United States: Quarterly Report on Water Industry Developments in Latin America -- April 2004

Conference Covering PPP in Brazilian Waterworks. International Business Communications (IBC) will host a conference in Sao Paulo on May 6 to discuss the role of public-private partnerships in the country’s waterworks sector. The conference is timely considering the pending PPP bill that is expected to come to vote in mid-March. For more information, visit www.ibcbrasil.com/saneamento.

Mexico to host 2006 World Water Forum. Mexico will host the IV World Water Forum in March 2006, with a "Local Action for a Global Action" theme. Brazil, Egypt, and Turkey were also considered. The event marks the first time the Forum will be held in a Latin American nation.

Country Reports

Argentina

• Chaco aqueduct bidding rules announced. Officials from Chaco province in early March announced bidding rules for a contract to draft the terms of reference for an aqueduct in the province. The province hopes to draft the executive project this year and submit a request for construction to the federal government for inclusion in next year’s budget. Authorities decided to void the original contract with Supercementos and Iecsa as the exchange rate made the project financially unfeasible. Before the peso’s devaluation, the aqueduct was estimated to cost 150mn pesos which currently would be US$50mn, but that estimate has recently been raised to 400mn pesos (US$136mn). The aqueduct aims to benefit some 300,000 residents by pulling water from the Bermejo River, where currently 25% of residents lack drinking-water service.

• EBY water channel, irrigation tender. The bi-national entity, Yacyreta (EBY), which controls a massive hydroelectric project between Paraguay and Argentina, opened bids on February 23 for a US$45mn water channel contract and technical bids for a US$15mn dam-irrigation intake, according to sources. Bids for the water channel were described as "erratic" as they ranged from US$27.1mn to US$46.8mn. The water channel will be 11kms long and it will divert the natural flow of the river below the dam for flood control. Sources say that each project is expected to take about 3 years to complete and when done the Yacyreta dam level will be raised 7m to its 83m target and power generation will increase 40%. Development of the Yacyreta hydro plant has been underway since 1983 with US$11bn already invested and another $1bn needed before the project is completed in 2007.

• BA rain collection reservoirs. The four companies that submitted offers to build three rain collection reservoirs for Buenos Aires were pre-qualified. The offers came from Benito Roggio, Iecsa, Dycasa and Supercemento. The three reservoirs are among the first of 11 to be built in the capital, which will have a total cost of US$37.9mn.

• South Water purchases portion of Mendoza waterworks. The waterworks service company South Water Argentina purchased 32% of Obras Sanitarias Mendoza (OSM), the Mendoza province water utility. These shares correspond to those held by Azurix, a subsidiary of the now bankrupt Enron. Although the price of the transaction was not released, sources say that South Water paid only a small fraction of the $72.5mn that Azurix paid when it won the concession in 1998. OSM serves some 320,000 customers in the Mendoza region.

• Salado Phase I tender. According to sources, the Dragados y Obras Portuarias-Pentamar consortium outbid competitors with a bid of 109mn pesos (US$37.2mn) for the first stage of the Salado river flood-control project. The first stage involves dredging 20M cu. m. along a 60km stretch of the river, and should take a year and a half to complete. The federal government’s national water resources fund (Fondo Hidrico Nacional) and development and foreign trade bank BICE will fund the project.

• Aguas Argentinas contract renegotiation. In January, Aguas Argentinas and Banco Provincia agreed to extend until the end of 2004 a contract for a trust that ensures money collected by Aguas is spent on water and sewerage expansion works. Sources say that Aguas has put in 99mn pesos (US$34mn) to date with another 42mn expected this year. The extension agreement is part of Aguas’ concession contract renegotiation. Aguas has a 30-year operating concession which it won in 1993 serving some 10 million residents in and around Buenos Aires. In mid-February, sources report that the president of Aguas met with an official from France’s Suez group which currently heads Aguas, after which Suez announced that despite contract renegotiations, it plans to stay at the helm of the Argentinean waterworks concessionaire.

• Santa Fe aqueducts. After the University of Buenos Aires carried out technical and economic feasibility studies for three aqueducts, the Centro-Norte, Centro-Sur, and Sur, government officials announced that the Centro-Norte aqueduct project in the Santa Fe province will be the first put out to tender. Sources say that the three projects together are expected to cost US$312mn and benefit some 100 municipalities. The projects will include inlets to pull water from the Parana River, drinking water plants, and pumping stations. It has not yet been decided whether the projects will remain under the public works ministry or the recently created water affairs ministry.

