Just thought you might want to know what the corp has responded to me and i am assuming others who wrote to them. peace, enrique In a message dated 4/26/2000 7:12:41 PM Central Daylight Time, gapps@b... writes: << Subj: RE: Bechtel Corp Date: 4/26/2000 7:12:41 PM Central Daylight Time From: (Apps, Gail) To: Enrique Most of the messages we've received about Cochabamba from concerned citizens such as yourself were triggered by reports from Jim Shultz of The Democracy Center, who also issued a call to action. Following up on the last message we sent you on behalf of International Water Ltd., below is a letter sent to Mr. Shultz by Didier Quint, managing director of IWL. Also, on Bechtel's web site (http://www.bechtel.com/whatnew/whatsNew.html) you'll find a letter that Mr. Quint sent to the editor of the San Francisco Examiner in response to an April 19 Jim Shultz commentary, which is also posted on Bechtel's site in pdf format. We hope this information gives you a greater sense of the complexities of this issue and the steps that were taken to provide local decision-makers with reasonable approaches to improving the water delivery system. * * * * * * * * * * * * To: Jim Shultz, The Democracy Center Dear Mr. Shultz: I am writing in response to your e-mail message of April 9. I want to provide you with more comprehensive information than you may have had access to previously, including the nature of the concession held by Aguas del Tunari. As you certainly know, Cochabamba is the third largest town in Bolivia with an estimated 600,000 people. The city's rapid increase in population is due mostly to the migration of citizens from the neighboring poor rural areas. This migration has created significant social problems that the city has been unable to address. These problems include the lack of appropriate low cost housing, equal access to education, a growing gap between the rich and the poor, and, generally a lack of access to public services. These problems are unfortunately extremely common in developing countries. Some of them can also be found in the more developed world. On a matter I am quite familiar with, many of the cities in the developing world lack an appropriate water distribution network, not to mention wastewater collection and treatment systems. Cochabamba is no exception and the situation is even worse, as the raw water sources have been progressively exhausted. This particular situation is widely acknowledged and many engineering studies have been performed in the last ten years or so to identify various solutions to this pressing problem. To date, no action has been taken as the solutions all carry a very expensive price tag. The municipal authorities have been deferring any action, hoping that some kind of subsidy or state financing could avoid passing on these costs to local ratepayers. Such an approach is understandable but, unfortunately, has created a difficult situation for the municipal water company (Semapa) from a technical and financial point of view. The Semapa network is barely able to supply partial water coverage to less than 60% of the population. Most of the households have to survive by buying water from truckers at a price several times the official tariffs. In short, water, as delivered by Semapa, is cheap, particularly for large users, but is so scarce that people, predominantly the poor, have to buy it from private entities at a price obviously not regulated. This water, trucked into the city, is mostly drawn from the water table which, unfortunately, cannot be replenished. Needless to say this parallel water market is a very profitable industry and well drillers, truckers and merchants of all kinds have become prosperous by selling a non-sustainable resource at exorbitant prices. A number of government officials over the years have been alarmed by this situation and have tried to figure out how to provide some relief to water-starved Cochabamba. One of the solutions was to identify new sources of water outside the region and build a system to transport this water to the city. To do so would require additional financial resources that the national and local governments do not have. In addition to a new supply of water, it also became obvious to the national government and the local municipality that it was necessary to improve the water system through private management. Such a public/private partnership could help increase operating efficiencies, repair leaks and discourage pilferage. It would also accelerate the implementation of the building program without using national or municipal debt. A first attempt to find a concessionaire to manage the Cochabamba water distribution system was made in May 1997 by the previous government. An international call for tender was initiated at the same time that the La Paz water privatization was occurring. Unfortunately, the Cochabamba call for tender was cancelled. At that time, the municipality was very much opposed to the tender because it was not taking into account the Misicuni project. This project is a long-standing effort to construct a dam (to store the water during the rainy season) a tunnel, (to carry the water across a mountain ridge) and an aquaduct (to bring the water to the city). There were other solutions to bring water to Cochabamba, including extracting water from the existing Corani dam, but Misicuni had been supported time after time by the local officials, contractors and people of influence. After cancelling the tender for the concession, the new government, in a gesture of good will, decided to build a portion of the Misicuni project and negotiated a sole-source contract for the tunnel section with a local contractor and a major European company. This was obviously risky as the financing of the whole project was not secured and there was a high probability that the scheme would remain uncompleted and useless, after the government had spent a large amount of money for tunnel construction. In order to mitigate this risk, the government decided to revive the concession tender and include in its scope not only the distribution system, but also the Misicuni project. The State utilized a financial advisor (Banque PARIBAS) very familiar with water issues to estimate and arrange for the most suitable legal