Water privatization in Colombia

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Private sector participation in Colombia's water and sanitation sector has been much more stable than in some other Latin American countries.^[1]

In 1995, the first water and sanitation concession in Colombia was given to a mixed public-private company in the city of Cartagena, followed by a second concession in Barranquilla in 1996 and more concessions in the next years. In 2002, the government launched a program of business modernization to introduce private sector participation also in small and medium-sized municipalities, leading to significant improvements in quality and efficiency of service provision in some municipalities.

In 2004 there were 125 private and 48 mixed public-private water companies in Colombia, including large, medium and small companies. 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.

Private sector involvement in the Colombian water sector began in 1995 in Cartagena, with support from the World Bank. The most important examples are in Cartagena, Barranquilla, Santa Marta, Tunja, Montería, Palmira, Girardot, and Riohacha. Operators are to a large extent Colombian. Overall performance of utilities with private sector participation has improved, in some cases spectacularly, and some – such as Barranquilla – have had impressive successes in expanding coverage to the urban poor.^[2]

The largest private water company in Colombia is AAA serving more than 1.5 million people. 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.

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.

Most recently, AAA has 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 incfreased from 66% in 1996 to 86.6% in 2004.^[3]

According to a World Bank report, the key to success of private sector participation in the Colombian water sector has been the development of homegrown solutions, and, at times, skillfully adapting models used elsewhere to the particular circumstances and culture of Colombia.^[4]

The World Bank's Private Participation in Infrastructure Database shows private investment commitments in water supply and sanitation of US$ 940 million from 1995-2006 through 51 transactions, including 27 classified as concessions, 22 as management and lease contracts, and 2 as greenfield projects.^[5]

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