Mendoza Water and Sewerage

cancelled

In June 1998 the provincial government of Mendoza, Argentina, granted a 95 year concession contract to Obras Sanitarias Mendoza SA (OSM). OSM provided over one million with potable water and collected wastewater from more than 780,000 people in the province of Mendoza, Western Argentina. The concession contract demanded certain coverage and quality goals be met, but set no binding investment figures for the concessionaire. In 1998 OSM estimated required investments at $300 million for the first 25 years of the contract. OSM was the former state owned water and sewage operator for the province of Mendoza. In June 1998 an international consortium of Azurix (the water arm of the Enron Group), France's Saur International, Italgas S.p.A. and Inversora de Mendoza won a competitive tender for a 70% stake in OSM. The provincial government of Mendoza retained a 20% stake and the final 10% in SOM were held by company employees. Saur and Azurix were the largest SOM shareholders, each holding 32% stakes. OSM was to be operated by Saur. The Saur/Azurix consortium offered $132.8 million for the 70% stake. This was more than double the second highest bid of $65.5 million made by the Alfa group, led by Aguas de Barcelona and Suez Lyonnaise des Eaux. A third bidder, known as Enersis, (Aguas de los Andes and Britain's Severn Trent Water) offered $53.9 million. The contract ran into trouble as Enron experienced severe financial difficulties at home and Argentina’s macroeconomic situation became unstable. In 2002 the Argentinean currency devaluated to about one third of its previous value. The local government refused to allow tariff increases to compensate for the Peso devaluation, making it difficult for OSM to meet its contractual commitments. In 2003, Azurix and Saur filed a claim against the Argentinean government with the International Centre for Settlement of Investment Disputes (ICSID). The companies demanded compensation for the losses caused by the Peso devaluation and the refusal of the government to allow peso-denominated tariffs to increase. In January 2004, South Waters Argentina (Sielecki Group) bought the 32 percent share owned by Azurix for a reported $1.5 million. Saur still held 32% in OSM at the end of 2005 and was trying to renegotiate the terms of the concession with the provincial government. In November 2009, the government of Mendoza through the provincial regulator Ente Provincial de Agua y Saneamiento (EPAS)declared a water emergency and stated that the situation was aggravated by over 10 years of underinvestment by the concessionaire. Decree 2924 ordered Obras Sanitarias Mendoza SA (OSM)to terminate its service and ordered water earmarked for irrigation to be used for human consumption. For updates on the international arbitration proceedings check : http://www.worldbank.org/icsid (case n. ARB/03/30).