Water privatization in Colombia

Private sector involvement in the Colombian water sector began in 1995 in Cartagena, with support from the World Bank. It was followed by a second contract in Barranquilla in 1996 and more concessions in the next years in Santa Marta, Tunja, Montería, Palmira, Girardot, and Riohacha. The first contracts followed mostly the mixed-ownership company model, with the municipality holding a majority of the shares but with management fully delegated to a private operator. In a "mixed-capital" company in which the service is jointly controlled by municipal governments and private "operating partners" operating partners must meet ambitious targets ensuring that coverage is extended to low-income areas quickly — sometimes before the current mayor concludes his term in office. In exchange they receive an annual management fee and a percentage of revenues. A second group of contracts started in 2001 with the implementation by the central government of the Enterprise Modernization Program (PME - Programa de Modernización de Empresas), which focused on turning around public water utilities in small cities and towns with high rates of poverty and poor network condition. == Impact of private sector participation ==

Studies on the impact of private sector participation in Colombia show that it had a positive impact on service quality. There were also significant increases in access in a short time frame under private contracts. However, there are no conclusive results showing that access increased more rapidly under private contracts than in the case of public utilities. There has been a slight average reduction in water losses in privatized utilities. In at least one city (Cartagena), real tariffs declined substantially, indicating that the operator passed on efficiency gains to consumers. None of the studies showed negative impacts of water privatization on access, service quality, operational efficiency or tariff levels. Impact on access According to a study by the World Bank relying on data of Colombia's regulatory agency, private water projects in Colombia have performed well in expanding access. The study notes that progress achieved in Colombia for access to water supply and sewerage services is not due to water privatization per se, but must be credited to good performers in both the public and private sectors, and a national policy that fosters accountability and efficiency. Impact on efficiency In the case of Cartagena, the World Bank has estimated efficiency gains by comparing the evolution of the ratio of collected revenues to operational costs (operating ratio) on the one hand to that of the average tariff level on the other hand. The operating ratio is driven essentially by two factors: the evolution of operational costs and collection rates, which are controlled by the private operator, and the evolution of the average tariff, which is exogenous. Whenever the operating ratio increases faster than the tariff, efficiency gains are taking place. The Cartagena privatization achieved significant improvements in efficiency. This is reflected in the doubling over a decade (1995–2005) in the ratio of collected revenues to operational costs. At the same time, the average tariff was halved in real terms, suggesting that a significant portion of the savings achieved through efficiency gains was passed to customers. Other impacts Water rationing was less frequent in ten cities five years after the private sector became involved in providing services. Studies based on household and public health surveys show that private operators tend to achieve better potability figures than public water utilities. == Local operators ==

The largest private water company in Colombia is Triple A (AAA), a Colombian company serving more than 1.5 million people. It has a strategic partnership with the publicly owned water utility of Madrid (Canal Isabel II). It is in practice managed by nationals and has been branding itself as a Colombian private company. The company was willing to focus on a market segment that other companies tend to avoid: the poorest cities. For example, in Barranquilla, more than 76 percent of AAA's customers are in the three lowest of six income segments used by the Colombian government. In Soledad, 98 percent of the population is in the three lowest segments, and poverty levels are similarly high in all the other municipalities where AAA operates. Other Colombian water operators are EIS, Conhydra and Sala. Colombian construction companies that were active in the water sector were awarded PPP contracts following tenders in which only local investors participated. In all these cases, governments chose to ease prequalification criteria to increase competition, resorting to various mechanisms to ensure the winning bidder would be able to operate the water utility. In Colombia, the winning bidders contracted experienced technical staff (often former managers and engineers from public utilities). Between 2001 and 2004, Colombian investors won almost all the PPP contracts awarded in that country under the PME program. == Example of Barranquilla ==

In 1996, more than 60 percent of Barranquilla's population had no water service at all or had it for only a few hours a day. The private operator was initially met with skepticism. When AAA began to install residential water meters in homes that had never had them, many consumers worried that the devices would result in big water bill increases. Opposition politicians like Guillermo Hoenisgberg initially opposed the private operator for ideological reasons, but later supported him. AAA earned the trust of its customers and political support by going to the poorest neighborhoods, interviewing thousands of people with the goal of understanding their expectations and assumptions regarding water and sanitation. The company then conducted a massive communications campaign with more than 40 staff, many of them social workers by profession, to work full-time in community outreach. Simultaneously, AAA adopted an aggressive external relations strategy that contrasts sharply with the cautious, low-profile approach preferred by water companies in many other Latin American cities. AAA runs elaborate public information campaigns in radio, television and the press. It also regularly hosts lunches and workshops for local journalists where company officials offer detailed explanations of the company's activities and answer questions. Instead of installing meters and immediately sending out bills, AAA decided to use a gradual approach. In some cases the company would start by delivering water for free, and then bill new customers for 10 cubic meters of water per month, even if their actual consumption was far higher. After two months the fee would be based on 20 cubic meters, and after six months, it would be based on actual consumption. According to company officials, this approach relieved most consumers’ anxiety about the water meter and encouraged them to start monitoring their own consumption. AAA also began to disconnect consumers who weren't paying, a potentially explosive issue. Many wealthy individuals and important companies were in the habit of ignoring water bills. And the notion of cutting off water to people in poor communities was obviously problematic. The company therefore developed a comprehensive system to facilitate and encourage payment among low-income customers, acknowledging the reality that many low-income families in Barranquilla live day-to-day on small amounts of cash earned from informal occupations. As a result, AAA has established partnerships with virtually all of Barranquilla's pawnshops that enable people to pay their water bill while conducting other transactions. Similar partnerships allow customers to pay their water bills at banks, department stores, grocery chains, and sports clubs through the city. Despite these measures, thousands of AAA's low-income customers still miss their payments each month, and thousands more have their water cut off when they go for two months without paying. To ensure that cutoffs are short-lived, every month AAA billing agents set up portable, outdoor "payment stations" in low-income neighborhoods. Local residents approach the stations and work out customized payment plans ("convenios de pago") with the agents. The plans allow customers to catch up on missed payments over several months, so long as they pay the current month's fee—and they result in immediate restoration of water service. AAA also developed a program to reward customers who consistently pay their bill. The program, known as "Supercliente" (super customer) awards modest prizes and certificates to customers who stay on top of their bill. As a result, billing efficiency increased from 66% in 1996 to 87% in 2004. == See also ==