CRENZEL Emilio Ariel
informe técnico
"From the promise of service universalisation to the universalisation of protest: the privatisation of water and sanitation services in Tucumán, Argentina"
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"From the promise of service universalisation to the universalisation of protest: the privatisation of water and sanitation services in Tucumán, Argentina" “Gino Germani” Research Institute School of Social Sciences University of Buenos Aires Introduction Within the overall report on private capital intervention in the water and sanitation services in Argentina, the case study which follows aims to describe and analyse the drinking water and sanitation services privatisation process in the Province of Tucumán. With an area of only 22,524 km2, and located in the Northwest of the country between parallels 26º and 28º South and meridians 64º 30´ and 66º 30´, Tucumán is the smallest province in Argentina. With the exception of the Greater Buenos Aires area, it concentrates the biggest population density in the country, 59.3 inhabitants per km2, by far exceeding the national average of 12 inhabitants per km2.[1] The province’s capital city, San Miguel de Tucumán, with a population density of 5,258.57 inhabitants per km2,  and inhabited by 697,936 people in 2001, concentrates 52% of the province’s total population and thus constitutes, in demographic terms, the fifth major urban cluster in the country, and concentrates in its area the main industrial and services activities in the province.[2] Tucumán presents exceptional hydrologic conditions when compared with other regions in the Northwest of the country, as 176 streams and 17 rivers –of which the Salí river is the most important- run across the province.             Since 1966, the Province has struggled against a chronic and increasing economic and social crisis. In that year, during one of the many military dictatorships which have ruled Argentina since 1930, eleven of its twenty-seven sugar mills –the main activity in the local economy- were closed down, thus also closing down a century-old policy of state protection of the sugar industry.[3] Unemployment became acute and chronic,[4] reaching the highest levels recorded in the nation.[5] Much was attempted, but failed, to replace the central role of the sugar industry as a dynamic factor of the provincial economy. Between 1966 and the last military dictatorship in 1976, acute social and political struggle hit Tucumán: partial take-overs of the capital city by university students and workers[6] and the upsurge of rural guerrilla warfare in the forest area. These social and political identities became targets of the policy whose methodology consisted in “disappearing” people and whose system was State terrorism which, practised in Tucumán since 1975, would then be extended to the rest of the country with the 1976 coup.             Once democracy was re-established, the successive Peronist administrations of the province from 1983 to 1995 characteristically reproduced the pre-existent unemployment, poverty, and social inequality, and even expanded them through their propensity to increase patronage in public employment and at the same time, through the growing corruption which had become constitutive and an integral part of the development of the local political system.[7] The social and political conditions of the province at that moment inspired in the population a positive retrospective assessment of the administration of General Bussi, who had been Governor of the province between 1976 and 1977 under the last military dictatorship and who was accountable for hundreds of missing people. In July 1995, at the same time that the private license was being granted on the sanitation and water services, Bussi was elected governor with 46% of the franchise.[8]             The case study here presented includes the description and analysis of the privatisation process of the drinking water and sanitation services undertaken in the province, which licensed the services covering the area until then under the jurisdiction of the “Dirección Provincial de Obras Sanitarias (Provincial Bureau of Sanitary Works)” (DiPOS), which supplied 88% of the population of the province, to only one company, for a period of thirty years. The study covers the period until the moment when, after the conflicts which arose during the process, both parties - the private company and the provincial government- decided to terminate the licensing contract, and thus, in November 1998, the State became once again responsible for the service through the “Ente Nacional de Obras Hídricas y de Saneamiento (National Body of Hydrologic and Sanitation Works)” (ENOHSA).[9] III.             The situation of the sector under the DiPOS administration, starting in 1980, presented a pattern of sharp deterioration: disinvestment and obsolescence of the water and sewer connection network and of the potabilisation plants, high rates of bad and doubtful debts from the users, insufficient and limited capacity to treat sewer affluents, incapacity to control the growing industrial and local pollution in the Salí river adjacent to the city produced by the new population settlements located on its banks, poor rainwater networks and important cadastral outdatedness.[10] In spite of this, public network drinking water coverage in 2001 280,742 households (85.1%) and 1.103.930 inhabitants (83.6% of the province´s population) had access to the tap water service through the public network as opposed to the scarce coverage of the sewer drainage system, which, concentrated mostly in San Miguel de Tucumán, only reached 39.9% of the dwellings and 36.7% of the population.