• Possible relaunch of Posadas water plant tender. After a two year delay since four technical offers were qualified to bid for a drinking water plant in the Misiones capital city of Posadas, waterworks concessionaire Samsa announced that it may relaunch the bidding process, sources say. Although a decision is not yet final, the most likely result will be an entirely new process. The 52mn peso (US$18mn) project is a part of the federal government’s US$47.1mn Potable Water & Sanitation Reform Program.

• None.

• Plan Bolivia dispute. According to sources, in late January Jose Barragan, Bolivia’s deputy minister of basic services, consented to several water officials’ requests for the suspension of Plan Bolivia due to concerns that only foreign companies would profit from it. The government initiative promotes institutional transformation to improve efficiency in the water sector in an effort to increase water service coverage and the sustainability of investment. Currently, Bolivia's rural water system is collectively organized by small localities. These organizations fear rates will increase as a result of the plan and that they will lose control of the system to private interests. However, the new plan would grant greater management authority to these organizations, a goal they have sought for years. Sources say that Barragan signed an agreement suspending the water concession process in metropolitan areas after a meeting with water officials in which they asked for suspension until the regulations of Law 2066 had been agreed upon and approved. Law 2066 was passed in 2000 in response to civil unrest over private investment in water services, although the regulations to put it into effect have not yet been approved. Opponents of the plan object that it will lead to the privatization of the water sector by creating attractive markets for multinationals. The government, on the other hand, believes that Bolivia’s low water service coverage is a result of inefficiency in the sector and that some privatization is necessary for development. Of the 165 water operators in 117 municipalities, only 24 are concessions. The program will be suspended until Barragan completes a series of workshops aimed to gain consensus for the regulations. Sources say that this state of uncertainty has effectively frozen development of the water sector until the government’s plans become clear. The government has made resolving this issue a priority for 2004 and hopes to settle the crisis by September.

• Aguas del Tunari negotiations. Since 2000, when Bolivia terminated a water and sewerage services contract held by Aguas del Tunari (ADT) due to civil unrest in the Cochabamba area, the consortium and the government have been in discussions over what type of compensation ADT should get for the cancelled contract. In December, the International Center for the Settlement of Investment Disputes ("ICSID") agreed to arbitrate the dispute, although the parties may be able to settle the dispute without going through the full ICSID arbitration. Source say that recently the government and representatives from Bechtel, which has a 27.5% stake in ADT, have been in negotiations and that they hope for a settlement by the end of April. Although both the government and ADT will not divulge numbers, sources have said that ADT is seeking $50mn, $25mn for its lost investment and $25mn as the price of the concession.

• EU funds Santa Cruz department waterworks. As a part of a 1999 agreement between the EU and Bolivia, the EU is funding a sewerage and potable water system in the town of La Villa Primero in the Santa Cruz department that is expected to be completed in September 2005. Sources say that the project is valued at US$32mn, US$25mn of which is to come from the EU and the rest from the municipality.

• Misicuni tunnel. Although project contractor Astaldi ICE has requested that a different lining be installed in the tunnel which would push back the date all construction is finished, sources say that the government still expects water supply to begin in September as promised. In another challenge to the tunnel, reports indicate the Semapa is behind on payments to Empresa Misicuni, the consortium building the tunnel, which could threaten the company’s financial viability. The 19.2km tunnel will deliver 400 l/s of water to the Cochabamba department, and Semapa, the department’s water utility, has agreed to purchase all the water the tunnel delivers. Subsequent stages of the project include a water treatment plant, increasing the height of the dam from 85m to 120m, a second tunnel from a second source, and completion of a hydroelectricity project.

• Silala water dispute with Chile. Bolivia and Chile this quarter became embroiled in an intense phase of a continuing water use dispute stemming from a disagreement over whether Chile could use water from the Silala River without payment to Bolivia, under the theory that the waters are international, or whether Chile must pay Bolivia for usage since Bolivia claims the river’s source is a group of springs within Bolivian territory. Sources say that the dispute brought protesters to the remote corner of Bolivia, instigated talks involving the highest dignitaries in each country, and stirred Bolivia’s lower house to declare taking advantage of the water to be a "national priority." Bolivia even threatened to build a dam which would divert the water away from Chile. Chile’s president Ricardo Lagos said that if technical and geological studies prove that the source is in Bolivia and thus not an international water, Chile would be willing to negotiate rates. News reports say that a commission with three representatives from each country has been constituted and they are working to resolve the dispute.

