The agreement for the development of the Misicuni Project and the concession of water in Cochabamba was signed on 3 September 1999 between Aguas de Turani, Bolivan central government authorities and the officials of the city of Cochabamba. Public rejection and civil disturbances started in November 1999. On 9 April 2000, the Superintendent of Water and Sewerage of Bolivia terminated the contract with Aguas de Turani. The reasons fro the project's rejection by Bolivian society and authorities' decision to terminate the project have to do with the project's inefficiency, problems in the selection process, the size of the investment, pricing of the service and political issues as detailed below.
Inefficient Project. Two options were considered to provide water to the city of Cochabamba: the Coriani project was to solve existing water supply problems in seven to ten years and the Misicuni project was to provide solutions over the long run. Several analysis showed that the Miscuni project was not economically or financially feasible and that its cost was around the cost of the Coriani project.
Problems in the Selection Process. A 1998 government law required an international public bid process to select a developer for the Misicuni project and a provider of water services to the city of cochabamba. Ten consortiums bought the budding documents, but only one, Aguas de Turani, presented a proposal. The proposal did not meet the bid requirements and the bid was declared null and void. Nevertheless negotiations were started with Aguas de Turani that produced a new agreement with few requirements than originally specified in the bidding documents.
Large investment. The Concession population is 500,000. The final contract requires investment of US109 million in 5 years and additional US$97 million in 7 years. (Compared with La Paz concession of US$80 million for a stipulated population of 1.5 million.)
Starting rates below cost. Cochabamba's public water service firm (SEMAPA) has traditionally set rates below costs, leading to deficits and delays in investments. In January 1999, before the agreement was signed, a 20% rate increase was requested from the Superintendencia to increase the firm's cash flow generation capacity. However the rate increase was not put into effect by the public firm.
Timing of rate increase. A 38% rate increase was put into effect January 2000, once the agreement has already been entered into. The rate increase was intended to compensate for the 1999 rate increase that was never implemented and to generate investment funds. The rate increase was included in the concession agreement and took place three months after private sector entry and before improvements in service quality and coverage had taken place. Moreover, the reason given for the rate increase was not the need to cover service costs. Instead, it was based on the requirements of the Misicuni project, which was to enter into operation five years ahead of time.
Social and Political issues. Bolivia's Capitalization Ministry began the concession of water services for Cochabamba in 1997. Private firms, independent from the concessionaire, developed the Coriani project. However, the process came to a halt at the request of the Cochabamba authorities, who were supposed to back the Misicuni project. After the 1988 presidential election, an international public bid process, which included the Misicuni multiple project, was begun by decree. The popular uprising was promoted by local well-water vendors and peasants, although the latter were not, in principle, affected by the contract.
__________________________________________________________________________
35 Paulina Beato and Antonio Vives, Private Infrastructure Investment at the Subnational Level: Challenges in Emerging Economies, October 2003, 6