New British Empire of the Dammed
Bolivia’s Water Supply is the Latest Acquisition of Thirsty British Firms in the Service of Uncle Sam

Greg Palast

By Gregory Palast for The Observer/Guardian UK

With the front pages jammed with photos of two dead white farmers in Zimbabwe, the news from Bolivia “Protests claim two lives” was pushed into a teeny “World in Brief” in the Guardian, and unmentioned elsewhere. What a shame. The Zimbabwe murders merely exercised a suppressed nostalgia for England’s imperial past. But Bolivia is the story of Britain’s imperial future.

First, let’s correct the arithmetic. The count in Bolivia is now 6 dead, 175 injured including 2 children blinded after the military fired tear gas, then bullets, at demonstrators opposing the 35% hike in water prices imposed on the city of Cochabamba by the new owners of the water system, International Waters Ltd, of London.

Following the Cochabamba killings, Hugo Banzer (once Bolivia’s dictator, now the elected President), declared a nationwide State of Siege, setting curfews and abolishing civil liberties. On April 12, just after the martial law declaration, World Bank Director James Wolfensohn took time out from his own preparations against protests in Washington to comment to reporters that, “The riots in Bolivia, I’m happy to say, are now quieting down.”

I contacted Oscar Olivera, leader of the protests, to ask him how he organized the riots. On April 6, following the first protests against the price increases, Olivera, a trade union official, with a coalition of 14 economists, parliamentarians, lawyers and community leaders, accepted a government invitation to discuss the IWL price hikes. After entering the government offices in Cochabamba, Olivera and his collegues were arrested. With Olivera in chains, the riot outside the building could only have been directed by the leader of the 500 protesters, Cochabamba’s Roman Catholic Archbishop.

There is, of course, the possibility that the World Bank’s Wolfensohn had it wrong, and that what he calls rioters were in fact innocent victims of deadly repression. Olivera, one of five protest leaders released (the government banished the 17 others to internal exile), flew to Washington to try to speak with Wolfensohn. But the Director is a busy man and Olivera left this Wednesday without a meeting.

Never heard of IWL? Like many of Britain’s multinationals, it is controlled by a larger US corporation, in this case, construction giant Bechtel. Unloved UK water monopoly United Utilities (Northwest Water), once IWL’s co-owner, was demoted to “strategic partner” in November.

From its US headquarters, Bechtel issued a statement flatly denying the upheaval in Bolivia had anything to do with its water price hikes. Rather, IWL’s American owner hinted darkly that the revolt was partly the work of those opposing a “crackdown on coca-leaf production.” Olivera responds that neither he nor the archbishop traffic in narcotics.

The price hikes that triggered the water war were driven by IWL’s need to recover the cost of the huge Misicuni dam project. Water from the dam system costs roughly six times that of alternative sources. Why would IWL buy water from a ludicrously expensive source? Just possibly because IWL owns a part of the Misicuni dam project.

The public had one other objection with IWL’s charging for the dam project: there is no dam. It has not yet been built.

It is a basic tenet of accounting that investors, not customers, fund capital projects. The risk-takers then recover their outlay, with profit, when the project produces a product for sale. This is the heart, soul and justification for the system called “capitalism.”

That’s the theory. But when a monopoly operator gets its fist around a city’s water spigots, it can pump the funds for capital projects (even ones that cost 600% over the market) from captive customers rather than its shareholders.

Samuel Soria, the government’s former consultant on the water projects, said he was unable to extract from IWL evidence it had put in any funds at all into the operation. Soria, Chairman of Chochabamba’s Council of Economists, was told the water system’s purchasers had deposited ten million dollars into a Citibank account in New York but Soria found no evidence of its transfer to Bolivia. Water prices, he fears, could eventually rise 150% under IWL management.