and financial structure. The terms of reference were prepared and the tender was advertised at the beginning of 1999, at approximately the same time that the construction of the tunnel started. International Water decided to follow the tender and we associated ourselves with Abengoa (of Spain) and four Bolivian companies including ICE, a major Cochabamba contractor and builder of the new airport and Misicuni tunnel. The joint venture, called Aguas del Tunari (AdT), submitted its bid in April 1999. To our great surprise, none of our competitors submitted a bid. Even the two French water giants, Vivendi and Lyonnaise des Eaux, declined to submit a price. We understood that Vivendi, which had to abandon its Tucuman (Argentina) concession a few months before, was very cautious about entering into a potentially similar situation. We never understood why LdE, having won the La Paz concession in 1997, did not submit a bid. At this point it must be stressed that many international water companies had expressed concerns about the feasibility of the Misicuni scheme that was supported by local municipal and economic interests. The questions were mostly focussing on the feasibility of the dam and possibility of attracting sufficient financing to the project, given the poor records and economic condition of Semapa, the municipal water company. In Aguas del Tunari's bid, we also stressed these points and insisted on an alternative, consisting of a later implementation of the dam portion of the project. We were certain that the tunnel could not be built in two years and consequently that the construction of the dam could be deferred by several years. By deferring the construction of the dam, the initial upfront expenditure would have been diminished, thus allowing for a much lower and progressive increase in tariffs. We also proposed to focus our first year's effort on repairing the existing network, where the leakage factor was in excess of 60%. As a matter of fact, 60% of the water pumped in the network was either lost or pilfered, which means that it was possible to delay the construction of the dam by making better use of the existing raw water supply. Unfortunately we could not convince the government's "Negotiating Committee" that this approach was the most reasonable to pursue. The Misicuni dam had become a collective obsession and the municipality (which was participating in all negotiations) insisted that the dam be built during the first two years of our contract. Consequently we used our financial model, under the supervision of the advisory bank, to calculate the tariffs necessary to get financing from the multi-lateral banks (the IDB, IFC, and the CAF) as well as the pension funds in Bolivia, all of whom had already been approached by AdT. A close examination of these tariffs persuaded us that such a rapid increase would be difficult socially, without modifying the tariff structure. In fact the pre-existing tariff structure of Semapa was not in line with the usual international water agency practices. Generally, in order to protect scarce raw water sources, you try to force consumption down by applying a rising unit cost. This means that the more water you use, the more you pay per unit; consequently commercial and industrial users are driven to save water and the small consumers are charged a nominal amount. Semapa tariffs are the other way around; in a country where water is scarce the more water you use the less you pay per unit. We proposed that the municipality implement a tariff structure that would put no or few increases on poorest citizens and increase substantially the bill for the large users, which happen to be the wealthy. This structure was reluctantly accepted. During the course of the negotiations, we were unsuccessful in obtaining amendments from the state or the municipality that would have allowed for a lower increase in tariffs. For instance, the municipality wanted us to repay Semapa's previously accumulated debt and roll that cost into the rate structure. Similarly, the municipality insisted that we sign and execute the construction contract of a treatment plant with OTV (a subsidiary of Vivendi) that we thought excessive in price and not necessary. Also, the state decided that AdT pay for using the tunnel under construction and the municipality decided to charge AdT for the existing Semapa assets. In short, we had to reflect in the tariff increase all the increases that had never been implemented before. When you add these requirements to the early building of the Misicuni project, we estimate they account for more than 50% of the tariff increase, each of these was not necessary and done against our advice. After several months of negotiation with the municipality and the state, assisted by their financial and legal advisors, the concession contract was finally signed by the State Water Regulator in the presence of the President, the Mayor and all the Ministers in charge. In our contract the tariff structure and the level of services to be delivered by AdT were very precisely defined as well as were all other customary clauses in such a contract. While the main portions of the contract were published in the press, we strongly recommended to the municipality to engage in an information campaign in order to inform the population of the changes that were to be implemented. For reasons beyond our understanding, this action was never taken. On November 1, 1999, the concession was finally handed over to us. The new tariffs had been made public by the Regulator and were enforceable starting on the first of January 2000, as agreed in the contract. We began to operate, with the immediate goal to reduce the losses in the network and to get as much water as possible from existing sources. This action proved to be effective, as we were able to deliver water to more consumers for more hours of the day and at a higher pressure. Many consumers expressed their satisfaction and our employees were developing a new mode of operation and pride in their work. We were confident that we could implement this program in a shorter period of time than the one required by the contract. Unfortunately in mid-January, opposition to the contract emerged, first from the Civic Committee and then from a