Cochabamba versus privatisation: the water war of 2000

Cochabamba's central plaza is pretty nice. Fourteen years ago it was occupied by protestors.
Cochabamba’s central plaza is pretty nice. Fourteen years ago it was occupied by protestors.

We’re in Cochabamba, Bolivia’s third city. It was here in April 2000 that:

  • Victor Hugo Daza, a seventeen year old student on his way home from work was shot and killed but the Bolivian military
  • Executives of International Water Limited fled in a helicopter when the police said they could no longer guarantee their safety
  • The city’s experiment with water privatisation came to an abrupt end

The “water war” of Cochabamba is claimed by anti-privatisation advocates around the world as a great victory. There’s something in that. Privatisation was essentially protested out of Cochabamba. But, like most things, the story is complex. It’s also a tale of good intentions gone awry, a deeply flawed implementation of a not unreasonable idea and of violence and tragedy that didn’t ultimately ‘fix’ Cochabamba’s water problem. It’s also a good enough story to have been the inspiration for the James Bond film Quantum of Solace.

Why privatise water?

When Bolivia emerged from military rule in 1982 its economy was in tatters. It turned to the World Bank for assistance who offered loans on the condition of ‘structural adjustment’ in the Bolivian economy. A big part of that was privatisation. The idea, which carries significant weight in the context of corrupt, developing economies, is that privatisation creates more efficient businesses that deliver better, cheaper services.

The World Bank saw Cochabamba’s water utility as a prime privatisation candidate. It wasn’t run well. State subsidies only benefited the rich because the network was limited to richer areas. Poorer communities had to pay higher prices to get drinkable water out of trucks, or to organise their own community wells.

Seller beware: the contract was absurd

As a condition for a 1999 World Bank loan, an auction was held for a two billion dollar contract to manage the water system for forty years. There was only one bidder – a consortium called International Water. The contractual terms therefore have reflected Bolivia’s weak bargaining position but, like, whatever. They were absurd:

  • International Water was given rights to all water infrastructure – municipal and otherwise – and rights to all water in the aquifer. The poor, unserviced communities that had built their own wells now had to pay rents to International Water.
  • International Water was guaranteed a 15% return on its investment over a forty year period. This is pretty darn high for a utility with certain demand. But, which is more, when you give a company a monopoly – and one that provides a necessity of life to boot – good practice is to regulate their rate of return not to guarantee a minimum.

Increase prices and Bolivians will protest. A lot.

The first International Water bills to Cochabambinos were, in many cases, double what they had previously paid. They made up as much as a quarter of household budgets. In their defence International Water claimed the price rises were necessary to account for capex spending that had been neglected under the government company. And they were certainly contractually able to charge what they did. But it’s hard to see how they thought these sorts of sudden price rises were sustainable. They also charged for the installation of water meters which allowed them to charge for water. Pretty much rubbing salt in wounds.

In the best tradition of Bolivian civil disobedience, Cochabambinos took to the streets in March 2000. They took over the central plaza and blocked highways in and out of town. A broad coalition of peasants, students and middle class Bolivians joined in. There were sympathy protests in other towns. The government, frantic and concerned that this kind of protest would discourage other desperately needed foreign investment, declared martial law and shut off electricity to local radio and television stations.

A shooting ends the protest

The protests escalated and turned violent. The police used tear gas, and cholitas left bandanas soaked in vinegar and baking soda outside their doors to guard against it. The government claimed the protests were financed by drug dealers, International Water picked this up in its public messaging, and aggrieved coca leaf growers joined the protest. Seventy civilians and fifty one police were injured. It was a total mess.

When Victor Hugo Daza was shot his murder was captured on film and the shooter was identified as a Bolivian army captain in plain clothes. International Water’s withdrawal from Cochabamba, and the return of the government run water company, was announced at his funeral.

What then?

The tragedies of the water war are almost too many to count. But one of the big ones is that it didn’t solve the Cochabamba water issues. The need for new dams and infrastructure to serve the whole community was no nearer to being met. The opportunity to use privitisation as a tool for good had been bungled. Foreign investor confidence in Bolivia was down, and Cochabambino confidence that foreign investment could improve their lot was similarly smashed.

Retrospectives of the “water war” ten years on talk of it as an enduring symbol of inspiration, and an iconic moment in the battle against neo-liberalism. You have to read through to the fourth paragraph before it’s revealed that Cochabamba’s water situation is still incredibly fragile.

And what now?

The response of Cochabambinos to the extreme situation they faced was pretty reasonable. Good on them for sticking up for themselves where many other communities grappling with privatisation sit and take it. But lets not throw the baby out with the municipal water system. Cochabamba stands as an example of what not to do in the specific, but not necessarily in the general.

If you’re going to privatise a utility, consider a public-private partnership. Regulate the rate of return. Don’t guarantee it. Don’t give away water rights willy nilly. Let communities keep their wells to check monopoly power. Include social provisions. And make sure you pick a water company that has a shred of understanding of how your country works.