June 2001 Insights Issue #37

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Aguateros - here to stay? Pros and cons of water merchants

Paraguay has one of the lowest water and sanitation coverages in Latin America. Less than half the 5 million population have access to piped water. 400, 000 are supplied by 400 small-scale supply systems from groundwater sources run privately by aguateros or water merchants.

Plans are afoot to privatise CORPOSANA: a new water law is in place and a regulatory body on the horizon. Private companies will bid for a 30-year concession without exclusive rights. Aguateros will be granted 10-year operating permits, subject for the first time to tariff regulation. CAPA, the association of aguateros, is certain that privatisation will be the end of the water merchants, that competition will in reality be stifled and that future licences will not be renewed.

Do aguateros exemplify the virtues of unfettered private competition and show up the failings of the public sector to provide basic services? Do they challenge assumptions that urban water supply is a natural monopoly based on economies of scale? Aguateros, it is argued, show that:

• private participation can contribute to better access to services and ease financial pressures
• large state or private monopolies are not necessarily the only or best option
• public limitations can be overcome by allowing private sector participation in service delivery.

Is a more sceptical approach needed, given that Aguateros:

• must rely on a high enough water table to sink a well and a high concentration of customers to keep costs low
• are not competitive: each has exclusive rights over their area
• only target residents able to afford the US$250-350 connection fee - not the poorest
• often charge 25 to 50 percent more for tariffs than does the state
• have variable standards and are totally unregulated
• do not provide sewerage services?

Could a large private operator with exclusive rights deliver water more efficiently, equitably and with higher coverage over the long term? Given an independent and competent water regulator, it could. However, corruption in Paraguay is endemic within the political elite and public administration. There is a strong case, for this reason alone, for a tolerance towards the aguateros in water legislation.

Andrew Nickson
International Development Department
University of Birmingham
Birmingham B15 2TT
UK
T +44 (0) 121 414 4990
F +44 (0) 121 414 5032
R.A.Nickson@bham.ac.uk