[11]             In 1993, within the national context of an all-encompassing and fast privatisation process of public utilities and state-owned goods-producing enterprises, the provincial political power started the privatisation of the water and sanitation services, which had been until then the responsibility of the DiPOS, which, since 1980, after the provincialisation of the said services in the country, had been in charge of their provision in Tucumán. From the start, the privatisation process was conflicting in character, marked by the lack of transparency and public suspicion of corruption; repeated changes and alterations were operated between the public tender, its specifications and contents, the established regulatory framework and the licensing contract. However, open conflict arose when in August 1995, after being granted the license, the private company “Aguas del Aconquija S.A.” –subsidiary to “Companie Générale des Eaux” (present day Vivendi group), one of the major businesses in the world devoted to the provision of drinking water and sanitation services- announced a 106% increase in their rates with respect to the rates in force so far.            Strong social protest rejecting the increased rates thus ensued, and became even stronger and more generalised in January 1996, during a stifling summer and for a period of nearly a month, when water flowed out of taps with a turbid brown colour as a result of the increase in manganese in the reservoir of the “El Cadillal” dam, which caters for 60% of the water consumption in San Miguel de Tucumán. In response to the claims of the population about the rate prices and the quality of the service, the company resorted to a rigid intransigent strategy, refusing any discussion with users, prioritising negotiations with national and provincial political power and its interest in maximising its short-term profits over a longer-term strategy, which would take into consideration its relation with the State’s institutional-bureaucratic structure, the province’s political representation of the majority, the user organisations and the population as a whole.            "Aguas del Aconquija S.A."’s commitment to expand the connection networks and increase coverage of the existing service in terms of access to drinking water and sanitation till their universalisation eight and thirteen years later, respectively, according to the investment goals, soon lost its centrality because of the said conflict, about which the local government and press repeatedly reported, for a period of three years, that a solution was imminent. At the peak of social protest, 86% of the users, including the Federación Económica de Tucumán (Tucumán’s Economic Federation) and the headquarters of the provincial government itself, stopped paying their bills. On December 26, 1996, the conflict took a new turn when "Aguas del Aconquija S.A." applied to the “International Centre for Settlement of Investment Disputes” (ICSID) for arbitration against the Argentine Republic, for a total amount of 300 million US dollars[12] on behalf of the </NOBR></DIV><DIV style="LEFT: 216px; POSITION: absolute; TOP: 6305px"><NOBR></NOBR></DIV><DIV style="LEFT: 216px; POSITION: absolute; TOP: 6326px"><NOBR>"Tratado Recíproco de Protección de Inversiones (Reciprocal Treaty of Investment Protection)" agreed upon by Argentina and France.[13] Between August and September 1997, the private company and the provincial government terminated the contract, on account of either the government’s responsibility or the company’s non-compliance, respectively, and in November 1998 the ENOHSA took charge of the provision of the water and sanitation services in the area where the private license had been granted.             The importance of this failed experience of private capital intervention in the provision of water and sanitation services in the province of Tucumán is multiple-fold. In its light, we can explore and focus on a series of intellectual challenges and questions which project PRINWASS intends to explain. Firstly, this is the first case of a failed public utilities privatisation in Argentina since the massive and undifferentiated privatisation processes characteristic of the nineties. The license to "Aguas del Aconquija S.A.", subsidiary to a world-leading company in the sector, constitutes the first private license in Argentina whose contract was terminated. In turn, the case is also the first time the water and sanitation services returned to the hands of the State after private administration had failed. Secondly, the decision by the provincial political power to terminate the contract was determined by a massive popular protest which, because it refused to pay the rates, defeated business intentions of imposing those new values, exposed the fallacy of the alleged intrinsic association between privatised utilities and “efficient” services when the taps in the provincial capital produced manganese-polluted water for longer than a month, and tore down the expectations laid on the capacity of the private company to universalise the access to these services. If the commitment undertaken by the company implied universalising access to the service expanding drinking water and basic sanitation coverage to the more impoverished sectors, reality shifted this promise and what finally became universal was social protest. Also, this popular will to protest blocked the attempts of the political leadership to renegotiate the terms of the licensing contract and went beyond the initial rejection of the rate policy of the company and the initial complaint about the poor water quality it provided, and started questioning the social character of the identity of the company itself. The originality and radicality of the social protest in Tucumán is further strengthened because the conflict arose at a moment when passive consensus and acceptance of privatisations was high at the national level and because the origin and emergence of sector users organisations were simultaneous with the shift to private capital of the water and sanitation services in the province.             