Identifier
Created
Classification
Origin
07LAPAZ80
2007-01-11 19:41:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy La Paz
Cable title:
GOB RESCINDS AGUAS DEL ILLIMANI CONTRACT
how-toVZCZCXYZ0002 RR RUEHWEB DE RUEHLP #0080/01 0111941 ZNR UUUUU ZZH R 111941Z JAN 07 FM AMEMBASSY LA PAZ TO RUEHC/SECSTATE WASHDC 2057 INFO RUEHAC/AMEMBASSY ASUNCION 6440 RUEHBO/AMEMBASSY BOGOTA 3761 RUEHBR/AMEMBASSY BRASILIA 7635 RUEHBU/AMEMBASSY BUENOS AIRES 4887 RUEHCV/AMEMBASSY CARACAS 2133 RUEHPE/AMEMBASSY LIMA 2214 RUEHMD/AMEMBASSY MADRID 3253 RUEHMN/AMEMBASSY MONTEVIDEO 4328 RUEHQT/AMEMBASSY QUITO 4770 RUEHSG/AMEMBASSY SANTIAGO 9360 RUEHUB/USINT HAVANA 0070 RHMFIUU/HQ USSOUTHCOM MIAMI FL RUMIAAA/USCINCSO MIAMI FL RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEATRS/DEPT OF TREASURY WASHINGTON DC RHEHNSC/NSC WASHINGTON DC
UNCLAS LA PAZ 000080
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EINV ECON PREL PGOV BL
SUBJECT: GOB RESCINDS AGUAS DEL ILLIMANI CONTRACT
-------
SUMMARY
-------
UNCLAS LA PAZ 000080
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EINV ECON PREL PGOV BL
SUBJECT: GOB RESCINDS AGUAS DEL ILLIMANI CONTRACT
--------------
SUMMARY
--------------
1. (SBU) On January 3, President Morales rescinded the
operating contract of Aguas del Illimani, a subsidiary of
France,s Suez Group, and announced the creation of a new
state-run enterprise to oversee the provision of water and
sanitation services in La Paz and El Alto. The company's CFO
said January 11 that the GOB would assume the firm's $9.6
million outstanding debts and partially compensate
shareholders for an estimated $60 million total investment.
The new public enterprise may receive funding from the
European Union and Venezuela. End summary.
--------------
BACKGROUND
--------------
2. (U) Aguas del Illimani began operating in August 1997,
after winning a 30-year concession to provide water and
sanitation services in La Paz and El Alto. The firm agreed
to build a water treatment plant and provide 7,000 potable
water and 38,000 sanitation connections within its first five
years; by March 2006, nine years into its contract, the firm
had far exceeded its goals, successfully installing tens of
thousands of water and sanitation connections and extending
coverage to an estimated 500,000 residents.
3. (U) Regular protests against the firm erupted in November
2004, when the El Alto Federation of Neighborhood Committees
objected to high tariffs and connection fees and demanded the
company's expulsion. Demonstrations ended only after
then-President Carlos Mesa issued a January 2005 decree
laying the groundwork for Aguas del Illimani's dismissal.
Subsequent decrees called for a comprehensive audit (which
eventually absolved the firm of any contract violations) and
the return of water and sanitation oversight to the state.
--------------
MORALES RESCINDS CONTRACT
--------------
4. (SBU) On January 3, President Morales rescinded Aguas del
Illimani's operating contract and announced plans to replace
the firm with a new state-run enterprise. Chief Financial
Officer Ivan Flores told Econoff January 11 that the GOB
acted without legal backing, as Aguas del Illimani had done
nothing to trigger the contract's rescission provisions.
According to Flores, the GOB tried various means of forcing
the company to leave, first threatening international
arbitration and then proposing that the firm leave
voluntarily or simply donate its holdings to the government.
Executives at Suez Group, Aguas del Illimani's parent firm,
ultimately chose to leave rather than incur the costs of
trying to retain operations accounting for a negligible
percentage of the group's global revenues.
5. (SBU) Flores reported that the GOB agreed to assume the
firm's $9.6 million outstanding debts and partially
compensate shareholders for an estimated $60 million total
investment. Aguas del Illimani relinquished its shares to a
trust managed by the National Regional Development Fund, a
public institution dedicated to financing local and regional
development projects, and shareholders received low-interest
GOB-issued bonds worth an estimated $5.5 million. For
shareholders, Flores said, this was "unfavorable," not only
because the total value of the bonds was so small, but also
because shareholders were not guaranteed the ability to trade
the bonds.
