Bolivian Water Crisis: Privatization's Impact In 1999

In 1999, Bolivia privatized the water systems in Cochabamba, the country's fourth-largest city. The Bolivian government contracted Aguas del Tunari, a consortium of companies that included the US construction giant Bechtel, to administer water provision in the city and the surrounding countryside. Aguas del Tunari dramatically increased water rates, charging municipal customers to use water systems they had built and paid for themselves. In response, water users from across the region occupied streets and highways, erected barricades, and held mass assemblies and rallies. The protests, known as the Cochabamba Water War, culminated in a historic victory for the residents of Cochabamba and their supporters. In April 2000, the Bolivian Congress rescinded the 1999 law that permitted water privatization, and the government's contract with Aguas del Tunari was canceled.

The World Bank's involvement

The World Bank believed that privatisation was necessary in Cochabamba because the city's water supply was crying out for privatisation. It claimed that the state subsidies and water utilities went mainly to industries and middle-class neighbourhoods, while the poor paid more for water of inferior quality.

The World Bank's "Major Cities Water and Sewerage Rehabilitation Project" included a condition to privatise the water utilities in La Paz and Cochabamba. The Bank also acknowledges that it provided assistance in preparing a concession contract for Cochabamba in 1997. However, its involvement ended that year when the bidding process was declared void by the Supreme Court.

Despite the World Bank's role in encouraging privatisation, it was not involved in the subsequent phase of privatisation that took place in 1999. This phase saw the Bolivian government contract Aguas del Tunari, a consortium including the US company Bechtel, to administer water provision in Cochabamba. The new company dramatically increased water rates and took over autonomous drinking water systems, leading to widespread protests that became known as the Cochabamba Water War.

In April 2000, the Bolivian Congress rescinded the 1999 law that permitted water privatisation, and the government's contract with Aguas del Tunari was cancelled. Despite this, the World Bank continued to defend its position on water privatisation. In April 2000, World Bank President James Wolfensohn maintained that free or subsidised delivery of water leads to abuse of the resource.

The Aguas del Tunari consortium

The consortium was formed by the British firm International Waters (55%)—itself a subsidiary of Bechtel (USA) and United Utilities (UK)—the engineering and construction firm Abengoa of Spain (25%) and four Bolivian companies, including Befesa/Edison, Constructora Petricevic, Sociedad Boliviana de Cemento (SOBOCE), Compania Boliviana de Ingenieria and ICE Agua y Energia S.A., all involved with the construction and engineering industry.

Aguas del Tunari's water network was projected to provide drinking water to all the people of Cochabamba, doubling the existing coverage area and introducing electrical production to more of the region. The consortium agreed to pay the $30 million debt accumulated by the previous state agency SEMAPA, finance an expansion of the water system, and begin a maintenance program on the existing deteriorating water system.

To secure the contract, Aguas del Tunari promised to fund the completion of the stalled Misicuni dam project, which was designed to pipe water through the mountains and create hydroelectric power. However, the consortium had no interest in building the dam, and it was only included as a condition of their contract due to political influences.

Upon taking control, Aguas del Tunari raised water rates by an average of 35% to about $20 a month, which was unaffordable for many residents. This decision, along with the company's takeover of autonomous drinking water systems in neighbourhoods and irrigation networks in farming communities, sparked widespread protests and led to the Cochabamba Water War.

The Cochabamba Water War protests

The privatisation of SEMAPA resulted in a dramatic increase in water rates for municipal customers, with some residents seeing their water bills double or triple. Many people, especially the poorest, were at risk of losing access to water as they could no longer afford the increased rates. In response, water users from across the region occupied streets and highways, erected barricades, and held mass assemblies and rallies. The protests brought together a diverse range of groups, including peasant irrigators, retired factory workers, union members, students, coca-leaf farmers, and residential children.

The Bolivian government responded to the protests by dispatching soldiers and police, who used tear gas, clubs, and bullets against protesters and bystanders alike. However, the protesters remained undeterred and their numbers continued to grow. In April 2000, the protests escalated further, with thousands of people capturing the central plaza in Cochabamba and surrounding the fountain where the body of Víctor Hugo Daza, a 17-year-old student who had been shot in the face by the Bolivian Army during the protests, lay.

The protests culminated in a historic victory for the residents of Cochabamba. On April 10, 2000, the Bolivian government signed an agreement with the protesters, granting control of Cochabamba's water to La Coordinadora, a grassroots coalition led by Oscar Olivera. The agreement also assured the release of detained protesters and promised the repeal of water privatisation legislation. The privatisation of SEMAPA was reversed, and water rates returned to their pre-2000 levels.

The Bolivian government's response

The government's response to the protests was heavily influenced by the economic crisis in Argentina, which was partly caused by a loss of credibility with international bankers. The Bolivian government felt pressure to keep the trust of international investors and avoid a similar economic crisis.

The World Bank and the International Development Bank also highlighted water privatisation as a requirement for the Bolivian government to retain ongoing state loans.

Initially, the Bolivian government refused to negotiate with protesters, instead sending soldiers and police to crack down on the demonstrations with tear gas, clubs, and bullets. However, as the protests grew and spread to other areas, the government eventually agreed to some of the protesters' demands, including reversing the privatisation of the water supply and cancelling the contract with Aguas del Tunari.

The government also agreed to release detained demonstrators and repeal Law 2029, which had been a primary point of contention for the protesters.

The impact on water access and prices

In 1999, Bolivia's water supply and sanitation were privatized through two major concessions. The first was in La Paz/El Alto to Aguas del Illimani S.A. (AISA), a subsidiary of the French company Suez. The second was in Cochabamba to Aguas del Tunari, a consortium of companies including the US construction giant Bechtel.

The privatization of water in Bolivia had a significant impact on water access and prices, particularly in Cochabamba. Aguas del Tunari was granted a 40-year contract and the exclusive right to Cochabamba's water system, with a guaranteed annual rate of return of over 15%. This led to a dramatic increase in water rates for municipal customers, with some experiencing doubled or tripled water bills. As a result, many people struggled to afford water, and there were concerns that the poorest members of society would lose access to water altogether.

The new company also took over autonomous drinking water systems in neighborhoods on the outskirts of the city and irrigation networks in farming communities, charging these new "customers" to use water systems they had built and paid for themselves. This further increased the financial burden on residents and led to widespread protests, known as the Cochabamba Water War.

During the protests, demonstrators shut down the city of Cochabamba for four days, holding strikes and erecting roadblocks. The government responded by sending soldiers and police to quell the protests, resulting in violence and the death of a 17-year-old student, Víctor Hugo Daza, who was shot in the face by the Bolivian Army.

In April 2000, the Bolivian Congress rescinded the 1999 law that permitted water privatization, and the government's contract with Aguas del Tunari was canceled. This marked a victory for the protesters, and the event brought attention to the fight against globalization and the role of organizations like the World Bank in pushing for privatization.

Despite the outcome of the protests, water prices in Cochabamba returned to their pre-2000 levels, and the restored state utility company, SEMAPA, continued to struggle with inefficiencies and a lack of funding. As a result, half of Cochabamba's population remained without water or had intermittent access, highlighting the ongoing challenges in ensuring equitable and affordable water access.

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