illimani did not play clean with El Alto, I believe that Aguas del Illimani did not fulfill the key objective of its contract, and I believe that we had to revise the contract, and as Aguas del Illimani did not want to do this, that the contract had to be ended.”

17) To begin with the municipal governments of La Paz and El Alto and the national government considered the possibility of temporarily returning the utility to the hands of SAMAPA until a new company was formed together with residents and neighborhood associations of both cities. However this possibility was blocked by pressure from the international aid community which conditioned the continuity of new loans on the establishment of a “mixed society,” public-private company, in which the shareholders of Aguas del Illimani could participate.

18) In a communiqué to the press on 3 March 2005, the Germany Embassy stated that the continuation of international cooperation depended on: 1) The existence of an “amicable solution” to the conflict with Aguas del Illimani which avoids the payment of indemnities and 2) the establishment of a mixed enterprise. Literally, the communiqué said: “Without these conditions, it will be impossible to fulfill our financial support for tackling the problems of water and sanitation for El Alto.”  Why does Bolivia not have the right to initiate legal action against this company if the conditions for an amicable termination are unacceptable especially if there are a series of irregularities and unfulfilled commitments by the aforementioned company? Is it because the World Bank is a shareholder in Aguas del Illimani through the IFC? Why does the model for a new company always have to include private participation that exploits nature to seek a profit.

19)  The worst thing is that in different meetings and publicly, it has been sho


Leave A Comment