“No money was shelled out by anybody” for the water company, Luis Bredow told me. The editor of Cochabamba’s newspaper GENTE, Bredow’s own investigation concluded the operators grabbed the entire system for nothing. He attributes these exceptionally favorable terms to IWL’s partnering with former Bolivian President Jaime Pasamora, leader of a political party allied to Banzer.

IWL’s London spokesman said little more than, “How did you find out that IWL was involved in Cochabamba?” (The company’s Bolivian group is called Aguas de Tunari.) In fact, the British company’s involvement is getting to be, to use Bredow’s term, “misterioso.” President Banzer, to quell the spreading demonstrations, announced cancellation of the water privatization on April 5.

But the next day, word leaked that IWL was back in the saddle at the water company and people took to the streets again, nationwide. On April 10, the panicked government declared that the foreign consortium had “abandoned” their franchise when its British CEO supposedly fled the country. But this Thursday we tracked the IWL executive to a La Paz hotel where, his associates told me he, they were about to open negotiations with the Banzer government.

It can’t be said that the British-American operators brought misery to Cochabamba; they found plenty already there. Intestinal infections leading to diarrheal illness is Bolivia’s number one disease and child killer, the result of water hook-ups and sanitation reaching only 31% of rural homes.

World Bank Director Wolfensohn has a solution to the lack of water: raise the price. So pay up, he demanded of the protesting Bolivian water users in his extraordinary April 12 diatribe against the “rioters.”

Wolfensohn’s shut-up-and-pay-up outburst contradicts the internal counsel of his own experts. In July 1997, at a meeting in Washington, the Bank’s technocrats laid out to the Bolivians the case against Misicuni and even warned about social upheaval if prices rose. According to a World Bank insider who asks not to be named, the Bank’s hydrologists and technicians devised a water plan for Cochabamba at a fraction of Misicuni’s bloated cost. This alternative could be paid off without raising prices on current customers. Water supply and distribution would be divided between two companies to avoid the kind of self-dealing inherent in IWF’s Aguas de Tunari set-up.

So why did Wolfensohn attack protests against a project the World Bank itself found dodgy and damaging? There are larger plans not discussed with the Bank’s low-level minions nor known to the latte-fueled revolutionaries demonstrating in Washington last week. Long before ministerial limousines clogged the US capitol, the big policy decisions were settled in far-flung “sectoral” meetings. In the case of water, nearly one thousand executives and bureaucrats gathered in The Hague last month to review and refine a program to privatize the world’s water systems.

But private operators can only turn profits if prices rise radically and rapidly. IWF secured from Bolivia a 16% real guaranteed return. This profit boost itself enough to account for the initial 35% hike in rates. To boost such “reform,” the IMF, World Bank and Inter-American Development Bank have written sell-offs into what they modestly term, “master plans” for each Latin nation. Consortia such as IWF were formed to capture these cast-off public assets.

The justifiable basis for the sell-offs was that privateers committed to deliver capital for desperately needed system repairs and expansion. But like a gigolo’s flowers, the promises rapidly wilted. Cochabamba’s protest organizers knew that just across the border in Buenos Aires, the region’s first privatization consortium eliminated 7,500 workers, the system bled from lack of maintenance and prices jumped, repeating the story of virtually every water privatization from the Philippines to East Anglia. In Argentina, the new owners of the Buenos Aires system include, notably, Anglian Water, and the World Bank itself.

Britain is re-establishing imperial reach, albeit in the shadow of Americans, through rapid low-capital takeovers of former state assets, concentrated in infrastructure where monopoly control virtually guarantees outsized profit. From BG’s takeover of the Sao Paolo, Brazil, gas company to United Utilities’ buy-out of the Manila water company, it all seemed a riskless romp, until a few thirsty, angry peasants in the Andes decided they could stop the New lmperium in the streets.

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Gregory Palast writes the award-winning column, Inside Corporate America fortnightly in Britain’s Sunday newspaper, The Observer, part of the Guardian Media Group, where this first appeared. For comments or request to reprint, contact us.