• Water companies given greater credit access. In this country with very little private sector involvement in the water industry, Bolivia’s congress approved a bill that gives credit access to water companies to develop basic sanitation and potable water services, according to sources.

• The public-private partnership bill. In mid-March, Brazil’s lower house approved a bill aimed at promoting public-private partnerships (PPP), sources report. The bill is currently pending in the senate. Significant aspects of the bill include requirements that projects have an environmental license and that bidding rules include guarantees on the part of the private sector in the form of bid and performance bonds. The PPP bill is considered essential for the government’s 2004-2007 Plano Plurianual investment plan, which calls for investing 191bn reais (US$65.7bn) on priority infrastructure such as transport, waterworks, hydraulic, power and housing projects. That bill is still pending in congress. In relation to the PPP bill, sources say that the Sao Paulo state government plans to create a state controlled company, Companhia Paulista de Parcerias, which would manage public-private partnership projects.

• Waterworks draft bill submitted to Lula. Sources say that in early March the cities ministry submitted a draft bill for a national environmental sanitation policy to President Luiz Inacio Lula da Silva which would create a regulatory framework to promote public-private investment in the waterworks sector. Lula’s administration has shown an increased interest in the waterworks sector recently, evidenced by a rise in money allocated to the area from 561mn reais in 2003 to close to 4bn reais (US$1.4bn) allocated this year.

• Sabesp serves São Bernardo do Campo. After signing a contract with the municipality of São Bernardo do Campo in December, sources say that Sabesp began delivering waterworks services to the city after taking over from the local utility DAE. The transaction is worth 415mn reais (US$146mn). Serving 323 of Sao Paulo state’s 645 municipalities, Sabesp is Brazil's largest water utility in terms of users.

• São Francisco water channel. The federal bank Caixa Economica Federal (CEF) and Brazil's Sergipe state government announced new financing for the Sao Francisco water supply channel project whereby CEF will provide 94mn reais (US$32.9mn). The project will double the capacity of a 43km portion of the channel, increasing its supply rate by more than 400 l/s.

• Major increase in waterworks investment. With funds coming from the federal budget, worker savings fund FGTS and national development bank BNDES, Brazil’s cities ministry plans to invest 4.7bn reais (US$1.66bn) this year in waterworks development. This is a vast increase over 2003’s waterworks investment of 561mn reais.

• Manoel Alves dam in Tocantins state completed. With construction recently completed, the 56mn reais (US$19.7mn), 242 million cu. m. capacity dam was inaugurated in February, sources say. The dam was built in the municipality of Dianopolis, benefitting 20,000ha and over 31,000 residents.

• São Paulo considers water options. Faced with an underserved and burgeoning population, the São Paulo state government is considering three multi-million dollar projects that would bring water to the state’s capital. Each option envisions bringing water from distant sources, incurring substantial pumping costs, and each would cost in excess of 1bn reais (US$341mn).

• Amapa environmental/waterworks project financing bill. The Amapa state legislative assembly approved a bill that permits the government to pursue IDB financing for a US$70mn waterworks and environmental improvement program, sources say. The waterworks components of the project include drainage to control flooding in Macapa and surrounding cities and aiding the state water utility Caesa in improving waterworks infrastructure.

• PROGERIRH tenders. In mid-February, Brazil’s Ceara state water resources department announced upcoming contracts under PROGERIRH, the US$247mn water resource management project. Contracts include management and institutional framework improvement, integration of selected river basins, groundwater management, restoration of current bulk water infrastructure, and a micro-watershed management pilot.

• Salto Pilao hydro project. Press reports indicate that construction on the US$129mn Salto Pilao project in Santa Catarina state was set to begin in March after clearance form the national environmental agency in December. The consortium involved in the project includes local cement manufacturers Votorantim Cimentos and Camargo Correa Cimentos, the local unit of US aluminum manufacturer Alcoa and municipal utility DME Energetica.

