The Buenos Aires Water Concession

Transparent, rule-based decisionmaking is important to maintaining public trust in regulated infrastructure. The Buenos Aires water and sanitation concession led to remarkable improvements in delivery and coverage of services and to lower prices for consumers. But a poor information base, lack of transparency in regulatory decisions, and the ad hoc nature of executive branch interventions make it difficult to reassure consumers that their welfare is being protected and that the concession is sustainable.The signing of a concession contract for the Buenos Aires water and sanitation system in December 1992 attracted worldwide attention and caused considerable controversy in Argentina. It was one of the world's largest concessions, but the case was also interesting for other reasons. The concession was implemented rapidly, in contrast with slow implementation of privatization in Santiago, for example. And reform generated major improvements in the sector, including wider coverage, better service, more efficient company operations, and reduced waste. Moreover, the winning bid brought an immediate 26.9 percent reduction in water system tariffs.Consumers benefited from the system's expansion and from the immediate drop in real prices, which was only partly reversed by subsequent changes in tariffs and access charges. And these improvements would probably not have occurred under public administration of the system. Still, as Alcazar, Abdala, and Shirley show, information asymmetries, perverse incentives, and weak regulatory institutions could threaten the concession's sustainability. Opportunities for the company to act opportunistically - and the regulator, arbitrarily - exist because of politicized regulation, a poor information base, serious flaws in the concession contract, a lumpy and ad hoc tariff system, and a general lack of transparency in the regulatory process. Because of these circumstances, public confidence in the process has eroded. The Buenos Aires concession shows how important transparent, rule-based decisionmaking is to maintaining public trust in regulated infrastructure.This paper - a product of Regulation and Competition Policy, Development Research Group - is part of a larger effort in the group to analyze institutional issues in regulated infrastructure. The study was funded by the Bank`s Research Support Budget under the research project Institutions, Politics, and Contracts: Private Sector Participation in Urban Water Supply (RPO 681-87).

Transparent, rule-based decisionmaking is important to maintaining public trust in regulated infrastructure. The Buenos Aires water and sanitation concession led to remarkable improvements in delivery and coverage of services and to lower prices for consumers. But a poor information base, lack of transparency in regulatory decisions, and the ad hoc nature of executive branch interventions make it difficult to reassure consumers that their welfare is being protected and that the concession is sustainable.

In January 1997 the Government of the Philippines awarded two long-term concession contracts to private consortia, to operate the water and wastewater services in Greater Manila, an area with a population of 11 million. The winning bidders accepted contractual obligations to expand services faster than in the past, and offered rebates on the tariffs of the incumbent public utility. This diary of a key player in the government team that steered the Manila transaction, demonstrates principles that will be valid wherever such privatisations might occur: "the importance of sustained high-level political commitment; the need for a strong and dedicated government team, supported by experienced advisors; the value of a transparent bidding process; and the need to communicate and consult broadly" (from foreword)

There is no question that water pricing and public-private partnership can improve water management practices in the future. However, this concept is neither the cure-all many proponents argue, nor the disaster its opponents forecast. Providing a comprehensive and objective assessment of what does and does not work, where, why and under what circumstances, this informative collection assesses the social, economic, equity and institutional implications. This cohesive set of carefully selected essays, the result of The Third World Centre for Water Management and the Inter-American Development Bank's decision to objectively and critically assess the experiences in these areas, transcends the current dogmatic debate on these complex issues. Providing an in-depth analysis and assessment of the main issues and constraints of water pricing, private sector participation and their affect on water supply, the collection draws on illustrative case studies from Argentina, Brazil, the USA and Western European countries amongst others. This is a special issue of the Journal of Water Resource Development.

World Bank Discussion Paper No. 277. This study examines the structure and trends of energy demand in China, India, Indonesia, the Republic of Korea, and Thailand. Chapters focus on energy efficiency and conservation in the industrial, transportation, household, and electric power sectors. Quantitative analysis is used to estimate key income, price elasticities, and energy demand for the next 10 to 12 years. The report evaluates possible energy conservation efforts. The authors provide a brief description of those countries' energy reserves, energy trade and production, and energy consumption by sector. They also make frequent reference to the ways in which Japan has succeeded in improving energy conservation in the various sectors.