newly created entity, the Coordinadora, presenting itself as the protector of the interests of the people of Cochabamba. Very quickly it became apparent that the Civic Committee wanted a renegotiation of the contract and that the Coordinadora wanted the termination of the contract. It also became apparent that the Coordinadora was mostly composed of people and organizations having an interest in the parallel water market or being part of the most affluent sector of the population. In a sense it was logical to see them strongly against our contract. What was disturbing was to see this group manipulating small farmers from the surrounding countryside and organizing them into violent action against a contract that had nothing to do with them whatsoever. Several wealthy interests paid poor people - many bussed in from outside the area - to demonstrate against the concession. Moreover, national water legislation (unrelated to the Aguas del Tunari concession) placed restrictions on new wells - particularly unpopular with small farmers and wealthy landowners. Opposition to the proposed new water law also came from coca leaf growers who, the state asserted, were supported by their cocaine connection. As the demonstrations evolved, we asked the Water Regulator to instruct us on a course of action and he did so by rolling back the tariff to previous levels. While this was a clear beach of our contract, we decided to continue to operate the company in order to allow time for the municipality and the state to find a solution and work with the Civic Committee and the Coordinadora in helping them understand our contract and responsibilities. Unfortunately, neither the municipality nor the state was able to convince the Coordinadora to refrain from misleading the community. Unfortunately this situation has had a tragic ending. Aguas del Tunari managed the water network until the lives of our employees had been threatened and the concession contract terminated by the Regulator. We can understand why the State, unable to control the violent action of some local and national economic interests, decided to terminate our contract. Nevertheless AdT shareowners have had their property expropriated, the lives of their employees and their families have been threatened and they have been wrongfully held partially responsible for tragic events that have nothing to do with them. Our loss is important but what is more important for us is the sadness of these events and the criticism of all our efforts to find a good and fair solution to the problem of water in Cochabamba. Today, Semapa is back to its previous style of operation. The poorest part of the population will continue to subsidize the wealthiest and the industries. The water truckers have regained their thirsty customers, and nothing has been resolved. We trust that you will help in avoiding this status quo from continuing and refrain from spreading misinformation about our activities and motives. It may serve your purposes, but it will not help the people of Cochabamba solve their water problem. Sincerely, Didier Quint Managing Director International Water LLC >> From: "Apps, Gail" Date: Thu Apr 27, 2000 12:12 am Subject: RE: Bechtel Corp To: "'Enrique Most of the messages we've received about Cochabamba from concerned citizens such as yourself were triggered by reports from Jim Shultz of The Democracy Center, who also issued a call to action. Following up on the last message we sent you on behalf of International Water Ltd., below is a letter sent to Mr. Shultz by Didier Quint, managing director of IWL. Also, on Bechtel's web site (http://www.bechtel.com/whatnew/whatsNew.html) you'll find a letter that Mr. Quint sent to the editor of the San Francisco Examiner in response to an April 19 Jim Shultz commentary, which is also posted on Bechtel's site in pdf format. We hope this information gives you a greater sense of the complexities of this issue and the steps that were taken to provide local decision-makers with reasonable approaches to improving the water delivery system. * * * * * * * * * * * * To: Jim Shultz, The Democracy Center Dear Mr. Shultz: I am writing in response to your e-mail message of April 9. I want to provide you with more comprehensive information than you may have had access to previously, including the nature of the concession held by Aguas del Tunari. As you certainly know, Cochabamba is the third largest town in Bolivia with an estimated 600,000 people. The city's rapid increase in population is due mostly to the migration of citizens from the neighboring poor rural areas. This migration has created significant social problems that the city has been unable to address. These problems include the lack of appropriate low cost housing, equal access to education, a growing gap between the rich and the poor, and, generally a lack of access to public services. These problems are unfortunately extremely common in developing countries. Some of them can also be found in the more developed world. On a matter I am quite familiar with, many of the cities in the developing world lack an appropriate water distribution network, not to mention wastewater collection and treatment systems. Cochabamba is no exception and the situation is even worse, as the raw water sources have been progressively exhausted. This particular situation is widely acknowledged and many engineering studies have been performed in the last ten years or so to identify various solutions to this pressing problem. To date, no action has been taken as the solutions all carry a very expensive price tag. The municipal authorities have been deferring any action, hoping that some kind of subsidy or state financing could avoid passing on these costs to local ratepayers. Such an approach is understandable but, unfortunately, has created a difficult situation for the municipal water company (Semapa) from a technical and financial point of view. The Semapa network is barely able to supply partial water coverage to less than 60% of the population. Most of the households have to survive by buying water from truckers at a price several times the official tariffs. In short, water, as delivered by Semapa, is cheap, particularly for large users, but is so scarce that people, predominantly the poor, have