• Saneago examines private sector waterworks involvement. Saneago, the water utililty for the state of Goias, met with Soluciones Integrales-Antla (SIA) in late March, a consultant consortium, to discuss a proposal for using the private sector to improve operations, sources report. SIA previously studied the feasibility of bringing in private groups to run some of Saneago’s operations, but Saneago rejected SIA’s proposal. This meeting was focused particularly on the feasibility of using the private sector to manage specific business units, an arrangement that would fall short of full privatization. If Saneago decides to involve the private sector, the work would be a part of a US$95.2mn waterworks project which will extend 24-hour drinking water to 90% of the users in state capital Goiania and improve sewage treatment.

• Campo Grande investigates Aguas Guariroba. After local waterworks concessionaire Aguas Guariroba failed to meet investment goals during the first three years of operation of its 30-year contract, the Brazilian municipality of Campo Grande "intervened" and conducted investigations, sources say. After investigations were completed in mid-March, the municipality required that Aguas fulfill its 2003-2004 investment pledge of 17mn reais (US$5.8mn) for it to remain in the city.

• Guandu 2 water treatment plant. Citing a growing population and aging infrastructure of the current Guandu plant, sources say that Rio de Janeiro’s state water utility Cedae plans to build a new Guandu River water treatment plant, improving distribution and creating an alternative supply source. Cedae claims that the current plant, which opened in 1955, at 40,000 l/s is the largest water treatment plant in the world and supplies 80% of Rio’s water. The new plant would have the capacity to treat close to that same amount and has an estimated cost of US$150mn.

• Silala water dispute. See Bolivia.

• US$91.8mn loan to finance Esval. Esval, Chile’s Region V water utility, signed a syndicated loan with five banks for US$91.8mn that will finance Esval’s acquisition of operating rights for Region IV water utility Essco. In November, Chile’s state companies administrator granted Esval a 30 year concession to operate Essco after submitting a bid for US$89.7mn. To help pay for the loan, Esval approved a capital increase for US$41.5mn, sources say. Esval serves approximately 1.4 million residents.

• Chilean dams move forward. After resolving some earlier technical difficulties, the Embalse Illapel consortium (Mendes Junior, Sical Brunol and Ingecol) began construction on the US$33mn El Bato irrigation dam in Chile’s Region IV, sources say. This 25.5M cu. m. dam on the Illapel River was the first irrigation project offered to the private sector under the concession scheme. In other news, sources say that bidding for the US$105mn Convento Viejo dam should begin by mid-year once that the project’s environmental impact statement (EIS) is approved. Sources also say that the bidding process for the Ancoa ($34mn) and Punilla ($130mn) dams will begin by the second half of the year.

• Chile’s last state-operated water utilities in bidding process. The process of granting 30 year concessions for the last three state-run water utilities, Essat, Essar and Esmag, is underway, sources say. At least a dozen groups purchased pre-qualification rules, due diligence proceedings are underway, and bidding rules recently became available in early April. Officials expect a call for bids by the end of June. Essat serves some 409,000 residents in northern Region I, Essar 581,000 residents in southern Region IX and Esmag 147,000 resident in Region XII. Essat's annual sales are 18.8bn pesos (US$33.2mn) and it boasts 99.8% drinking water coverage, 95.9% sewerage coverage and treats 100% wastewater treatment; Essar's annual sales are 14.7bn pesos, with drinking water coverage at 100%, sewerage coverage at 90.3% and 13% wastewater treatment; and Esmag's annual sales are 5.91bn pesos, with drinking water and sewerage coverage at 100%, and wastewater treatment at 13%.

• Rain catchment works financing bill. Chile’s lower house reportedly approved a bill concerning the financing of rain catchment works, and has sent it on to the senate's public works committee for review. The bill would permit putting works out to concession and make the public works ministry responsible for the primary and secondary rain drainage networks. Works are estimated to cost US$1.7bn, almost $700mn of which will take place in Santiago to deal with its frequent flooding problems. The works will be paid for by an extra charge included in users’ monthly water bill, although the bill maintains the possibility of government subsidies. The bill would exempt from paying for the works people whose property is worth less than 2.5mn pesos (about US$4,200) and more expensive properties would be charged on a prorated scale.

• Feasibility study of Region I reservoirs. The consultant company Ingendesa is carrying out a feasibility study looking into the possibility of building reservoirs in two river valleys in Region I which would prevent flooding in Arica as well as provide water for irrigation, sources say. The study is expected to be completed in July.

• Water code reform bill. According to sources, Chile’s senate is considering adopting a bill reforming the water code. The bill recently underwent review by the public works committee and is currently being considered by the finance committee. Changes the bill proposes include taxing water-rights holders that do not put their share to a productive end use and changing the criteria for future water use requests from basing rights on current needs rather than future plans.

