Degol Hailu

Rafael Guerreiro Osorio

Raquel Tsukada

English

Research Papers in Economics

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Water Privatisation and Renationalisation  
in Bolivia: Are the Poor Better Off?1 by Degol Hailu, Rafael Osorio and Raquel Tsukada
International Policy Centre for Inclusive Growth
The water sector in the Bolivian 
cities of La Paz and El Alto was privatised between 
1997 and 2005. When the concession contracts 
were drawn up, the government and the private 
company agreed explicit coverage targets.  
The agreement was to install 71,752 new water 
connections by 2001—roughly universal access  
in La Paz and 82 per cent coverage in El Alto. 
However, by 2005 the private contracts were 
terminated and the sector was renationalised.  
What happened?
We compare access to water in the periods 
before and after privatisation in the cities that 
privatised water provision and those that did not. We use data from 
the national household surveys carried out by the Bolivia’s Instituto 
Nacional de Estadística (INE). Access to water is considered from three 
perspectives: delivery (coverage rate), equity (concentration of access) 
and affordability (water expenditure).
The indicator for assessing delivery is the water coverage rate— 
a headcount of households with in-house access to piped water.  
We find that access expanded more than proportionally in cities with 
private provision. In Cochabamba, where the water sector was under 
public ownership, access deteriorated. Under cooperatively managed 
provision (in Santa Cruz), the coverage rate remained fairly constant (see 
Table). It is true that the cities had different coverage rates at the start of 
the period. The higher the initial coverage, the more difficult it might be 
to expand access further. A performance index accounts for the effort 
made by the utility to increase coverage.2  Taking that into account, 
access to in-house piped water still seems to have increased substantially 
more in La Paz and El Alto with privatisation than in the other cities.
Equity refers to providing all households with the same level of access 
to utilities despite their income status. We also find that access to piped 
water became more equitable under the private concessions.  
In 2005, the difference in coverage rates between the poorest 20 per cent 
and the richest 20 per cent of the population fell from 30 to 4 percentage 
points in El Alto and from 15 to 4 percentage points in La Paz, compared 
to the period before privatisation. The pro-poor increase in water access 
in La Paz and El Alto stemmed mainly from enforcement of the targets in 
the concession contracts. The contracts demanded that the companies 
provide services to low-income areas and, as stated above, the target was 
to reach very high levels of coverage.
Water is unaffordable if households spend more than 3 per cent of their 
income on bills. Before the concessions in La Paz and El Alto, a 19 per 
cent increase in water prices was offered as an inducement to private 
providers. In 2001, the first revision of the targets allowed a further  
12 per cent increase. The poorest quintile in La Paz spent an average  
of 4.7 of their income on water in 2001. By 2005, however, the poorest  
in La Paz could just afford water, spending on average 2.6 per cent of 
income. This, however, is mainly explained by increases in their income.
The explicit five-year expansion targets imposed by the concession 
contracts seem to have played a critical role in the growth of new 
connections in the poorest areas. But the private provider failed to 
meet the targets stipulated in the concession contract. Tariff increases 
also provoked public outrage. Eventually the unpopularity of cost 
recovery and the failure to meet legally binding targets compelled the 
government to terminate the contracts. 
The lesson is that when privatisation contracts stipulate clear targets, 
concessionaires do attempt to reach them. But there is a limit to how far 
private providers can increase spending on infrastructure and expand 
services from the profits made through cost recovery. Ultimately, 
expanding access to the poor requires public efforts.
Notes:
1. A similar version of this article was published by the International Policy Centre for Inclusive Growth in 
Poverty in Focus 18 (2009) (IPC-IG). For a detailed discussion see Hailu et al. (2009).
2. We calculate a performance index based on Kakwani’s achievement function. The index is a non-linear 
transformation of the original coverage indicator, taking the starting level into account and allowing 
specification of the appreciation of degree of effort (see Kakwani, 1993).
References:
Hailu, Degol, Rafael Osorio and Raquel Tsukada (2009). ‘Privatisation and Renationalisation: What Went Wrong 
in Bolivia’s Water Sector?’ IPC-IG Working Paper 58. Brasilia, International Policy Centre for Inclusive Growth.
Kakwani, Nanak (1993). ‘Performance in Living Standards: An International Comparison’, Journal of 
Development Economics 41, 307–336.
No.100
   October,  2009

Performance in Living Standards: An International Comparison’,

Privatisation and Renationalisation: What Went Wrong

Water Privatisation and Renationalisation in Bolivia: Are the Poor Better Off?

http://www.ipc-undp.org/pub/IPCOnePager100.pdf

Water Privatisation and Renationalisation in Bolivia: Are the Poor Better Off?

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