Aguas Kpital de Cucuta

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In April 2006, Empresa Industrial Servicios (EIS) de Cucuta granted a 15-year concession contract to the Cuban-based company Aguas Kpital to provide water and sewer services in the city of Cucuta, capital of Santander province in northeastern region. EIS was the water utility of Cucuta, which had 130,000 users of potable water services and 126,000 users of sewage services in 2005. The EIS’s total revenues amounted to US$14 million (Colombian peso 33,000 million) in 2005. The contract was granted through a competitive tender in which two bidding consortia submitted offers: Proactiva and Aguas Kpital. The bidding criterion was the lowest fixed charge tariff. Aguas Kpital won the tender by requesting an average tariff of US$12.83 (30,000 Colombian pesos) for 19 cubic meters per month. The contract was signed in May 2006 and Aguas Kpital started to operate Cucuta’s water services in June 2006. The concession contract included investment obligations for US$254 million (Colombian peso 600,000 million) of which US$17 million was planned to be investment by the second year of the contract and US$42 million in the fifth year of the contract. Of the US$254 million investment commitment, the municipal government agreed to finance US$71.7 million (Colombian peso 169,329 million). Those resources were to come from central government’s transfers established in the law 715. The investment program, whose goal was to expand service coverage and ensure service continuity, was defined by the master plan of EIS. The contract also included tariff adjustments throughout the contract period. Aguas Kpital created Aguas Kpital Cucuta as the project company to operate the water services in Cucuta. Under the concession contract, Aguas Kpital was required to offer 25% of Aguas Kpital Cucuta to Cucuta’s citizens and former workers of EIS after two months of operating the water services. Under the concession contract, Aguas Kpital also committed to pay to EIS a monthly fee between US$360,000 and US$423,000 through the concession period for the use of EIS’s facilities. Such monthly fee was set to allow EIS to cover its pension liabilities. For the investment in government assets, the net present value of such monthly fee was calculated using the US risk free rate as discount rate. In total, monthly fees added to US$51 million over 15 year of contract length. Granting the concession contract was part of the government effort to rescue EIS from insolvency. The utility billed only 60% of the distributed water in 2005. In addition, EIS owed the central government US$41.5 million (Colombian peso 98,000 million). As part of the reform process of EIS, the utility was converted into a company in which the local government owned 51% of the shares and the central government the remaining 49%. The central government shares in EIS were given in exchange for EIS's debt. Investment in Government Assets was calculated using the fed funds rate as a discount rate on monthly cash flows of $391,783 over a period of 15 years. All investment figures including the cash flows were converted based on the International Monetary Fund's average exchange rate of 1 USD to 2361 Colombian pesos for 2006

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