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Print Story- water rates went up more than they did,
- rate hikes were primarily designed to generate profit for the concessionaire, and
- the concession was not designed to improve the city's water and wastewater system.
The Bolivian government turned to the private sector because Cochabamba's public water and wastewater system had been poorly managed for years. Its financial losses had led to mounting debts and declining service. Service was unavailable to 40 percent of the city's population. What water came out of the tap wasn't healthy — and typically wasn't available for much of the day.
Most of those without connections resorted to buying unhealthful water from the operators of tanker-trucks at exorbitant rates — several times higher than what they'd pay if they could hook up to the system.
Residents who had connections suffered an inequitable rate system. Low-volume, poorer users paid more per unit than high-volume, wealthier users. High-volume users had little incentive to conserve scarce water resources.
The Aguas del Tunari consortium, 27.5 percent owned by Bechtel, began operating the city's water and wastewater system November 1, 1999. The consortium did not buy and did not own Cochabamba's water utility or water resources.
To minimize the impact on the poor and improve efficiency, the consortium had convinced the government to adopt what a Bolivian water official and a British public policy scholar last year called a "socially progressive" rate structure so most of the increase fell to larger, wealthier users.
Aguas del Tunari only charged for water provided through the network it operated. It did not charge for water from private or cooperative wells. It did not lease or own the aquifer. The contract was for potable water supply and sewage within Cochabamba.
The government raised water rates in Cochabamba by an average of 35 percent, effective in January 2000. Half the rate increase was necessitated by such government requirements as paying down more than $30 million in debt accumulated by the public utility that had previously operated the system. Rate increases were also needed to finance proper maintenance and expansion of the water system. Even these higher rates were 20 percent lower than the South American average — including the Bolivian capital of La Paz.
Aguas del Tunari managed to increase the availability of water by 30 percent in its short time managing the system. For billings in the month of January (2000), increased water usage amplified for many customers the effect of higher rates.
In any case, the higher rates didn't last long. Responding to public criticism, the government rolled back rates in February. Customers who had paid the higher rates were refunded the difference.
Subsequent unrest in Cochabamba was sparked by multiple causes, including unrelated national groundwater legislation that left even citizens outside the service area believing incorrectly that their water resources might be expropriated. The unrest peaked in April 2000, two months after rates had been rolled back to pre-concession levels. That month, the Bolivian government rescinded its contract with Aguas del Tunari. For months afterward it was unwilling or unable to engage Aguas del Tunari in substantive discussions about resolving their contract dispute.
Aguas del Tunari ultimately requested that the International Centre for Settlement of Investment Disputes arbitrate its dispute with the Bolivian government. ICSID has since agreed to arbitrate, but Aguas del Tunari has not yet submitted the amount of its claim.
Aguas del Tunari has sought from the beginning to negotiate an amicable settlement with the Bolivian government and remains willing to do so.
Jeff Berger
Bechtel Corporation
San Francisco
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