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The Buenos Aires water concession

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Author Info
Alcazar, Lorena
Abdala, Manuel A.
Shirley, Mary M.

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Abstract

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, the authors 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 decision-making is to maintain public trust in regulated infrastructure.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2311.

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Date of creation: 30 Apr 2000
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Handle: RePEc:wbk:wbrwps:2311

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Keywords: Health Economics&Finance; Environmental Economics&Policies; Water Conservation; Water and Industry; Decentralization; Town Water Supply and Sanitation; Environmental Economics&Policies; Water and Industry; Water Supply and Sanitation Governance and Institutions; Water Conservation;

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  1. Jensen, Olivia & Blanc-Brude, Frederic, 2006. "The handshake : why do governments and firms sign private sector participation deals ? Evidence from the water and sanitation sector in developing countries," Policy Research Working Paper Series 3937, The World Bank. [Downloadable!]
  2. Clarke, George & Menard, Claude & Zuluaga, Ana Maria, 2000. "The welfare effects of private sector participation in Guinea's urban water supply," Policy Research Working Paper Series 2361, The World Bank. [Downloadable!]
  3. Kirkpatrick, Colin & Parker, David, 2004. "Regulation and the Privatisation of Water Services in Developing Countries: Assessing the Impact of the General Agreement on Trade in Services (GATS)," Centre on Regulation and Competition (CRC) Working papers 30600, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  4. Sebastian Galiani & Martín González Rozada & Ernesto Schargrodsky, 2007. "Expansiones de Agua en las Barriadas: Salud y Ahorros," RES Working Papers 3235, Inter-American Development Bank, Research Department. [Downloadable!]
  5. Erika López Pontón, 2008. "Un criterio de eficiencia para la concepción y evaluación de las políticas públicas," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 10(18), pages 149-178, January-J. [Downloadable!]
  6. Rafael Di Tella & Sebastian Galiani & Ernesto Schargrodsky, 2008. "Reality versus Propaganda in the Formation of Beliefs about Privatization," NBER Working Papers 14483, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Parker, David & Kirkpatrick, Colin, 2003. "Privatisation in Developing Countries: A Review of the Evidence and the Policy Lessons," Centre on Regulation and Competition (CRC) Working papers 30623, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
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  8. Clarke, George R.G. & Wallsten, Scott J., 2002. "Universal(ly bad) service - providing infrastructure services to rural and poor urban consumers," Policy Research Working Paper Series 2868, The World Bank. [Downloadable!]
  9. Kirkpatrick, Colin & Parker, David & Zhang, Yin-Fang, 2004. "State versus Private Sector Provision of Water Services in Africa: A Statistical, DEA and Stochastic Cost Frontier Analysis," Centre on Regulation and Competition (CRC) Working papers 30604, University of Manchester, Institute for Development Policy and Management (IDPM). [Downloadable!]
  10. Sebastian Galiani & Martín González Rozada & Ernesto Schargrodsky, 2007. "Water Expansions in Shantytowns: Health and Savings," RES Working Papers 3234, Inter-American Development Bank, Research Department. [Downloadable!]
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