Thirdly, what happened in Tucumán is a “control case”, for it is the first case in Argentina where a licensed company in charge of a privatised public utility resorts, through their statement at the ICSID, to extra-territorial courts as the legal arena to solve its disputes with the Argentine State, and has been considered a control case in this connection by international jurisprudence. I believe this case also shows the social, political and cultural conditions in which the privatisation processes developed in Argentina: a marked political and technical improvisation as to the creation of institutional rules for their development and regulation, the continual alterations to the said rules, the scarce assessment of the current social, economic and political conditions specific to each territory or jurisdiction where the utilities were to be privatised, the systematic exclusion of user and consumer organisations from the control and regulation procedures, the absence of transparency and the presence of public evidence of corruption throughout the privatisation processes, and the predominance of a rationale according to which quick extraordinary profits were sought, to the detriment of the social, political, economic and environmental sustainability of the presented models in the medium and long terms. In the case of Tucumán, these characteristics took on a twofold character: good conditions, but barriers at the same time, for the development and intervention of private capital in the supply of drinking water and sanitation; first facilitating the penetration of private capital in the sector but immediately afterwards restricting the sustainability limits of the model being implemented.  Thus, the way in which the privatisation model was put into practice did not institutionally acknowledge citizen participation in the control of the services, nor did it recognise public interest as a whole; it deepened inequality and reduced access to these basic services by the portion of the population with fewer economic resources; it contributed to the de-legitimisation of political and state representations, responsible for mediating between business and collective interests; and it showed the company’s strong inefficiency and clumsiness to take initiative for the solution of the original technical and policy problems which arose during the license. Finally, the case of the water and sanitation services privatisation in Tucumán poses a series of questions related to its originality with respect to other privatisation processes in the country and with respect to the creation of new possible scenarios in the foreseeable future. Which social and political conditions paved the way for the conflict around the private supply of the services in Tucumán? Why did it end up with the termination of the private license? Does what happened in Tucumán anticipate a trend towards private capital retraction from its place as utility supplier when its will to make quick profits and its deficiencies as regards quality control is at odds with the will of citizens? Is the case a pioneer case, where the State will reassume responsibility for providing public utilities? Without a doubt, these questions have resumed currency in view of the alterations in the national macroeconomic arena as of January 2002, which, with the devaluation of the local currency, have slashed the said extraordinary profits - in international terms- which privatised companies had enjoyed for a period of ten years.             The methodological approach to the case included interviews to sector experts and officials in the province, outstanding members of the user organisations and members of the political power who participated actively in the privatisation process and in the ensuing conflicts.[14] Besides, a systematic search for existing research papers and filed material was carried out, both for primary and secondary sources, the latter especially extracted from the province’s press releases which daily reflected the saga of the complex political and legal upheavals of the conflict. It is important to note that the search and collection of technical data and material was particularly difficult, given the great institutional fragmentation of the sector in the province, the changes undergone in the service suppliers during the past twenty years, the absence of a conservation tradition of historical series of data and relevant information, and the objections of certain public officials and key informers to providing information because the legal dispute with the private company persists, and because there is a new dispute with the neighbouring province of Santiago del Estero,  which claims Tucumán is responsible for the contamination of the waters of the Salí-Dulce River. [1] (INDEC, (National Institute of Statistics and Censuses) 