Water privatization in Honduras

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Water privatization in Honduras has been limited to the city of San Pedro Sula which has signed a 30-year concession contract with a private operator. Two other cities, Puerto Cortes and Choloma, have introduced an interesting management model that cannot be characterized as either private or public. They have created mixed companies without the involvement of a private company. Instead, the majority of shares in the municipal company are held by cooperatives, unions and the local business association, with a minority ownership by the municipality.

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[edit] San Pedro Sula

In San Pedro Sula, the country's economic capital, the municipality has given a concession to a private operator for 30 years in 2000. As a result, between 1999 and 2003 the number of homes with residential water service in San Pedro Sula increased from 84 percent to 93 percent, thanks to the installation of 13,600 new connections. The proportion of tap water receiving proper treatment rose from 22 percent to 80 percent. Water pressure and continuity increased throughout the system. The municipality receives additional revenue through a 5% surcharge paid by the concessionaire. According to ESA Consultores, an independent consulting firm in Tegucigalpa, rates in San Pedro Sula are among the lowest in all Central America. On the other hand, tariffs did increase compared to the very low level prior to the concession and residents in poor neighborhoods complain that their service is still far from satisfactory.

The process to award the concession included extensive consultations. A ‘Municipal Transparency Commission’ was created, made up of representatives of civil society, including labor unions, the Dutch consul in Honduras, the Catholic Church and a local university, to oversee the process. The municipal council carefully reviewed all of the documents, at each stage of the process. Three international consortia offered formal bids for the concession. To make sure that the process was transparent, the municipality decided to award the concession based on a single criterion: the lowest water tariff. The bids were opened in public and the concession was awarded to a group of Italian companies called Aguas de San Pedro, headed by Acea which runs water and sanitation systems for the city of Rome. Not only was the tariff offered by this group the lowest, but it was lower than the tariff charged by the municipal water company at the time.[1]

The concession contracts foresees the installation of meters, the expansion of the sewer system and the construction of wastewater treatment plants. The concessionaire committed itself to undertake investments of US$ 208 million over the 30-year concession period. Investments have been partially financed by a US$ 13.7 million loan from the Inter-American Development Bank approved in 2002.[2]

Despite efforts at community outreach and despite the improvements mentioned above, the concessionaire was met with a lot of suspicion by residents of poor neighborhoods, especially when meters were installed. Residents who were used to leave their taps open until water comes suspected that meters counted air and refused water bills that went up after meters were installed. Unlike in Puerto Cortes, no independent municipal regulatory entity was created. Instead a municipal department to monitor concession contracts was created, but it lacked autonomy from the municipal government.[3]

[edit] Puerto Cortés

In Puerto Cortés the water and sewer system had been managed by the national public water and sewer company SANAA. The municipality requested the transfer of the system after the city remained without drinking water for months in the aftermath of Hurricane Gert which hit the city in November 1993. After a lengthy period of negotiations the system was finally transferred in 1997. During that period USAID provided substantial financial assistance to modernize and exand the water system, doubling access between 1993 and 1997 and improving service quality. As a consequence the incidence of waterborne diseases such as diarrhea declined significantly.

Despite an upcoming election the city's mayor, Marlon Lara, more than doubled water tariffs, had non-paying users disconnected and had water meters installed. Although many voters resented the measures, Marlon Lara managed to win the elections. Shortly afterwards, in 1999, the city decided to created a mixed company called Aguas de Puerto Cortés (APS) in order to reduce the potential for political interference in day-to-day management. Initially 95% of the company was owned by the municipality, with symbolic shares held by various associations in the city. However the municipality subsequently decreased its share of ownership: In 2006 the company was owned by the association of port employees (16%), the association of central market vendors (16%), two women's cooperatives (32%), the Chamber of Commerce and Industries (16%) and the municipality (20%).[4] The company signed a contract with the municipality which specified specific targets to be achieved, and the municipality created a municipal regulatory body to monitor the company's performance.

Access and service quality improved substantially between 1995 and 2006. Water supply is now continuous, monthly billing has increased 25-fold in nominal terms, water production has more than doubled and non-revenue water has been reduced from an estimated 40% to 25%.[5]

In 1998 the city obtained financing from the Inter-American Development Bank to extend the sewerage system and to build a wastewater treatment plant to put an end to the pollution of the Alvarado lagoon near the city.[6] [7] In 2003 the consulting firm Halcrow won a contract to design the wastewater treatment plant using stablization ponds, a natural technique with low operation and maintenance costs.[8]

[edit] Choloma

The city of Choloma also established similar mixed company following the example of Puerto Cortés.

[edit] See also

[edit] References

  1. ^ Oscar Kilgore, Mayor of San Pedro Sula, on the acceptation of the reforms and Paul Constance IDB San Pedro
  2. ^ IDB HO0211 San Pedro Sula Water and Sewerage Project
  3. ^ Dickson IDRC 2006: Management Models of Water and Sanitation: Approaches to Decentralization in Honduras p. 6-9
  4. ^ Dickson IDRC 2006: Management Models of Water and Sanitation: Approaches to Decentralization in Honduras p. 4
  5. ^ Dickson IDRC 2006: Management Models of Water and Sanitation: Approaches to Decentralization in Honduras p. 5
  6. ^ Paul Constance 2004
  7. ^ IDB HO0128 Puerto Cortés Sewerage Project
  8. ^ Halcrow