Academic journal article Brazilian Political Science Review

Water Services in the Buenos Aires Metropolitan Area: How Does State Regulation Work?*

Academic journal article Brazilian Political Science Review

Water Services in the Buenos Aires Metropolitan Area: How Does State Regulation Work?*

Article excerpt

Introduction

After the crisis of the Welfare State, State intervention in public utilities was dramatically restructured worldwide. The State no longer acted as the supplier of public utilities and offered their management to private operators. In this way, the State limited its role to regulatory and control functions. The rationale underlying this restructuring was that the operation of public utilities would recreate competition in the market rather than replace it. Following these assumptions, the production and supply of water and sanitation services were transferred to private operators, but competition in the sector was not fostered. In most of the cases, the monopolistic nature of the service remained.

Thus, the nature of water and sanitation services called for strong State regulation of the supply, as the utilities were now in the hands of private operators. However, the regulatory architecture was not sufficiently effective. As a result, private companies made extraordinary profits in a context characterised by asymmetric information problems, lack of transparency and accountability in decision-making, corruption and weak regulatory agencies. The wellbeing of the population and environmental protection were overlooked (CASTRO, 2004; HALL, 2002; HALL and LOBINA, 2002, 2006; LOBINA and HALL, 2003; VARGAS and SEPPÄLÄ, 2004).

In countries where the water supplies have undergone this process, increased rates have been justified as a means to finance investments that ultimately did not materialise. In addition, recurrent contract renegotiations have resulted in cancellations or delays in mandatory investments. Infrastructure investments have been limited to maintenance and improvements take place mainly in the commercial aspects of the supply (CASTRO, 2004).

At the beginning of this century, several international water operators exited the Latin American region. As a consequence, several public utilities were renationalised (DUCCI, 2007). In the Buenos Aires Metropolitan Area, the concession was rescinded in March 2006 and the company Agua y Saneamientos Argentinos S.A. (AySA)[Argentine Water and Sanitation Services Inc.] was created by the State.

This article focuses on a) the creation of AySA and its performance (e.g. financial results, coverage levels, investments, among others) and b) the regulatory design that accompanied the renationalisation, and how it works (e.g. the regulatory framework, price structure, and regulatory agencies). We will also examine the continuities and ruptures in the regulatory practices from the period of private operation (May 1993-March 2006) to the present.

We use the concept of "State capacities" (both administrative and relational) to analyse State regulatory performance from a sociopolitical perspective. To assess the administrative capacities, we discuss the correspondence between the agencie's design and resources, and the differences between formal functions and the agencie's actual practices. We also examine the policies of the National Government and its interaction with AySA and the regulatory and control agencies to evaluate the relational capacities. In addition, we identify existing power resources so as to understand the behaviour of actors, their strategies and their influence on service operation. We understand the State's power resources as a)the legal framework to manage the service, b)the negotiation skills with non-State actors and c)the political objectives of the service. Regarding the social actors, we identify a)their alliance capabilities and b)their cooperative or confrontational positions towards State agencies. The analysis is based on official documents, legislation and statistics, company balance sheets and reports, newspaper articles and semi-structured interviews.

This article is organised in five sections. In Section 1, we discuss the concept of State capacity. Section 2 focuses on the creation of AySA: the legislative debate and formal aspects of its design. …

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