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Sources of conflict: water provision in Bolivia


8-9/2006 		 

Conflict sources in La Paz and El Alto

“Bolivia” is a buzzword often mentioned in debates over the pros and cons of private-sector water provision. The conflict in La Paz and El Alto has stirred emotions internationally. However, few people understand its background. Upon closer inspection, it becomes evident that the national government and its agencies worried more about pressure from international financial institutions than about the problems in their capital region. This neglect has contributed to the destabilisation of the entire country.


[ By Andrea Kramer ]

Originally, SAMAPA, a municipal company, was responsible for supplying the Bolivian capital La Paz and its adjoining, predominantly poor twin-city El Alto with water. In the course of public-sector reforms, the Bolivian government decided to privatise SAMAPA in the mid 1990s. By doing so, it aimed to improve water provision to low-income households, especially by enhancing services in El Alto. The World Bank supported the project with a $500,000 loan.

In July 1997, a concession contract was concluded with the consortium AISA (Aguas del Illimani S.A.), in which Suez Lyonnaise des Eaux, a French corporation, holds 54 % of shares. A 30-year concession granted AISA the right to use specified water sources and to run the conurbation’s drinking-water supply and sewage disposal. This contract was considered exemplary – at least among members of the Bolivian government, the private sector and international financial institutions. The concept was lauded as being pro-poor and viable.

Yet only eight years later, the Bolivian government instructed its regulatory body SISAB to take steps to terminate the concession and its business links to AISA (Supreme Decree No. 27973 of 11.01.2005). Carlos Mesa, president at the time, was reacting to week-long popular protest in El Alto. Under the leadership of Abel Mamani, the present-day water minister, the Federation of Neighbourhood Councils (FEJUVE) was the driving force of the opposition movement.

Private-sector participation met with resistance in La Paz and El Alto right from the start. The first rallies against tariff increases took place as early as 1997. In 2000, protests intensified under the impression of Cochabamba’s “water war”. The term “Guerra del Agua” refers to protests that took place when people rebelled against the privatisation of that city’s water utility and higher service fees. Opposition was particularly fierce as a legal reform would have disowned existing, small water cooperatives as part of the service concession to a private-sector company. In the case of Cochabamba, the government withdrew its concession in April 2000.

In February 2003, the conflict escalated in El Alto and La Paz. Demonstrators set fire to AISA offices. Unrest in October of the same year mainly revolved around the export of natural gas, but it was also accompanied by protests against AISA. In December 2004, FEJUVE gave the government an ultimatum, trying to force it to terminate the concession. Negotiations failed and in January 2005 the grassroots movement called a general strike. In view of the impending escalation, the Mesa government decided to terminate the contract with AISA.


Contracting deficiencies

A number of different causes have contributed to the dispute. The public tender process and adjudication were problem-ridden. The Ministerio de Capitalización, which was in charge of the privatisation efforts, had overall control, but it lacked specific expertise in water issues. The local governments of El Alto and La Paz were not involved in negotiations, nor was their public utility SAMAPA. The concession was thus awarded without participation by the key stakeholders. The population was also excluded from the discussion on whether and how privatisation could be achieved.

The lack of transparency was the main flaw in awarding the contract. It is still unclear why the governmental decree, which regulates the awarding of concessions (DS 24573 of 19.04.1997), was amended only shortly before the tender period expired (DS 24663 of 21.06.1997). It was only due to this amendment that the Ministry could award the contract to AISA as the sole bidder on 30 June 1997, instead of re-opening the process as had originally been required in such circumstances. It is hardly surprising that critics claim the process was rigged. However, it is little known in public that the consortium led by Lyonnaise des Eaux was not the only private-sector participant in the negotiations. Actually, International Waters, a British competitor, withdrew only on the very day tenders were to be filed.

The government’s behaviour after the adjudication increased doubt about its having proceeded according to correct legal terms. At the time, President Sánchez de Losada was in office. One day before the concession was granted, he passed a resolution (Res. 217099 of 23.07.1997), authorising the ministry in charge and SISAB, the regulatory body, to modify the concession contract. However, Bolivian law did not permit modifying the content of a contract after tenders had been submitted. Such irregularities had a long-lasting impact on the population’s acceptance of the concession.

