Cochabamba Water and Sewer System

Cancelled

In October 1999, the municipality of Cochabamba, Bolivia, awarded a 40-year exclusive concession to supply potable water and sewer services for the city to international consortium Aguas del Tunari. The consortium took over the assets of former municipal water operator Semapa. In 1999 local authorities were unhappy with the performance of Semapa, which had only achieved a coverage rate of 60% of the 600,000 Cochabamba inhabitants for water services and 50% for the sewerage system. Network losses were high and water shortages were common, as only 23% of consumers had a 24-hour supply. The concession with Aguas del Tunari was intended to address these shortcomings. The terms of the 40 year concession were directly negotiated between Aguas del Tunari and the Cochabamba municipality. The direct negotiations came after an open international tender that failed when the sole bidder was Aguas del Tunari. The 1999 contract granted Aguas del Tunari exclusive property rights over all water sources in the Cochabamba Valley, including the ground water from all area wells, previously used for free by locals. Water tariffs were set by a formula that was intended to provide Aguas del Tunari a return on investment of 15%. Aguas del Tunari committed to invest $320 million over the concession’s lifetime to improve the local water and sewage infrastructure. Some $180 million were to be invested in the first 5 years of the contract, so that 93% of the city’s population would be connected to the water and sewerage systems by 2004. Aguas del Tunari also committed to build a 40 MW hydro power plant on the Misicuni river. The Aguas del Tunari consortium was 50% owned by International Water (a joint venture of Bechtel and Edison SpA of Italy). Abengoa of Spain held a 25% stake in Aguas del Tunari and four Bolivian investors held the last 25%: Sociedad Boliviana de Cementos, ICE Ingenieros, Compania Boliviana de Ingenieria and Constructora Petricevich S.A. In January 2000 Aguas del Tunari started operating the Cochabamba water systems. The consortium immediately announced an average tariff increase of 35%, in line with the terms of the contract, and as approved by the municipal Regulator. Water was also no longer free for irrigation, as Aguas del Tunari started to charge farmers that owned wells for the use of groundwater. This generated widespread objection among farmers. Some sources indicated that for many consumers water bills doubled and in some cases went up by as much as 200-300%. The rate increases, coupled with broader discontent in Bolivia over a nationwide crackdown on illegal coca production, police salary protests, and opposition to a controversial new water law unrelated to this project, sparked mass-protests, road blockades and a general strike in the city of Cochabamba in early 2000. In April 2000, during the widespread civil unrest, the managers of Aguas del Tunari left Cochabamba and President Banzar of Bolivia cancelled the concession contract on the basis that they had abandoned the project. In November 2001, Aguas del Tunari applied for arbitration at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), seeking $25 million in damages from the Bolivian Government for their termination of the contract. ICSID action was brought under the Bilateral Investment Treaty between Bolivia and the Netherlands, where International Water was re-registered shortly after the Cochabamba contract was signed. After the cancellation, Semapa once again took over management of the water utility, together with representatives of the Coordinadora del Aqua, the NGO established by the leaders of the protest, appointed to its Board. None None