Cochabamba - water war

Author(s): Emanuele Lobina

Water war in Cochabamba, Bolivia

(Note: for more details and doc**ents see http://www.americas.org )

By Emanuele Lobina

In Bolivia, the government is peeling off public enterprises one by one. The airline: sold. The train service: sold. The electricity utility: sold. When the turn came to getting rid of the water and sanitation system in the third largest city, Cochabamba, to a transnational consortium, people had had enough. Price hikes of 200 per cent or more, combined with new legislation which eroded local control over water resources, ignited a water war which left at least one young man dead. The uprising, spread over several months, finally forced the government to tear up the contract.

In April, water privatisation came to an end in Cochabamba, Bolivia’s third-largest city. Following the privatisation in 1999, massive price hikes caused social unrest, which then spread throughout the wh*** country. This was a much faster process than that of the city of Grenoble where the fight over privatised water took close to eleven years (see separate article). The riots ended in April this year, leaving one person dead, two blinded and several injured, only after the Bolivian government revoked the concession to the foreign-owned consortium Aguas del Tunari. It was a high price to pay for the people of Cochabamba.

What happened in Cochabamba is, however, not just a Bolivian story. When water is privatised, concessionaires often impose excess price increases to achieve profit targets, particularly when there is a lack of transparency. This calls into question the current conventional wisdom of water privatisation being the ‘way forward’, as promoted by the international financial institutions.

Plus 200 per cent

Last September, the Bolivian government, pushed by the World Bank, awarded a 40-year concession for the water and sanitation system of Cochabamba (and a related project called the Misicuni Project - see box), to Aguas del Tunari.

Aguas del Tunari is a consortium led by International Water Limited. IWL is jointly owned by the US construction company Bechtel and the Italian energy company Edison. The consortium also includes Spanish and Bolivian partners. The Misicuni Project involves the construction of a dam, construction and operation of a hydroelectric power station and digging of a tunnel to bring water from the river Misicuni to Cochabamba through a mountain.

Aguas del Tunari increased water tariffs sharply already in December 1999, provoking popular protests. While the consortium maintained that average price rises were limited to 35 per cent, government sources revealed that increases had gone as far as 200 per cent and more.

The tariffs hit the people of Cochabamba where the minimum wage is less than US$100 per month. The average water bill is estimated to equal 22 per cent of the monthly pay of a self-employed man and 27 per cent of that of a woman.

One citizen, Tanya Paredes, a clothes knitter and a mother of five, received a monthly increase of US$15 to her water bill, equivalent to what she spends to feed her family for a week and a half.

The first clashes

Led by La Coordinadora de Defensa del Agua y la Vida (The Co-ordinator for the Defence of Water and Life), an alliance including the trade union representing minimum-wage factory workers, peasant farmers, environmentalists and youth, protests broke out in January. After protesters shut the city down for four days, the government promised it would reverse the rate increases.

As the situation remained unchanged, La Coordinadora called for a peaceful march to take place in February. The demonstrators were confronted with tear gas and more than 1,000 police and soldiers. The toll of the clashes was two young people blinded and 175 injured.

Following the upheaval, the government and Aguas del Tunari pledged to reduce and freeze the tariffs until November this year when they would start a new round of negotiations. As the population identified the foreign-owned consortium as the cause of the hikes, La Coordinadora called for the cancellation of the concession and the return of the water system to the public sector.

Escalating war

Exasperated by the government’s failure to fulfil these requests, even more violent clashes exploded in April as peasants protesting against a law threatening popular control of rural water systems joined the angry Cochabambinos.

In a clampdown to regain control of the situation, protest leaders were arrested and confined while President Hugo Banzer declared a state of siege in the wh*** country, restricting civil liberties. This time, the tear gas came together with not just rubber bullets but live ammunition. On 8 April, a 17 year-old boy, Victor Hugo Daza Argadoña, was shot in the head. Bolivian television showed an army captain firing into the crowd of protesters from behind police lines.

Only then did the government agree to revoke the concession to Aguas del Tunari, free the civic leaders arrested, reform the national water law which would affect farmers and compensate the families of the victims. Subsequently, the protests eased in Cochabamba and the rest of Bolivia.

