Aguas Argentinas

Cancelled

In 1993, the Argentinean government awarded a 30 year build, rehabilitate, operate and transfer concession to Aguas Argentinas (AA) for the Buenos Aires water and sewerage facilities. According to the contract AA was to supply water to some 7.7 million people and collect sewage from 6 million residents living in Buenos Aires and 17 neighboring districts (the number of districts has increased since 1993). Prior to 1993 the Buenos Aires water infrastructure was managed by of Obras Sanitarias de la Nacion (OSN). AA was to keep OSN’s employees. The concession was awarded after a competitive bidding process, following a procedure that was subsequently copied by other Argentinean regions. Aguas Argentinas (AA) was a consortium comprised of Suez Lyonnaise des Eaux (known as SUEZ as of 2001) (34.73%), Aguas de Barcelona (Agbar)(25.01%), Programa de Propiedad Participada PPP (10%), Banco de Galicia y Buenos Aires (8.26%), Vivendi (known as Veolia Environnement as of May 2003)(7.55%), Aguas Inversora (5.2%), the International Finance Corporation (5%) and Anglian Water (4.25%). OSN held a 10% stake in AA through the Programa de Propiedad Participada (PPP). The contract was awarded through a competitive tender in December 2002 to the qualified consortium which requested the minimum tariffs. To win the concession awarded in a December tender, Aguas Argentinas pledged it would cut local water tariffs by 26.9 pct. A consortium led by Thames Water volunteered a 26.1 pct reduction and another group headed by Northwest Water offered an 11.5 pct cut. The Buenos Aires water and sewerage assets remained the property of the government. AA's contract required the company to invest $4 billion in construction and rehabilitation works over the lifetime of the concession. Some 30% of this investment (or $1.2 billion) had to be made during the first five years. The contract specified a number of technical parameters that also had to be met: an increase in water supply coverage from 70% in 1993 to 100% in 2023, an increase in sewerage coverage from 58% to 90%, an increase in treated wastewater from 4% to 93%, and a reduction in unaccounted for water from 45% to 25%. By 1997 AA had invested $1 billion. In 1993 AA posted a $150 million performance bond with the Argentinean government. Lyonnaise received an annual management fee of 6% of AA's profits. In early 2001 negotiations on a new investment plan for Aguas Argentinas were concluded. The plan, approved by the Argentinean Government, stipulated that Aguas Argentinas would invest $1.1 billion over the next five years. These investments would allow incorporating up to 500,000 users to the drinking water and sewerage systems. To finance the investments tariffs were scheduled to increase by 3.9% annually between 2001-2003 plus and additional 1% for wholesale price index adjustments in USA. Aguas Argentinas developed a $100 million securitization. The issuance was backed by a political risk insurance policy from OPIC. Aguas Argentinas was hit hard by the financial crisis of 2002, when the national currency was devaluated and water prices were frozen by government decree. In 2003 Aguas Argentinas, Suez, Vivendi and Aguas de Barcelona filed a claim against the Argentinean government with an international arbitration tribunal (International Centre for Settlement of Investment Disputes - ICSID). The plaintiffs demanded US$ 1 billion as compensation for losses in its investments in Argentina due to frozen rates and devaluation of the currency. In 2004 the consortium also entered court hearings before Argentina's Supreme Court after the consortium was ordered to construct a waste water treatment plant ahead of the date stipulated in their contract. The consortium and the government eventually signed a transitional accord in 2004 whereby AA would undertake additional investments (network expansion and other works) in 2004 and 2005. In late March 2006 the Argentine central government cancelled the concession contract it had signed with Aguas Argentinas citing failure to meet contractual obligations and to improve the quality of the water it supplied. A new group called Agua y Saneamiento Ambiental, or Aysa, 90% owned by the state and 10% by workers, was to take over the contract. The contract was canceled by the government on March 21 2006. EIB figures obtained from http://www.eib.org/projects/loans/project.asp?loan=1481691 with EUR 70 million (with 1.27568 exchange rate becomes 89.297 million) In 2004, the companies signed a transitory agreement with the Argentinean government. Based upon the agreement, negotiations for a new concession started and the legal proceedings before the international arbitration tribunal were suspended. For further updates on the claim under international arbitration, check http://www.worldbank.org/icsid (case n. ARB/03/19). Suez stake from 2005 annual report, see filing database. None