• Uncertain future for Eras. The water utility Eras in Colombia’s Cordoba department denied local newspaper allegations that the company would be liquidated, and is going forward with the concession process to find an operator. The newspaper had reported that the department’s governor had said he would support liquidation in order to solve the region’s water problems. After a previous bidding round was called off for a lack of bids, the Colombian government increased its financial support to US$7.96mn in order to sweeten the deal. Despite these efforts, the new bidding round produced only one bid, sources say.

• Porce III hydro project underway. With the roadworks beginning in January, the US$548mn, 660MW Porce III hydro project is underway. While the first contracts for the large hydro project were awarded last December, the bidding process for the bulk of the project works, including the dam and the machine house, is set to open at the end of the first quarter this year.

• Bermad requests concession contest. A Colombian subsidiary of the Israeli water utility giant Bermad group requested that the mayor of Barranquilla hold a merit-based contest for a concession for the city’s northwest aqueduct, sources say. An investment of US$40mn-50mn is needed for construction and operation of the aqueduct. Currently the water utility Triple A serves 6 million users in Barranquilla.

• Ariari irrigation project. The 32,000ha Ariari irrigation system in Meta department is set to begin works, sources say. The project is valued at US$100mn, 70% funded by government subsidies and farmers paying the remaining over a period of 15 years. Government funds will come from a US$69mn Japan Bank for International Cooperation loan.

• Arjona-Turbaco bidding process voided. Citing non-compliance by Consortium Social de Acueductos Y Alcantarillado de Colombia with bidding process requirements, the environment ministry voided the bidding process for the concession to operate the Arjona-Turbaco water system in Bolivar department, sources say. Officials would not elaborate on details of the irregularity. Although the timing is not settled, a new bidding process will be conducted. The 20 year concession requires an investment of 60bn pesos (US$21mn).

• Grupo Hydros to sell shares to users. In an effort to generate a sense of ownership among its clients, sources say that aqueduct users in three municipalities in the central Cundinamarca department will be able to buy shares of Grupo Hydros, the utility that provides water services. The plan does not seek to capitalize the company but is a part of a presidential strategy to have a country of owners of public service companies.

• EIS privatization. Suffering under more than 110bn pesos of debt and insufficient infrastructure, EIS, the water and sewerage utility for the city of Cucuta, is in the process of privatization. Interested parties have until May 30 to submit offers, a deal which requires more than 200bn pesos (US$73mn) in investment over the next 10 years.

• Interceptor Norte bidding process voided. After receiving only one bid to develop the Interceptor Norte wastewater-channeling project that will serve the city of Medellin, sources say that the Medellin based multi-utility EPM declared the bidding process void. The company is currently revising the bidding documents to include an increase in the project’s budget, but the technical aspects will remain largely the same. Although it is not clear when the new bidding process will occur, the company hopes that the delay will not push back the timing of the project. The 8km Interceptor Norte system will channel wastewater from Medellin and neighboring Bello to a new treatment plant and the project is estimated to cost US$30mn.

• Theft causes 90% of Colombian water loss. A representative from the BRC ratings agency stated that theft is the cause of up to 90% of Colombia’s chronic water loss problem, sources say. Valerie McCormick said that water companies in Colombia tend to lose about 40% of their water production, 90% of which is caused by illegal connections and the rest to leaks and burst pipes. She cited a number of factors for such a high percentage, including civil unrest, sentiment in certain regions that the government is obliged to supply water, and local politics. She also said that one of the key factors is whether the local utility is public or private, stating that private companies tend to be more stable and are not subject to the political whims that can affect public utilities.

• None.

• San Francisco de Macoris aqueduct. Work on the San Francisco de Macoris aqueduct in the Duarte province began in January, sources say. The aqueduct comes with a US$68.1mn price tag and will provide drinking water to over 200,000 residents for 25 years. The projects contractors are the local company CivilCad Constructora and the UK’s Biwater.

• Aglipo II irrigation works. Sources report that the US$64mn Aglipo II irrigation system was launched in early March, which will benefit 200,000ha in the Duarte, Maria Trinidad Sanchez and Samana provinces. The system is designed to improve the region’s drainage problems and increase agricultural production.

