In 1993, the Argentine government privatized the Buenos Aires water utility, consummating the largest such deal ever proposed. The public utility, Obres Sanitarias de la Nacion (OSN), had suffered from years of budget cuts pushed by IMF & World Bank structural adjustment programs. OSN supplied drinking water and sewage service comprehensively to Buenos Aires’ three million inhabitants. However, the Latin American trend of urban migrations had, by 1993, saddled the city with nine million more people living in teeming extra-municipal suburbs and slums. By the late 1980’s, it was clear that OSN would need a huge infusion of capital to extend its services en masse to the arrivés. In response, the World Bank offered up hundreds of millions of dollars, with one recalcitrant condition – that water be privatized.

Argentina, strongly lobbied by the French government, granted the contract to a consortium called Aguas Argentinas lead by two French corporate giants, Compagnie Générale des Eaux (then Vivendi, now Veolia) and Lyonnaise des Eaux (now Suez), who won based on their offer of the largest rate reduction, 26.9 percent. Before the government could concede its water to private management, however, they had to overcome the loudest and most problematic sector of the opposition, organized labor. Though labor leaders were initially fervently bent on fighting privatization “to the last drop of blood,” the government and World Bank affiliates circumvented this “obstacle” with institutionalized and sanctioned bribery, through the Programa de Propriedad Participada (PPP).  The PPP targeted union leaders and offered them a 10 percent stake in the new company, and union opposition dried up; half of OSN’s 7200 workers lost their jobs. After paying for the support of union officials, the company quickly fulfilled its contractual obligation by dropping tariffs by 26.9 percent. However, in the two years previous to privatization, the government had artificially raised rates 62 percent in addition to adding an 18 percent sales tax to water bills. In essence, the public had been duped. Aguas Argentinas exercised the obligatory tariff cut which had supposedly won them the contract, by simply rolling back part of a rate cushion with which the government had set them up.

Before privatization, non-payment of tariffs had been somewhat of a problem. Aguas Argentinas effectively dealt with this problem by cutting off poor Argentines after three un-paid bills. Consequently, the company “persuaded” 90 percent of its customers to pay.

Within a year of assuming control of water in Buenos Aires, Aguas Argentinas petitioned the newly established government regulatory authority, ETOSS, for a rate increase, even though the company had previously agreed that there would be no real rate increases for 10 years. ETOSS, whose operations are financed through the collection of 2.6 percent of Aguas Argentinas’ billing, agreed, increasing rates 13.5 percent in exchange for expediting contractual investments in slum communities. Despite the now evident dishonesty with which Aguas Argentinas had won the Buenos Aires contract, the World Bank stepped in to publicly defend the company (“It’s a game to get into the business…And [the water companies] have leverage once they get it.”), issued loans worth 911 million dollars, and even purchased a five percent share of the company – making the World Bank a lender in, partner in, and public relations arm of their “model privatization project,” Aguas Argentinas.

As then-Argentine president Carlos Menem made a celebratory tour through France – meeting with President Jacques Chirac, accepting honorary degrees, and personally holding forth with Suez executives – protest movements were sprouting and gaining strength. Thousands blocked roads leading into the capital in protest of 800 dollar fees charged by Aguas Argentinas to connect to the water and sewage systems. Meanwhile, a congressional commission issued a report indicting the company for “serious and grave” breeches of contract, failing to meet goals regarding infrastructure development, and failing to inform its regulatory body, ETOSS, of its operations. To disrupt the protest movement, Aguas Argentinas lowered the 800 dollar connection fee to 200 dollars, but subsidized that decrease with the creation of a new fee, entitled “Universal Service,” to be paid by all. The company succeeded in imposing fees not elaborated in its contract.

President Menem, in an effort to further protect Aguas Argentinas from public accountability, undercut the regulatory body, ETOSS, by signing a decree which placed it under the control of political ally and Secretary of the Environment Maria Julia Alsogaray. Alsogary made 13 trips to Paris after that and was later indicted on charges of corruption. The disempowered head of ETOSS came before Congress and warned of what was in the works. Aguas Argentinas had only built a third of new pumping stations and underground mains it had promised to complete by 1997. It had only invested 9.4 million of a promised 48.9 million in sewage networks. It was delaying – due to the need for “further investigation” – the construction of the Berazategui wastewater treatment plant. Consequently, sewage was being dumped into rivers and cesspools, raising nitrate levels in the water (which reduce flow of oxygen to the brain in infants) and risk from various waterborne illnesses. The World Bank commented this on the delay of the project: that it was saving Aguas Argentinas a heady 100,000 dollars a day (35 million dollars a year in profits) by not building the plant.

In 1997, after Aguas Argentinas had creatively quelled popular dissent against its operations, it began pushing hard to revise the 30-year contract agreed upon four years earlier. To assist, the World Bank sent one of its senior water managers to join the staff of Aguas Argentinas, of which of course it owned a five percent stake and into which it had invested hundreds of millions. The manager continued to be paid by the World Bank and stayed with the Argentine company until a new contract was signed in 2000, after which he returned to lead a World Bank team, which gave to Argentina another loan worth 30 million dollars. The World Bank and the rest of the international lending community were obviously extremely committed to the success of the Argentina water privatization project. However, it became even more obvious that the World Bank had a different idea of success than the people of the country it was trying to help.

The following years saw several petitions for rate increases by Aguas Argentinas and company profits in the hundreds of millions. Then, in 2001, the Argentine economy collapsed famously. Facing spiraling debts due to inflation, the private water company Aguas Argentinas leveraged its control over a human need and threatened to suspend certain water services and all needed infrastructure development. The company demanded a fixed peso-dollar exchange rate for the repayment of its external debt and/or another rate increase of 42 percent. When the government-in-crisis refused these demands, Aguas Argentinas threatened to take the Argentine government to the International Center for the Settlement of Investment Disputes (ICSID), which is part of the World Bank, which of course owned five percent of the company. Argentina tried to forbid Aquas Argentinas from lodging the complaint, but France acted to allow it.

Subsequent attempts to re-neogotiate the Aguas Argentinas contract were shaped by the constant threat of the ICSID case. Finally, in 2006, after years of negotiation President Kirchner decided to terminate the contract and return the company to state control. According to a recently released report by the regulatory agency ETOSS, Aguas Argentinas had a 10 percent compliance record.  In other words, the company was not in compliance with 90 percent of its contractual obligations.  Suez has stated it will continue to press its case in the World Bank’s ICSID.