Denial

During the protests, the Bolivian government and the owners of Aguas del Tunari tried to dismiss the real causes of the events in Cochabamba. While the government accused drug traffickers of inspiring and financing the acts of subversion, foreign investors denied responsibility, suggesting that the causes of the protests were not related to the water rates.

On the other hand, individuals, unions and NGOs from around the world expressed solidarity with the people of Cochabamba. PSI issued a press statement highly critical of Aguas del Tunari, its major shareholders and the World Bank. Both this and a letter from the European Federation of Public Service Unions to the water workers’ union were read by the La Coordinadora leader Oscar Olivera to a public rally in Cochabamba at the end of April.

The truth

But what caused the rate increases which ignited the water war in Cochabamba? The answer is: the cost of the Misicuni Project, which water users in Cochabamba were requested to cover in advance. As Gregory Palast put it in a column in The Observer on 23 April, water from the Misicuni system would cost “roughly six times that of alternative sources”.

Moreover, the deal concluded by the Bolivian government was characterised by lack of transparency and excessive generosity towards the consortium.

The tendering process was scarcely competitive - Aguas del Tunari was the only bidder - and its tender was accepted despite serious omissions and irregularities.

Not only did the Cochabambinos have to pay in advance to cover the cost of a massive and probably unnecessary engineering project, they also had to guarantee abundant profits to operators reluctant to run any real risk. In fact, the concession agreement provided for a guaranteed 15 per cent real return. All the burden was on the people of Cochabamba.

As suggested by Bolivian Times, the generosity was most likely due to political connections. The local partner in Aguas del Tunari, ICE Ingenieros, is owned by one of the most affluent and influential men in Bolivia. His company is also a partner in the Misicuni tunnel consortium, with the Italian firm Astaldi.

Compensation?

Now that management of the water and sewerage systems have reverted to the municipality, the challenge is to re-organise them. Lessons must be drawn from recent events and also from the experience with privatised water concessions worldwide.

Aguas del Tunari will claim compensation for the ending of the concession. This echoes the problems of terminating privatised water contracts elsewhere. In Tuc**an, Argentina, for example, where people refused to pay their bills after a Vivendi subsidiary doubled the tariffs and the water ‘turned brown’, the concession was terminated. The multinational is demanding US$100m in compensation in an ICSID (International Center for the Settlement of Investment Disputes) arbitration court. ICSID is a member of the World Bank Group.

Local control

There are serious doubts that replacing Aguas del Tunari with another private concessionaire would represent a solution to the challenges of providing water services to Cochabambinos.

A substantial body of evidence is emerging on water privatisation leading to excess prices and profits, often following less than transparent, gold-plated deals in favour of international investors and on the controversial role of multilateral agencies.

Whatever organisational form will be chosen in Cochabamba, they should include the following principles:

Social priorities must be guaranteed through a democratic, participatory process and a transparent deal;

Local control of water management and operation must be assured;

Achievement of efficiency targets must not lead to excess costs to water users and particularly the poor.

The people of Cochabamba have already paid far too high a price not to learn from the errors made.

“It is a basic tenet of accounting that investors, not customers, fund capital projects. The risk-takers then recover their outlay, with profit, when the project produces a product for sale. This is the heart, soul and justification of the system called 'capitalism'. That's the theory. But when a monopoly operator gets its fist around a city's water spigots, it can pump the funds for capital projects from captive customers rather than shareholders.”

Gregory Palast, The Observer, 23 April 2000

“It all seemed a riskless romp - until a few thirsty, angry peasants decided they could stop it.”

Gregory Palast, The Observer, 23 April 2000

“The privatization of water is just the latest in a decade-long series of sales of Bolivian public enterprises to international private investors, the airline, the train system, the electric utility, as government officials carefully toe the neo-liberal line that ‘private is better’. While the promises have been about an injection of new investment, the more obvious results have been a weakening of labor standards, increases in prices, and reductions in services (the train service is gone altogether).”

Jim Shultz, In These Times, 17 April 2000