• Azua irrigation project begins. The government reportedly launched a US$45mn drip irrigation project in the Azua province which will bring water to 205,000ha. INDRHI, the national water resources institute, will carry out the works, with funds coming from the World Bank, the Sun Trust Bank and the Sun Land Corporation.

• Water reform bill. News reports indicate that on January 20, Ecuador’s congress approved a bill which would modify the country’s water law by entrusting administration of state-built irrigation canals to the farmers that use them. The proposal would replace the current rate pricing system that recuperates investment costs with one that charges only for the value of water that is transported. Sources say that while farmers currently pay US$2,000/ha for irrigation to repay system-building costs, under the proposal, 85% of the usage fee would be used for maintenance and operation and 15% for administration costs.

• Baba dam proposal. Cedege, the government organization setup to develop waterworks projects in the Los Rios province, presented to province authorities an outline of the Baba dam irrigation-hydroelectricity project. The proposal envisions constructing a dam and reservoir which would control almost half of the 3.4bn cu. m. of water that flows from the Quevedo and Vinces Rivers every year. About 2bn cu. m. of this water would be used for electricity production purposes and the rest would be controlled by the dam and used to irrigate 60,000 ha. The preliminary cost estimate put it at US$70mn, however Cedege has not yet decided whether or not to proceed with the project.

• Funds disbursed for San Francisco hydro project. Brazil’s federal development bank BNDES paid out US$72mn to Odebrecht, the Brazilian construction and engineering firm, to fund works in relation to the San Francisco hydro project in Ecuador. Odebrecht is a part of the the Hidropastaza consortium which was awarded the construction concession in March 2000 and the disbursement represents the first portion of US$242mn the bank has approved for the construction firm.

• Water rehabilitation program. ANDA, El Salvador's state water utility, called for expressions of interest for a water rehabilitation program which consists of reconstruction works and decentralization of earthquake damaged drinking water and sewerage systems. The entire program will cost US$60mn, of which US$43.7mn will come from the Inter-American Development Bank (IDB). Expressions of interest were due on February 20.

• PRRAC Tegucigalpa waterworks project. According to sources, the EU's regional program for the reconstruction of Central America (PRRAC), a program set up in the aftermath of Hurricane Mitch with 250mn euros, plans to launch a tender in March for a waterworks project in Tegucigalpa. The project contains sewerage, an aqueduct, and wastewater treatment and will cost $30mn, sources say. For more information on PRRAC, see http://www.delnic.org.ni.

• Guacerique dam. In mid-February, the Honduran government submitted a proposal to congress to create a Guacerique river basin authority, whose primary function would be the construction of a US$300mn dam on the river, according to sources. The project would significantly boost drinking water to the capital city of Tegucigalpa, eventually supplying up to 75% of the city’s drinking water. Sources report that in mid-March, the French company SOGREAH completed a feasibility study of the dam, prompting the Honduran state waterworks company Sanaa to greenlight the project, especially considering that the study found that the dam would only cost US$132mn. The project is currently in the financing stages.

• Big year for Aquasol. The Mexican waterworks firm Aquasol had a big year in 2003: it won two municipal concessions worth US$55mn in total, is contesting its loss in a third, and came in second in a fourth bid. The largest concession was a $30mn build-operate-transfer (BOT) concession for a 1,200 l/s agricultural water plant in Morelia, the state capital of Michoacan. Sources say that they expect construction to be done by year-end. Additionally, having passed the technical review and securing first spot in the economic analysis, Aquasol expects to sign a contract for a $US25mn, 20-year BOT concession in Hidalgo state capital Pachuca. The 400 l/s Pachuca plant will supply water for both agricultural and industrial use and operations are expected to begin this year. On both projects, the company is in a 50-50 joint venture with Tecnologia Intercontinental, a company experienced in industrial wastewater treatment plants that has been seeking to enter the municipal market. Although Aquasol lost the bid for a US$35mn desalination project in Baja California to Inima, it is contesting the results, sources say, claiming that Inima should not have passed the technical analysis portion of the process. In other 2003 activity, Aquasol’s proposal came in second place on a waterworks project in Xalapa, the state capital of Veracruz. Sources say that Aquasol plans to continue in this direction in 2004 by competing in another three or four municipal water projects in Mexico.

