Failures in water reform: Lessons from the Buenos Aires's concession

This paper examines the performance, until the cancellation of the contract, of the Buenos Aires sanitation concession in relation to privatization objectives of expanding coverage, reducing consumers’ tariffs and increasing service standards. The evidence shows that, despite a noteworthy increase, coverage rates remained significantly behind goals and that several contract renegotiations came along with significant tariff changes that turned an initial access problem into an affordability one. The analysis indicates that the concession's high profits originated almost exclusively from tariff increases, as the contribution of total factor productivity improvements and of changes of input prices have been negligible. A good number of the concession's failures seem to have been explained by the presence of a weak and inexpert regulator. The evidence also points out that regulators should consider protecting the interests of consumers by setting capital requirements.