2002a). [2] (INDEC, 2002a). [3] Since 1870, the sugar industry had been protected by the State through eased credit access policies, subsidies to exports and duties on sugar imports. These policies first benefited sugar mill owners, but they also contributed to the reproduction of small sugarhouse owners. To this end, see (Murmis, 1969:4). [4] These preexisting social conditions reinforce the image of lack of political planning as to the effect and consequences that the rate increase, proposed by the private licensee when taking charge of the service, would impose on the population. The said conditions thoroughly debunk any reason suggested for the abrupt social changes produced after the service privatisation as a means to justify  the increase in rates, the renegotiations or the changes in the contract clauses. To this effect, see (Delfino, 1997) quoted in (Azpiazu, et. Al., 2001). [5] Source: (INDEC, 2000c, IINDEC, 1990, INDEC, 1980, INDEC 1974). Unemployment was only reduced to 8% during the military dictatorship (1976-1983). During that period, in Bussi’s administration (1976-77), employment rose as part of the counter-subversive strategy aimed at isolating “subversive agents”. [6] See (Crenzel, 1991). [7] According to Arturo Ponsatti, local Christian Democracy leader, it is only after each election that the record of the incumbent starts being looked into. This has been reconfirmed in the governance. Tucumán legislators earn three times the nominal salary of the Republic’s President. There is this lawlessness of the pseudo political class which is also characterised by utter inefficiency...Nothing at all has been done, only madness and more madness, mistakes and more mistakes, foolishness and more foolishness. (Fundación Plural, 1988:8). [8] (Crenzel, 2001). [9] The license covered the districts of Alberdi, Banda del Río Salí, Monteros, Tafí Viejo, Aguilares, Concepción, Villa Mariano Moreno, San Miguel de Tucumán, Bella Vista, lules, Simoca and Yerba Buena. [10] 45% of the drinking water works and 60% of the sewerage system were over 40 years old. The sewerage system transported 29 million m3 of waste a year and it was treated in only eight localities in the province, San Miguel de Tucumán being the only one to have a primary treatment plant. (IDB, 1996: 104). [11] Source: (DiPOS, 1981 and INDEC, 2002a). [12] Aguas del Aconquija blamed the Argentine government for preventing it from closing an annual USD45 million business. Compaigne Générale des Eaux, proprietary shareholder and operator of “Aguas del Aconquija S.A.” decided to claim USD150 million due to losses arising from contract termination, about USD100 million on account of the expenses incurred in the province and the services payable. The claim also took into account the loss of potential earnings for the 30 years which the license was supposed to last. [13] The said treaty was signed in 1991 between both countries and came into force on March 3, 1993. At the time, Argentina also endorsed a series of similar treaties with other countries as a result of the increase in foreign investments due to the public enterprises’ privatisation processes. [14] I especially thank Professor Norma Giarraca, from the School of Social Sciences of the University of Buenos Aires and researcher at the Research Institute Gino Germani, for her interesting work on the social protest movement around the drinking water supply in Tucumán; José Domian, Engineer, head of  the DiPOS in the periods 1973-1976 and 1983-1987 and a member of the “Asociación en Defensa de los Usuarios y Consumidores de Tucumán (Association in Defence of Users and Consumers of Tucumán) (ADEUCOT)” as of 1995 and currently its vice-president, for our conversations, the time he devoted to me and the material and information he provided;  Edmundo Romano, Engineer, former expert at the DiPOS and member of the “Defensa de los Usuarios de Agua y Servicios –Línea Fundadora (Defence of Users of Water and Utilities– Founding line) (DUDAS)” for the interviews, the data and the information he provided;  Graciela Rodríguez, Geologist, member of the Hydro-geology Tenure at the School of Natural Sciences and the Miguel Lillo Institute of the National University of Tucumán;  Pablo Molina, Engineer, from the Dirección de Obras Públicas (Public Works Bureau) of the San Miguel de Tucumán Municipality and Aníbal Comba, Engineer in hydrologic resources, head of the Departamento de Cultivo y Riego (Department of crops and irrigation) at the Dirección de Irrigación (Irrigation Bureau) of the province of Tucumán; the provincial Water Director, Juan Sirimoldi, Engineer and Margarita Hidalgo, PhD, from the Dirección General de Saneamiento Ambiental (General Bureau of Environmental Sanitation) of the province, for the material and data they provided; Sergio López, Engineer at the ENOHSA for the interview and the information provided; Mr Sapella, Accountant, and Mr Erazzu, Engineer, head of the “Ente regulador del servicio de Agua y Cloacas de Tucumán (Regulatory Agency of the Water and Sewer Services in Tucumán) (ERSACT)” for the material and the interviews provided; Paula Binder, student at the School of Engineering of the National University of Tucumán, for her help in the interviews and in the collection of data and information; Rubén Elzinger, correspondent for the “Clarín” newspaper in the province of Tucumán for our conversations; national Representatives for Tucumán, Carlos Courel and José Vitar and former provincial legislators Gumersindo Parajón and José Páez, for the interviews provided.