• Trouble for the Arcediano dam. In late January, despite the fact that the planned US$622mn Arcediano dam had already been approved by the environmental ministry, the Jalisco state dam came under fire for being economically and environmentally unsound, and as a result, sources say state lawmakers began considering alternatives. The plan was to build the dam at the confluence of the Verde and Santiago rivers, bringing drinking water to Guadalajara and reducing strain on Lake Chapala. Critics though point to the problem that the water in the Santiago river is dirty while that from the Verde is clean, which requires pumping all the water through a purification plant. Not only does this increase the price tag, but it invokes environmental concerns. In late January, a district judge halted work on the dam citing the endangerment of the life of a citizen living beside the Santiago river, sources say. Despite these setbacks, officials are still optimistic about meeting the planned September start date.

• Mexico City aquifer remediation works. The three year 1.6bn peso (US$145mn) aquifer replenishment project was set to begin in March, sources say. The project addresses the problem of overuse of aquifers in and around Mexico City. Works include the construction of some 2,000 wells as well as a treatment plant which will replenish aquifers by 2,000 l/s.

• Semarnat: waterworks expansion in 2004. Sources say that Mexico’s natural resources and environment ministry included in its goals for 2004 bringing irrigation to an additional 110,000ha of farmland and providing an additional 1.2 million residents with drinking water.

• Ahogado basin waterworks projects. News reports indicate that the bidding process will begin in April for some 1.3bn pesos-worth (US$120mn) of waterworks improvement projects in Jalisco state’s Ahogado basin. Projects include building two wastewater treatment plants, 80km in drainage lines, and networks for potable water services. The project seeks to deal with public health problems in the area that have arisen from water contamination and will benefit an estimated 714,000 residents. Mexico’s national water commission, CNA, will head the bidding process and will supply 50% of the funding for the projects.

• Saltillo treatment plant tender. The Coahuila state capital Saltillo is expected to launch tenders shortly for a 20-year concession to build and operate a 1,300 l/s wastewater treatment plant. The US$35mn BOT contract includes constructing the primary plant, drainage and transport networks, and small irrigation systems. While 40% of the financing will come from the public works bank Banobras, 60% will come from private capital supported by municipal guarantees. Currently, Saltillo’s 500,000 residents dump untreated wastewater into streams.

• Government to launch two wastewater plant tenders. Tenders for two wastewater treatment plants worth 1bn pesos (US$91mn) will be launched this year. According to sources, 400mn pesos would go toward drainage systems, 400mn toward plant construction, and the remaining 200mn to financing associated works. One plant will be in the Distrito Federal and the other in Estado de Mexico, but the real beneficiary will be Hidalgo state, as that has long been the dumping grounds for wastewater from the DF.

• Two offers for Managua water plant. Sources say that two of the seven groups pre-qualified for a bidding process to build and operate a water treatment plant in Managua submitted bids to the state water utility Enacal. The winner of the US$20mn project will design and operate the plant for five years as well as create an environmental management plan.

• Assembly opposition to Enacal privatization. In early March, Nicaragua’s state water utility Enacal announced that it would accept expressions of interest for a technical advisory services contract. According to sources though, just before expressions of interest were due, Nicaragua’s national assembly announced its opposition to any efforts to privatize drinking water services, stating that it is important that this basic service remain under state control.

• Darien water consultancy. According to sources, pre-qualification rules were released in early March for a drinking water consultancy in the Darien province. The contract is a part of the economy and finance ministry’s US$88mn Darien sustainable development program. The Darien province is one of the least developed areas of Panama and is prone to periodic dry spells, interrupting water supply and keeping surface water reserves low.

• Senasa starts drinking water projects. Over the next 2 years, Paraguay's national environmental sanitation service, Senasa, is planning to spend US$26mn supplying 450 communities with drinking water, sources say. Work recently began and drinking water is expected to reach residents in July. The project is a part of Senasa's US$55.7mn fourth rural water supply and sanitation project and its US$17.1mn small-communities drinking water supply and sanitation program. The World Bank approved a US$40mn loan in 1997 for the former and the Inter-American Development Bank approved a US$12mn loan in 2001 for the latter.

• EBY water channel, irrigation tender. See Argentina.

• Essap's future to be examined. Since Paraguay’s senate gave up ideas of either selling or putting out to concession the state water utility Essap, sources say that the government has sought support from the World Bank on a consultancy to determine the future of the water utility.