A further source of conflict lies in the contract itself. It was largely determined by the pre-defined basic parameters, concerning the time-span, concession area and tariff structure. These had to be respected by interested companies submitting bids. These parameters included a tariff charging a single fee for both drinking water and sewage disposal, based on consumption. The tariff was tied to the US dollar, in order to spare private-sector providers exchange-rate risks.

Therefore, the negotiations focused on expansion targets. In its application, AISA committed to install 71,752 new household connections for drinking water in El Alto in the first five years of operations. Due to an editing mistake, this figure does not appear in the contract itself. However, it was confirmed as binding a little later in a supplementary ministerial order.

The investment sum that AISA was supposed to spend on the agreed targets was not spelled out in the contract. This was a deliberate decision by the Bolivian government because transacted investments are difficult to monitor and the level of expenditure in itself does not guarantee any orientation towards reducing poverty. Instead, the government chose the number of new connections in El Alto to be the central criterion for granting the concession. In view of the objective to expand the supply in poor districts, in El Alto in particular, this approach was plausible.

Another aspect, however, was problematic. The concession contract only required a section of the conurbation to be supplied. Whereas the concession area is identical to the city boundaries of La Paz and El Alto, the obligation to supply only applies in the “área servida” – the area in which SAMAPA had already been active (plus a few specifically named neighbourhoods). The fact that El Alto continues to grow, however, was deliberately ignored. Those to suffer most are migrants who, as the poorest of the poor, move to the outlying areas outside the supply area.

To some extent, the international finance institutions are to blame for the fact that the contract only partially served the interests of Bolivians. The privatisation of SAMAPA was a precondition for renegotiating Bolivia’s foreign debt in 1996. In view of this pressure, the Bolivian government urgently needed the participation of a foreign investor and, accordingly, agreed to terms that were very favourable from the investor’s perspective.


Regulation and
management failures

The regulatory body SISAB, which is responsible for monitoring the company, must also bear some of the responsibility for the conflict. AISA is now being accused of breaching the contract and of violating the applicable law. According to the accusations, the company has not installed enough water meters, is insisting illegally on dollar-indexing, and is only paying SAMPA a part of the agreed lease. It remains to be seen to what extent this criticism is justified. In early 2006, after the election victory by the left headed by Evo Morales, SISAB commissioned a company audit, which might clarify matters. Regardless of the type and extent of possible breaches of the law, however, there is hardly any doubt in anyone’s mind that SISAB did not fulfil its tasks.
This is not really surprising. This regulatory body was set up up while the concession contract was being concluded. Initially, it was more concerned with getting started as an institution than with monitoring the concession contract. On top of that, a large part of SISAB’s budget came from AISA’s concession fee, effectively compromising the agency’s independence. Furthermore, legal problems stood in the way of effectively enforcing regulations: the legal statutes of water provision were incomplete right from the start. For example, there are still no rules about how to the calculate tariffs or protect consumers.

Moreover, despite its formal independence, SISAB is subject to political influence. One of the worst decisions can probably be linked to such meddling. In late 2001, the fee for any new drinking-water connection was raised from $155 to $196 – and the one for a sewage connection from $180 to $249. In 1997, the government and AISA had agreed to adjust the current user tariffs only after five years. On the base on its own calculations, AISA demanded a revenue increase of 12.5% shortly before that time-span was over. The company suggested raising tariffs, but SISAB rejected this idea. Consequently, the costs for new household connections went up considerably. This decision turned the pro-poor element of the concession upside down. For marginalised people, new connections became prohibitively expensive once and for all. Today, the minimum wage only amounts to around $55.

Of course, AISA itself shares some of the responsibility for this ill-judged decision. While SISAB approved the higher connection charges, this pricing policy, which excessively burdens the poor, also casts an unfavourable light on the private-sector consortium. Many Bolivians bemoan the “sale of Bolivian interests to multinational companies”.

