Building bridges over troubled waters

Buenos Aires, Argentina
Argentina privatised the water and sewerage services in the Buenos Aires metropolitan area in 1993. Poor maintenance of the system by the public enterprise had lead to significant water losses around 40 per cent. The public sector company used to produce 3.7 million cubic meters of water a day that served about 6 million inhabitants (about 70 per cent of the area’s population). Coverage of sewerage was even lower 58 per cent. The government went in for a concession agreement rather than a sell-off, thus keeping the fixed assets under public ownership. Selling the assets would have required overcoming legislative hurdles and the government feared that assessing the value of the underground pipeswould be costly and time-consuming. The government also decided to break up the utility a single private firm would operate the services for 30 years.

This way, the Argentinean government reduced the cost to the government of operating the services while minimising the price of service delivery. The bidding process was used to pick the player who would provide the services at the lowest cost. No cash payment was required. But the winning bidder, or the concessionaire, assumed responsibility for operating and maintaining the fixed assets and developing sewage treatment. Pricing is governed by general tariff principles set out in the contract, maintaining the cross subsidies that existed under public provision. Overall, the impact has been positive. Water losses have been reduced by about 25 per cent. The operations and maintenance has been revamped and the backlog of repairs has been reduced. In fact, prices fell by 27 per cent initially and even after a rise in 1998, the prices are still 17 per cent lowerthan those charged earlier. However, negotiations with trade unions have been tense though indicators of labour productivity show dramatic improvements. Staff was reduced 48 per cent, but indirect labour costs remain high. The government has been playing the role of a regulator with the creation of an independent regulatory agency.

Sydney, Australia
The Sydney Water Board was corporatised in 1995. The water supply system, designed in the 19th century and restructured in the mid-20th century, drew on raw water that was good quality by world standards until 1989, when the treatment went a little further than screening, disinfection and fluoridation. Water quality standards were becoming more stringent and Sydney’s raw water was coming under stress.

After establishing that consumers were willing to pay for quality, the board decided to contract for a privately built, owned, and operated (BOO) system for water treatment. In 1993, the board contracted with two consortia for two water treatmentplants. The third contract for two more plants went to another consortium in 1994. Today these plants treat all the drinking water consumed in Sydney except for small quantities treated in several small facilities owned and operated by Sydney Water. The tariff structure for all plants are understood to have remained almost unchanged. Risks relating to quality and quantity performance lie with the water treatment company as long as they do not involve plant expansion.

Conarky, Guinea
Until the late 1980s, Guinea had one of the least developed urban water supply sectors in West Africa. Less than 40 per cent of urban dwellers had access to piped water through either connections or standpipes. Where connections existed, service was often interrupted and water treatment was inadequate. To improve this situation, the government of Guinea in 1989 entered into a lease arrangement for private sector operation of water services in the capital city Conarky and 16 other cities and towns.

Two organisationsare central to this lease arrangement a state-owned national water authority Societe Nationale des Eaux de Guinee (or SONEG) and a water management company Societe d’Exploitation des Eaux de Guinee (or SEEG). SONEG owns the water supply facilities, decides tariff and is responsible for sector development, planning and implementing new investments and for servicing sector debt. SEEG is jointly owned by the state (49 per cent) and a foreign private consortium (51 per cent). SEEG holds a 10-year lease contract with SONEG under which it is responsible for operating and maintaining urban water supply facilities and billing customers. By 1996, water connections increased almost two-folds (refer graph) while metering increased from 5 per cent to 98 per cent for private customers. And with progressive tariff increases, the average tariff (US $ 0.83 per cubic meter in 1997) now more than covers cost. SEEG’s water revenues (excluding the subsidy) rose 10-fold between 1989 and 1996.

However, the Guinea system ismarred with problems. For instance, in Conakry, the water supply system has not improved and expanded as expected and unaccounted-for water remains high at 47 per cent. More importantly, the relationship between SEEG and SONEG has not been smooth.