6. (SBU) Flores acknowledged but could not confirm reports
that the new public enterprise, EPSAS, may receive an
estimated $5.5 million in funding from the European Union and
Venezuela. He told Econoff he had seen nothing official and
said he believed Bolivian Water Minister Abel Mamani made the
statements before confirming the investments.
--------------
COMMENT
--------------
7. (SBU) To the extent that it avoided a costly legal battle,
Aguas del Illimani may have been wise in relinquishing its
assets and leaving Bolivia. The conflict's outcome, however,
does not bode well for other private utilities firms, which
could find themselves the targets of an administration
enjoying a new sense of self-confidence. End comment.
GOLDBERG
SIPDIS
SENSITIVE
SIPDIS
STATE FOR WHA/AND LPETRONI
COMMERCE FOR JANGLIN
TREASURY FOR SGOOCH
E.O. 12958: N/A
TAGS: EINV ECON PREL PGOV BL
SUBJECT: GOB RESCINDS AGUAS DEL ILLIMANI CONTRACT
--------------
SUMMARY
--------------
1. (SBU) On January 3, President Morales rescinded the
operating contract of Aguas del Illimani, a subsidiary of
France,s Suez Group, and announced the creation of a new
state-run enterprise to oversee the provision of water and
sanitation services in La Paz and El Alto. The company's CFO
said January 11 that the GOB would assume the firm's $9.6
million outstanding debts and partially compensate
shareholders for an estimated $60 million total investment.
The new public enterprise may receive funding from the
European Union and Venezuela. End summary.
--------------
BACKGROUND
--------------
2. (U) Aguas del Illimani began operating in August 1997,
after winning a 30-year concession to provide water and
sanitation services in La Paz and El Alto. The firm agreed
to build a water treatment plant and provide 7,000 potable
water and 38,000 sanitation connections within its first five
years; by March 2006, nine years into its contract, the firm
had far exceeded its goals, successfully installing tens of
thousands of water and sanitation connections and extending
coverage to an estimated 500,000 residents.
3. (U) Regular protests against the firm erupted in November
2004, when the El Alto Federation of Neighborhood Committees
objected to high tariffs and connection fees and demanded the
company's expulsion. Demonstrations ended only after
then-President Carlos Mesa issued a January 2005 decree
laying the groundwork for Aguas del Illimani's dismissal.
Subsequent decrees called for a comprehensive audit (which
eventually absolved the firm of any contract violations) and
the return of water and sanitation oversight to the state.
--------------
MORALES RESCINDS CONTRACT
--------------
4. (SBU) On January 3, President Morales rescinded Aguas del
Illimani's operating contract and announced plans to replace
the firm with a new state-run enterprise. Chief Financial
Officer Ivan Flores told Econoff January 11 that the GOB
acted without legal backing, as Aguas del Illimani had done
nothing to trigger the contract's rescission provisions.
According to Flores, the GOB tried various means of forcing
the company to leave, first threatening international
arbitration and then proposing that the firm leave
voluntarily or simply donate its holdings to the government.
Executives at Suez Group, Aguas del Illimani's parent firm,
ultimately chose to leave rather than incur the costs of
trying to retain operations accounting for a negligible
percentage of the group's global revenues.
5. (SBU) Flores reported that the GOB agreed to assume the
firm's $9.6 million outstanding debts and partially
compensate shareholders for an estimated $60 million total
investment. Aguas del Illimani relinquished its shares to a
trust managed by the National Regional Development Fund, a
public institution dedicated to financing local and regional
development projects, and shareholders received low-interest
GOB-issued bonds worth an estimated $5.5 million. For
shareholders, Flores said, this was "unfavorable," not only
because the total value of the bonds was so small, but also
because shareholders were not guaranteed the ability to trade
the bonds.
6. (SBU) Flores acknowledged but could not confirm reports
that the new public enterprise, EPSAS, may receive an
estimated $5.5 million in funding from the European Union and
Venezuela. He told Econoff he had seen nothing official and
said he believed Bolivian Water Minister Abel Mamani made the
statements before confirming the investments.
--------------
COMMENT
--------------
7. (SBU) To the extent that it avoided a costly legal battle,
Aguas del Illimani may have been wise in relinquishing its
assets and leaving Bolivia. The conflict's outcome, however,
does not bode well for other private utilities firms, which
could find themselves the targets of an administration
enjoying a new sense of self-confidence. End comment.
GOLDBERG