Making matters worse, AISA had not even set up 74% of the agreed new drinking-water connections to households by the end of 2001. Opinions differ as to whether this constitutes a breach of contract. SISAB and FEJUVE stress the contract was not fulfilled. AISA, on the other hand, argues that it did complete 52,764 new connections and had thus, percentage-wise, fulfilled the expansion rate as defined in the agreement. Moreover, the company refers to an agreement with SISAB of December 2001, according to which the numbers gap was to be closed in the second five-year period of operations.

In addition, AISA officials behaved unwisely, thus further fuelling tensions. Their comments in the media included that the residents of El Alto were the “worst consumers in the world” and that one had to “teach the population of El Alto to use more water”. Such public statements understandably triggered a negative response and had a lasting effect on people’s views.

To conclude the analysis of conflict sources, one also needs to consider the general political situation. The adequate system of water supply is not really the key issue in the debate on AISA. A “war of beliefs” over economic models is raging in Bolivia, the most recent expression of which is the nationalisation of natural gas reserves announced by Evo Morales in May. In this light, the AISA controversy does not necessarily follow rational lines. Supporters and opponents of private-sector participation are highly politicised and guided by their emotions. They stand opposed to each other, unwilling to compromise.


Status quo and outlook

More than a year has passed since the termination of AISA’s contract was announced. Yet it is still not clear how this measure will be carried out in detail. In the first three months of 2006, a comprehensive audit was conducted at AISA to determine whether the company had fulfilled its contractual obligations and what the transacted investments amounted to so far.

AISA’s realistic share value will soon be calculated on the basis of such information. One possible way of terminating the contract is for the Bolivian government to purchase the privately-held shares. Alternatively, an amicable dissolution of the contract may be considered. This approach would probably be the most attractive option from the French investor’s perspective. This multinational corporation can hardly afford any further negative headlines after its commitment in Buenos Aires failed disastrously.

It also remains unclear how water supply shall be guaranteed in future. Should it be legally set up as a government-run undertaking? Or should it remain a public-private partnership, albeit with the state as the dominating partner and shareholder? The mayors of El Alto and La Paz appear to favour a continuing public-private approach. In view of their tight budgets, they are in no position to fund indispensable investments. On the other hand, Abel Mamani, the water minister who previously led anti-AISA protests, stated at the fourth World Water Forum in Mexico this spring that the World Bank would support setting up a public water company. This echoes the words of Pablo Solón, adviser to President Morales, who, at the Inter-American Water Forum in La Paz at the end of 2003, recommended adopting a constitutional amendment, as was done in Uruguay: “The public service of sewage disposal and the public service of drinking water supply must be provided exclusively by state authorities.”

Whether such a step would actually serve the interests of the residents of La Paz and El Alto is a different matter, of course. Competent institutions and viable plans are necessary for managing the infrastructure needs of La Paz and El Alto competently – rather than noble constitutional principles and other declarations of intent. It remains to be seen whether the new government will implement pragmatic policies to secure better living conditions for its voters from the poor sections of society, or if it will mostly indulge in ideological campaigns.

Dr. Andrea Kramer
 is a member of the academic staff at the Law Faculty at the University of Giessen. Her book on decentralisation of water provision in Bolivia, Peru and Ecuador (“Dezentralisierung in der Wasserversorgung in Bolivien, Peru und Ekuador”) will soon be published by Nomos-Verlag, Baden-Baden.
andrea.kramer@recht.uni-giessen.de
http://www.uni-giessen.de/zeu/english/homepage-e.html




Publications by Andrea Kramer:
Explaining the Gap: The Effectiveness of Legal Norms Reconsidered. Why are laws so often incomplete and/or not properly implemented in the water and sanitation sector? A case study of Bolivia. In: The Journal of Water Law, Vol. 15, Issue 3/4 , 2004.

El marco legal sectorial en agua y saneamiento: un estudio
comparado en la región andina. In: AguaYaku N° 6, Publicación trimestrial edidata por el Comité Sectorial de Agua y Saneamiento de Ecuador, Quito, 2006.