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23 August 1999

Has Privatisation Met Expectations?

By Carmelo Ruiz

SAN JUAN, Aug 13 (IPS) - The administration of Governor Pedro Rosselló promised that privatisation would usher in a new era of efficiency and prosperity.

A fervent supporter of neoliberal policies, the Rosselló government privatised the administration of the Puerto Rico Aqueduct and Sewers Authority (PRASA) in hopes that private enterprise would put an end to this Caribbean U.S. territory's severe water management crisis. PRASA's administration was put in the hands of the Compañía de Aguas corporation, until last year called Professional Services Group (PSG). Compañía de Aguas/PSG is a subsidiary of the Europe-based Vivendi corporation. But now, even the most ardent supporters of neoliberalism has been speculating that putting PRASA's administration in the hands of this private firm was a serious mistake.

Last week, the Puerto Rico Office of the Comptroller (Contralor) issued a critical report on the PRASA- Compañía de Aguas/PSG contract. The document lists numerous shortcomings, including deficiencies in the maintenance, repair, administration and operation of aqueducts and sewers; and required financial reports that were either late or not made. According to the Comptroller's report, under private administration PRASA's operational deficit has kept increasing and has now reached a whooping 241.1 million dollars. This has required the Government Development Bank (Banco Gubernamental de Fomento) on several occasions to step in and provide the agency with emergency funding. Furthermore, the Comptroller found that Compañía de Aguas/PSG owes 36 million dollars to the Electric Power Authority and 1.7 million dollars to the Puerto Rico Telephone Company.

PSG was originally awarded the PRASA contract in 1995. The contract was restructured in 1998 to give the private company complete control over PRASA's administration.

What does the current situation mean to PRASA customers? "For the customers, it means uncertainty, confusion and doubt, and unfortunately a worsening of the already poor service", said economist and University of Puerto Rico (UPR) professor Héctor Ríos-Maury, author of a recent book on privatisation. He added that "the subsidy given to the private company is excessive, and this is evident if it's compared to the subsidies given in other privatisations of aqueducts, like the ones that took place in the United States in the eighties".

"The World Bank and the Interamerican Development Bank, two institutions that support privatisation, have expressed doubts about the way some privatisations have been carried out, and recommend that these processes have some transparency. But our government here doesn't pay attention to those reports", commented UPR economy professor Francisco Catala. "Privatisation is being used in Puerto Rico as a political slogan to solve everything", he said.

"PRASA's operational deficit increased with Compañía de Aguas without any noticeable improvement in the service", declared Catala. "If there had been an increase in the deficit but with an improvement in service, it wouldn't be so bad. But that is not the case here."

Catala holds that trimming the public payroll does not necessarily reduce the costs of government. He points out that personnel reductions in public agencies are usually accompanied by an increasing reliance on private sector contractors, so it is hard to tell if the public sector saved any money in the long run.

"There's been a reduction in the PRASA payroll. But we must find out if this reduction has merely made room for an increase in outsourcing to contractors. That's probably what happened, because the total costs of operating PRASA have been increasing in recent years."

"The Compañía de Aguas contract is the culmination of a process of gradual privatisation. An increasing amount of work had been contracted out to private firms, and only management remained to be privatised", said political commentator David Noriega, who has been closely following the processes of privatisation since his stint as member of the P.R. House of Representatives in the mid-nineties. "But outsourcing has also been a disaster", added Noriega, who ran for governor in 1996. "There's been cases in which PRASA work brigades have had to redo work that private contractors didn't do right."

"The PRASA-Compañía de Aguas debacle is evidence that we need a regulatory law for the privatisation of public enterprises", recommended Ríos-Maury. "Such a law must be negotiated by all sectors of society."

"This is not a new idea. It has been done successfully in countries with less democratic tradition than Puerto Rico."

"If the government is going to delegate the administration of a public enterprise, it must put in place a structure of supervision in order to safeguard the public interest", said Catala.

Ríos-Maury regrets that the privatisation debate has been polarised between unconditional supporters and intransigent opponents. "Proponents present privatisation as an infallible religion, as a sacrosanct activity. And its opponents view it as something evil and terrible. Both approaches are mistaken. Privatisation is just an economic strategy ."

"My first choice would be not to privatise at all", said Noriega. "But if we're going to privatise, we must do it with parameters of public interest."

[c] 1999, InterPress Third World News Agency (IPS)
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