Aguas del Aconquija

cancelled

In December 1994, the Tucuman Provincial Government commenced a competitive tender to supply water and sewerage services to the 1.2 million inhabitants of Tucuman Province. The Government awarded the concession on the basis of lowest tariff increase requested and stipulated investment requirements (approximately $300 million) in the bidding documents. Although 5 consortiums prequalified, the State Government received only one bid for the concession, from Compania de Aguas del Aconquija (CAA). CAA was given the concession rights only after it agreed to reduce its original requested tariff increase of 94.1% to 67.9%, while still meeting required investment targets. A 30-year concession contract was signed in July 1995. Initially the shareholders of CAA were General des Eaux of France (CGE, later renamed Vivendi, 30%), Dycasa of Spain (Dragados subsidiary, 22.5%), Argentine construction companies Benito Roggio (22.5%) and Supercemento (15%), and employees of the water system (10%). In June 1996 CGE/Vivendi acquired Dycasas's stake, then later the shares of the remaining constrution companies, giving it 90% of CAA. Company workers maintained a 10% stake. CAA’s offered to make $367 million in total investment in its bid ($100 million in the first 6 years of the concession). With CAA’s investment, the Government estimated that water coverage would increase from 70% to 100% by year 2002 and sewerage coverage would increase from 30% to 100% by year 2007. The contract also required the concessionaire to maintain employment of least 90% of the employees of the original state company. Problems began early in the concession term. In September 1995, CAA, under the water regulator’s (ERSCAT) supervision, raised tariffs by an average of 100%. Disputes arose about whether the 67.9% tariff increase CAA was authorized to impose was exclusive or inclusive of tax. In October 1995, a new state government, which had campaigned on a platform against the reforms of the previous government, took office and unilaterally passed a resolution to limit tariff increase to 35% plus taxes on the basis of its own legal review. The new government asserted that the 67.9% increase in tariffs allowed under the concession was inclusive of any taxes. CAA’s position was that the agreement allowed for provincial and municipal taxes to be passed on to consumers. In February 1996, further friction developed when manganese was found in the main water source turning some tap water brown. Public protest, which had began after the tariff increases, intensified after the manganese episode. There were a number of attempts to renegotiate the contract. In return for lower investment obligations, CAA offered to cut rates further, forego allowed annual tariff increases, and have its concession area reduced to only two large cities in the Province. The Provincial Congress rejected a compromise reached between CAA and the Provincial Governor in August 1996, however. A second round of negotiations failed in August 1997. By mid-1997, collection rates were down to 21%. CAA claimed that within the first two years of winning the bid it managed to significantly improve the water system. According to the company, equipment was renovated, new intakes constructed, and wastewater treatment plant refurbished. The concessionaire also claimed a 15% increase in production capacity for drinking water, improvement in water pressure and flow, and over a 90% reduction in consumer complaints. However, the general public was visibly upset by the large tariff increases and water quality issues. In August 1997 CAA confirmed that it had written to the Tucuman Provincial Governor “asking for the concession contract for water and wastewater services signed between CAA and Tucuman to be cancelled.” In this same statement, Generale des Eaux claimed that “CAA has never been able to carry out the initial contract under normal conditions.” In September 1997, the government contested CAA’s claims, but still terminated the concession contract alleging performance deficiency by CAA under the terms. The Government demanded that CAA operate the concession for an additional 18 months while the government found a new operator. CAA challenged this decision in the local court, but lost and fulfilled the obligation. Approximately 1 year after cancellation, the Federal Government’s Sector Financing Agency (ENOHSA) assumed the operations of the company. In November 2000, two years after CAA left, Tucuman Government requested the World Bank for technical support to re-bid the water and sanitation services, which by then have deteriorated further after years of disinvestments. ENOHSA was threatening to stop operating the provincial water company. In late 2001, the Provincial Government created a privatization commission again to review future possibilities, but the Argentine Economic Crisis put the process on hold. In November 2001 ICSID rendered a verdict that CAA should resort to local courts to pursue compensation from the Provincial Government for contract cancellation. CAA appealed the decision in March 2001 and ICSID was reviewing the case for a second time. The final verdict was still pending in September 2005. http://www.worldbank.org/icsid/cases/awards.htm#award15 None