Showdown Looms Over Aguas de Illimani

Business News Americas, which I always find a good source of economic reporting, has a new article out noting that the end of this month brings two key deadlines in the fight in El Alto/La Paz to take back control of the local water company. The Bolivian government is set to announce plans about how it wants to organize a new public water company and the lead corporate owner of the current company, Suez of France, is legally obligated to renew $15 million in bonds by the end of July if it wants to keep operating the concession.

To refresh readers memories, a public uprising in El Alto in December and January led to a decree by then-President Carlos Mesa to cancel the private contract with the company owned by Suez, the World Bank and others. Among other complaints that led to the rebellion, the private company had boosted the cost of a water and sewage hook-up to $450, an astronomical amount in a country where the minimum wage is $60 per month. Tens of thousands of other water users were red-lined out of service altogether. Here's our original reporting.

It still seems a done deal at this point that Suez and its co-investors will have to leave and that the water system will be returned to public hands, as it was in Cochabamba five years ago. However, there are some huge issues looming about exactly how the corporate owners go out the door.

1) How much does Bolivia owe Suez and other investors?

I spoke not long ago with the leaders of Fejuves, the neighborhood organization in El Alto that led the anti-privatization effort. The community groups agreed that Bolivia would need to compensate the company for genuine investments but a big fight is brewing over how to calculate that investment. That begins with how to audit the company's books.

Suez says that the Bolivian government already approved an audit of the corporation's books from 1997-2001, says that any further look at those years should be off the table, and wants a "paper-only" audit of the four years since. However, 1997-2001 is when Suez and the others supposedly made the bulk of their investment. Community leaders are demanding a full audit of all the years that the corporation has run the water system and want that audit to look not only at the paper trail but to actually go out in the community and count hookups and other infrastructure. The bottom line is that community groups want to be sure that Suez actually did invest what it says it did.

2) Who owns investments financed with foreign aid?

Aguas de Illimani, like many Bolivian water companies, public and private, has received loans and aid for water development. If a foreign government gave the company aid to expand water service to the poor, can Suez really count that as an investment for which it ought to be compensated?

3) Compensation paid with stock in the new public company?

The cost for Bolivia to essentially buy back Aguas del Illimani is still to be determined, but it will certainly be in the millions of dollars. Bolivia has two basic choices of how to finance that. One is to have the public water company borrow those funds and carry it as debt. Carrying debt means pressure for higher water prices and less funds for water development. The other main option on the table is to compensate the company with stock in the new public company. How much stock that would be and how much control would go with it is also undetermined.

Fejuve leaders and others who are working with them have done a good job of getting their hands dirty in the economic details. No one said that taking back the community's water company would be simple.