Posted 15th May 2001

Outomes from a study of the private water and sanitation concession in Buenos Aires, Argentina are important new information as this is the first major English-language study of a concession conducted outside of the World Bank Group since the concession sell-off of public assets began in 1993. Buenos Aires is an economic test tube as to the viability of privatisation theories when put into practise. The major shareholder in the Buenos Aires consortium is Suez Lyonnaise des Eaux, a large French multinational involved in the Johannesburg water privatisation which has also been actively pursuing contracts in other South African cities. Buenos Aires is also one of the largest water concessions in the world - servicing a population of 10 million people - and has been hailed as a success story internationally. There have been at least two trips to Buenos Aires by South African policy makers and bureaucrats study the privatisation as a model for South African municipalities. Some of these trips have been paid for by the French government, with the result that councillors and other bureaucrats have given extremely positive but erroneous evaluations of the concession, arguing that it has been "remarkably successful" in turning around a "potentially disastrous situation". The Municipal Services Project reveals, however, that the Buenos Aires privatisation has been a major failure.

Accountability and Transparency

One of the core arguments made in favour of privatizing municipal services is that it generates better public accountability. The experience of the water concession in Buenos Aires, however, has been just the opposite. The privatisation started with a Presidential Decree in 1989 which unilaterally declared that the city's water and sanitation would be run by the private sector. This announcement was made after the declaration of an "economic state of emergency" and under pressure from international financial institutions. All decisions about the privatization in these sectors were made behind closed doors with no public debate on the matter. Even the independent regulator set up to monitor the activities of the private company was marginalized by both the firm and national government, with the latter intervening on several occasions to overrule decisions made by the regulator. Rather than becoming more accountable to the public, Aguas Argentinas has entrenched a process of secretive negotiating practices and has made no effort to open itself to public scrutiny. Unfortunately, the Johannesburg Metro Council seems to have followed the company's lead. The process of privatising the city's water to Suez-Lyonnaise was very secretive and nobody got a chance to comment on or influence the proceedings. Although the Council is bound by the Municipal Systems Act to open all of its committees to the public, and offers up the full records of all meetings, it has refused to do this and is now facing legal action from at least one newspaper demanding full public access.

Efficiency

A second argument made in favour of privatization is that private companies are more efficient than the public sector, thereby reducing costs to the end user and freeing up resources for the state that can be used for other development needs. The water concession in Buenos Aires has done the opposite. The cost of water has increased by 20 percent in real terms from price hikes and surcharges. In the run-up to privatisation, the government artificially inflated prices in order to make the private company look more eficient. The current president of Argentina, Fernando de la Rua (speaking in March 1999 when he was Mayor of Buenos Aires) said: "Water rates, which Aguas Argentinas said would be reduced by 27% have actually risen a total of 20%". These price increases, and the costs of service extension, have been borne disproportionately by the urban poor. Non-payment rates for water and sanitation are as high as 30 percent, and service cut-offs are common with women and children bearing the brunt with health and safety consequences.

Environmental disaster

Sewerage infrastructure development has not kept pace with water delivery expansion. Water delivery is twice as profitable for the company as sewage treatment. The company reneged on its contractual obligation to build a new sewage treatment plant. As a result, over 95% of the city's sewage is dumped directly into the Rio del Plata river. Households with new water services are often forced to dump their sewage into makeshift septic tanks, cesspools or directly onto streets and open fields. The groundwater equilibrium has been destabilized and basements have begun to flood. Buildings and pavements are sinking, and water borne diseases are a constant concern. Poorest households that are most negatively affected.

Massive waste of public money

The costs of this lack of sewerage investment in terms of environment sustainability, public health and safety, and urban equity in Buenos Aires certainly bring into question the argument that the private company is more 'efficient' than the former public provider. The arguments that private companies are able to generate more capital than the public sector have been proven wrong here. The bulk of the capital used for infrastructure development and new connections in Buenos Aires water and sanitation have come from surcharges to end-users and international financial institutions - financing options that could have been available to the public sector. Meanwhile, Aguas Argentinas has been making record profits in Buenos Aires: up to twice the international average and up to three times what water companies make in the UK on average. Undoubtedly, the public sector would not have messed up their own city as much as this private company has done. Residents of Buenos Aires have been unable to voice their concerns due to the lack of participatory mechanisms - something which is compulsory in South Africa through the Municipal Systems Act. A massive amount of public money is going to be needed to clean up the environmental disaster in Buenos Aires. The Municipal Services Project's research shows quite clearly that Suez-Lyonnaise has succeeded in exacerbating the worst socio-economic and environmental problems of the city. The company seems bent on doing the same in Johannesburg. Although the ANC has promised a free amount of water to all citizens, there is no indication from the company about how they will provide this. Instead, the company was recently touting around research agencies to investigate how citizens in pockets of Johannesburg's townships could get water installed as part of pilot project testing. This does not indicate that the company is serious about providing all Johannesburg residents with water, but rather that it is much more concerned about only providing the service where people are able to be reliably contributing to their profit margins on a regular basis. It is only a matter of months before the rest of Johannesburg starts getting much higher water bills.

SAMWU is completely vindicated in our demand that the Unicity should deliver water directly as the public sector provider. Suez-Lyonnaise must be removed from Johannesburg immediately for not disclosing their bad practices during the bidding. The union is not prepared to sit back and allow the residents of Johannesburg to endure the same suffering as people have been forced into in Buenos Aires. SAMWU demands an urgent meeting with the Johannesburg Unicity Council to discuss the Buenos Aires research report, impending water tariff increases in Johannesburg, and the Council's implementation plan for the free water..