• Sedapal privatization controversy. In early January, Peru’s stock exchange, BVL, announced that it was evaluating whether to float twelve public sector companies on its stock exchange, including Sedapal, the water utility serving Lima sources say. This announcement was soon met with opposition though. According to sources, legislator Alejandro Ore introduced a bill in February designed to ward off private investment in Sedapal. If passed, the bill would proscribe all of the following: total or partial transfers of Sedapal shares to the private sector, an increase in capital, signing of joint ventures, and distributing or selling of assets if dissolved. In March, Carlos Bruce, the minister of housing, construction and sanitation, denied that there were plans to privatize the water utility; however, sources quote him as saying that "Sedapal could accommodate participation from private investment to increase its services." Following remarks by economy and finance minister Pedro Pablo Kuczynski that the country’s water sector could benefit from increased private involvement, a user protest group in late March told government representatives at a public meeting that they oppose private participation in the water sector of any form.

• Tumbes and Piura bidding in April. 30 year concessions to operate two water utilities in the departments of Piura and Tumbes should be open for bidding in mid-April, sources say. Originally slated to begin in mid-March, the call for bids was delayed in order to get the agreement of all local governments. EPS Grau, the utility located in Piura, serves approximately 800,000 residents, providing 79% drinking water and 64% sewerage services coverage. Emfapa, the utility located in Tumba, serves 180,000 inhabitants with respective coverage of 68% and 32%. There will be two separate bidding process for the water utilities and the government hopes to sign contracts by November.

• Odebrecht submitted sole Olmos dam bid. After the bidding process for the Olmos dam and tunnel construction project closed on March 19, sources report that the Brazilian construction firm Odebrecht submitted the only bid, despite the fact that five other groups had expressed interest. The US$112mn project entails constructing a 45 meter dam and a 15km trans-Andean tunnel that will carry water and is expected to take 5 years to complete. The project will take water from the Huancabamba River for electricity generation and irrigation in the Lambayeque department. A decision on Odebrecht’s bid is expected in early April.

• Marca II dam to proceed. In February, sources report that the ministry of economy and finance (MEF) suspended the Marca Pomacocha II dam project, which would increase water supply to Lima and Callao, and declined a US$32mn loan from Japan Bank for International Cooperation (JBIC) to fund the project. In making this decision, MEF cited expert recommendations that water needs could be met if Sedapal maximized its current capacity. Undeterred by this setback, sources say that Sedapal in March went to the Peruvian congress to secure funding for the development of the dam. Citing Lima’s frequent water supply problem, the government changed its position in late March and announced that the dam would proceed as planned. Marca II would add 118M liters of water storage capacity to the Marca Pomacocha reservoir for a new total of 400M liters of water and would help Lima deal with water shortages during dry periods.

• MEF to transfer US$20mn to Sedapal. In late March, the economy and finance ministry (MEF) announced that it will provide $20mn in funds to Sedapal, Lima’s water utility, for a project to increase the coverage of water and sewerage in the capital city, particularly in areas difficult to access such as the mountainous parts of the city. According to sources, the funds became available due to the World Bank’s authorization to increase the level of its external debt by US$150mn.

• Government ends Ondeo contract. The government resumed control of Puerto Rico’s aqueduct and sewage authority (AAA), ending the operating contract in place with the private water company, Ondeo, sources say. The government began taking over administration of the AAA in January and fully took control when the contract was terminated on March 31. Ondeo had been awarded US $360mn annually in order to reduce broken water pipes from 50% to 20%. After discovering that larger cities had more water pipes than data suggested when the contract was signed, Ondeo requested an additional $93mn annually to operate the country’s water system, and the government cancelled the contract.

• None.

• Tachira water supply feasibility study. The consulting firm Paul C. Rizzo Associates is completing the feasibility study for a project that will supply water to the San Cristobal area by taking water from the Carapo River. The project will include a 60m high dam, an 80 million cu. m. reservoir, a treatment plant, a pipeline and pumping equipment and early estimates put the pricetag at $100mn.

• Falcón aqueduct. Construction on an aqueduct in Venezuela’s Falcón state was set to begin in March, sources report. The aqueduct is part of a potable water project designed to benefit 150,000 people. The project is financed by a US$250mn loan from Bank of China, significantly more than the US$100mn loan originally agreed upon in December.

• Desalination proposal for PDVSA. The Israeli project development company Merhav proposed constructing a desalination plant at the Paraguana refinery in Falcon state which is run by the state-owned oil company PDVSA. The project would produce 50 million l/d of potable water to be used at the plant and would cost US$100mn.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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