Before sunrise on November 7, 2005, I joined members of the Observatorio Ciudadano de Servicios Públicos as we erected a blue tent in front of the Palacio de Justicia in Guayaquil, Ecuador. Volunteers readied vote deposit boxes, paper ballots, and signature pages in anticipation of the crowds of people to come. Over the next two weeks, more than 41,000 of Guayaquil’s citizens participated in a “consulta” regarding the water and sewage services provided by Interagua, a local subsidiary of the U.S. Bechtel Corporation.
The results were overwhelming: Privatization as a strategy for effectively and efficiently improving water infrastructure in Guayaquil had failed during its first four years. An overwhelming majority (92%) of participants declared that the Bechtel subsidiary was not fulfilling its contractual requirements to Guayaquil’s consumers. I spoke personally with dozens of citizens who expressed serious problems with the water and sewage services.
Privatization is the selling of a publicly operated government service or industry to a private company. The World Bank and other international lending institutions popularized, and arguably required, privatization as a win-win development strategy during the 1980s and 1990s. Dozens of Latin American governments reluctantly gave up local public control, often to transnational corporations, in the hopes that the private sector’s access to credit and financial efficiency would improve the quality of services. As in Guayaquil, governments offered concessions in terms favorable for the corporations, rather than directing those resources toward protecting the rights and meeting the needs of their citizens.
Interagua’s arrival in Guayaquil followed years of inadequate water and sewage services. The municipal government began considering contracting those services to a private company in 1993; two years later, the World Bank and the Inter-American Development Bank demanded an acceleration of the privatization process when they began to provide crucial loans to the city. A Bechtel subsidiary won the concession in 2000 as the only bidding company, and transferred the services to Bechtel’s newly incorporated Interagua in 2001. The contract provided no recourse for Guayaquil’s citizens to demand improvements projects and failed to stipulate any minimum investments or measurable improvements in service quality.
The local municipal government was not friendly to the “consulta” project and city police tried to remove local activities from several polling locations. Both Interagua and Guayaquil’s government refused to acknowledge any validity to the results, deeming them unscientific and statistically insignificant. Interagua also dismissed the Observatorio’s June 2005 investigation findings which implicated contaminated water in a Hepatitis A epidemic in a slum neighborhood on the outskirts of the city. That outbreak resulted in 85 confirmed diagnoses in children, and medical professionals in the neighborhood estimated that at least 150 children were affected.
Over the next six months the Observatorio further documented violations of Interagua’s contractual obligations and of the constitutional rights of consumers. Case studies throughout the city found postponement of improvements projects, discontinuous service, contaminated water, deaths due to water outages, erosion due to lack of sewage services, and communities billed illegally for services they did not receive.
Furthermore, the company had no plans to construct adequate sewage treatment facilities, which meant that the local ecosystem would be expected to absorb raw or barely treated sewage discharges for decades to come. Detailed legal and technical analysis by the Observatorio concluded that, under Interagua’s plan, a significant number of families would be left without water and sewage services for the next 30 years. An independent study funded by the United Nations concluded that 6 years after privatization less than half of Guayaquil’s residents had sewage services, a decrease from the percentage provided with services prior to the privatization in 2001.
The situation in Guayaquil continued to attract increased national and international attention, as residents filed legal action demanding that the company compensate the Hepatitis A patients for their medical expenses. Dozens of families filed similar legal actions claiming negligent services and illegal billing practices, and hundreds of consumers whose water and sewage services had been cutoff now demanded that their services be reconnected.
The silence that permitted water and sanitation service failure has been broken, and we are beginning to see results.
In the spring of 2007, municipal health authorities threatened to close Interagua’s water treatment facilities, and municipal authorities reclaimed overarching responsibility for the provision of services. That July, a regulating agency fined Interagua $1.5 million for breach of contract. This past January, an Ecuadorian court found two company authorities guilty of contempt of court for refusing to respond adequately to accusations that they had negligently disconnected services; one of the men fled the country after being ordered to jail.
Interagua remains in Guayaquil, but its future there is uncertain. Last month, the people of Ecuador ratified a new constitution, which discourages government concessions to private companies. The Correa Administration plans to conduct formal audits of all privatized mines, dams, and water and electric companies, and hopes to remove companies that do not “adequately” comply with their contracts. Furthermore, the World Bank’s guarantee agency MIGA is conducting an audit of Interagua and mediating changes to its contract.
Guayaquil’s concession of water services to Interagua is a perfect example of the failure of privatization of public services and the vital importance of elaborating a new strategy to stimulate infrastructure development and natural resource management. The popularity of the new constitution speaks to popular support for returning matters of national development to the hands of communities.
Such a change cannot happen without the support of the international community, including the United States. The World Bank must discontinue its advocacy of inadequate strategies such as privatization and be willing to provide funds for projects run by the public sector.
World Bank development strategies depend on the “buy-in” of developing nation’s governments, international corporations, and the support of funding nations. The United States supplies a policy-controlling portion of the World Bank’s budget, and could use appropriations restrictions to this end.
American citizens can do their part by encouraging their representatives in Congress to prohibit the World Bank from using U.S.-provided funds for privatization projects, and by supporting nonprofits who work directly with the government to develop new strategies. Privatization is failing developing countries, and now is the time to untie the hands of developing nations.
Emily Joiner is the author of “Agüita Amarilla,” a book chronicling the privatization of water services in Guayaquil and a long-term volunteer with the Observatorio Ciudadano de Servicios Públicos. She holds a B.A. from Williams College and is currently pursuing a Master of Global Policy Studies degree at the University of Texas-Austin. She can be contacted at firstname.lastname@example.org.