How Far Does it Go? The Buenos Aires Water Concession a Decade after the Reform

Sanitation services in Argentina had traditionally been provided by a state-owned utility until 1982, when the national government transferred the responsibility of service provision to local governments. The city of Buenos Aires and a few adjacent districts were excluded from this move, retained under the control of Obras Sanitarias de la Nación (OSN). The performance of the decentralized sanitation system revealed reduced rates of network expansion, little innovation, poor-quality service and operating deficits of the utilities. General dissatisfaction with the system’s performance and ever-increasing pressures to enhance service provision and to ease the burden of financing underperforming assets led the way to private sector participation in the industry, a policy that was probably also influenced by the massive privatizations adopted by the Menem administration since 1989. As a result, by the end of the 1990s private operators were serving two-thirds of the population covered by the sanitation network.

The Buenos Aires concession is the largest and best-documented episode of privatization in the sanitation sector in Argentina. In May 1993, OSN’s responsibility for the water and sewerage services of Buenos Aires was handed over to the Aguas Argentinas consortium under a 30-year concession contract with the main objectives of reducing the government’s funding, and expanding coverage according to a plan of specific targets aimed at achieving both quality of service standards and universal service by the end of the concession period. The franchise was awarded to the consortium offering the largest reduction over prevailing OSN tariffs. Since privatization, the government’s regulatory role has been in the hands of the Ente Tripartito de Obras y Servicios Sanitarios, a regulatory agency responsible for monitoring the concessionaire and enforcing the contract and regulations.

The decade that has elapsed since the privatization offers a substantial body of evidence on the performance of Aguas Argentinas. Opposing views about private management have emerged following the reform. Some observers argue that the Buenos Aires concession brought about large benefits to consumers’ welfare, while others emphasize that privatization goals have not been fully achieved because of the firm’s opportunistic behaviour and the regulator’s limited ability to protect the interest of consumers.

This paper examines the evolution of the Buenos Aires sanitation system during the post-privatization period. Its purpose is to evaluate the private management experience and assess the empirical validity of the main concerns voiced in its favour and against it. The analysis therefore concentrates on the evolution of system performance as it relates to the privatization objectives of expanding coverage, reducing consumers’ tariffs and increasing service standards. The paper is organized into eight sections. Section 2 examines the completion of the contract’s targets as they relate to service coverage and investment outlays. Section 3 describes the taxonomy of unexpected tariff reforms. Section 4 reviews the financial performance of the licensee, while section 5 uses a simple model of index numbers to provide a comprehensive assessment of the concessions’ economic performance. Section 6 considers the role of the regulator, section 7 comments on actual pro-poor policies and explores alternatives leading to the achievement of universal service, and section 8 is the conclusion.