to buy it from private entities at a price obviously not regulated. This water, trucked into the city, is mostly drawn from the water table which, unfortunately, cannot be replenished. Needless to say this parallel water market is a very profitable industry and well drillers, truckers and merchants of all kinds have become prosperous by selling a non-sustainable resource at exorbitant prices. A number of government officials over the years have been alarmed by this situation and have tried to figure out how to provide some relief to water-starved Cochabamba. One of the solutions was to identify new sources of water outside the region and build a system to transport this water to the city. To do so would require additional financial resources that the national and local governments do not have. In addition to a new supply of water, it also became obvious to the national government and the local municipality that it was necessary to improve the water system through private management. Such a public/private partnership could help increase operating efficiencies, repair leaks and discourage pilferage. It would also accelerate the implementation of the building program without using national or municipal debt. A first attempt to find a concessionaire to manage the Cochabamba water distribution system was made in May 1997 by the previous government. An international call for tender was initiated at the same time that the La Paz water privatization was occurring. Unfortunately, the Cochabamba call for tender was cancelled. At that time, the municipality was very much opposed to the tender because it was not taking into account the Misicuni project. This project is a long-standing effort to construct a dam (to store the water during the rainy season) a tunnel, (to carry the water across a mountain ridge) and an aquaduct (to bring the water to the city). There were other solutions to bring water to Cochabamba, including extracting water from the existing Corani dam, but Misicuni had been supported time after time by the local officials, contractors and people of influence. After cancelling the tender for the concession, the new government, in a gesture of good will, decided to build a portion of the Misicuni project and negotiated a sole-source contract for the tunnel section with a local contractor and a major European company. This was obviously risky as the financing of the whole project was not secured and there was a high probability that the scheme would remain uncompleted and useless, after the government had spent a large amount of money for tunnel construction. In order to mitigate this risk, the government decided to revive the concession tender and include in its scope not only the distribution system, but also the Misicuni project. The State utilized a financial advisor (Banque PARIBAS) very familiar with water issues to estimate and arrange for the most suitable legal and financial structure. The terms of reference were prepared and the tender was advertised at the beginning of 1999, at approximately the same time that the construction of the tunnel started. International Water decided to follow the tender and we associated ourselves with Abengoa (of Spain) and four Bolivian companies including ICE, a major Cochabamba contractor and builder of the new airport and Misicuni tunnel. The joint venture, called Aguas del Tunari (AdT), submitted its bid in April 1999. To our great surprise, none of our competitors submitted a bid. Even the two French water giants, Vivendi and Lyonnaise des Eaux, declined to submit a price. We understood that Vivendi, which had to abandon its Tucuman (Argentina) concession a few months before, was very cautious about entering into a potentially similar situation. We never understood why LdE, having won the La Paz concession in 1997, did not submit a bid. At this point it must be stressed that many international water companies had expressed concerns about the feasibility of the Misicuni scheme that was supported by local municipal and economic interests. The questions were mostly focussing on the feasibility of the dam and possibility of attracting sufficient financing to the project, given the poor records and economic condition of Semapa, the municipal water company. In Aguas del Tunari's bid, we also stressed these points and insisted on an alternative, consisting of a later implementation of the dam portion of the project. We were certain that the tunnel could not be built in two years and consequently that the construction of the dam could be deferred by several years. By deferring the construction of the dam, the initial upfront expenditure would have been diminished, thus allowing for a much lower and progressive increase in tariffs. We also proposed to focus our first year's effort on repairing the existing network, where the leakage factor was in excess of 60%. As a matter of fact, 60% of the water pumped in the network was either lost or pilfered, which means that it was possible to delay the construction of the dam by making better use of the existing raw water supply. Unfortunately we could not convince the government's "Negotiating Committee" that this approach was the most reasonable to pursue. The Misicuni dam had become a collective obsession and the municipality (which was participating in all negotiations) insisted that the dam be built during the first two years of our contract. Consequently we used our financial model, under the supervision of the advisory bank, to calculate the tariffs necessary to get financing from the multi-lateral banks (the IDB, IFC, and the CAF) as well as the pension funds in Bolivia, all of whom had already been approached by AdT. A close examination of these tariffs persuaded us that such a rapid increase would be difficult socially, without modifying the tariff structure. In fact the pre-existing tariff structure of Semapa was not in line with the usual international water agency practices. Generally, in order to protect scarce raw water sources, you try to force consumption down by applying a rising unit cost. This means that the more water you use, the more you pay per unit; consequently commercial and industrial users are driven to save water and the small consumers are charged a nominal amount. Semapa tariffs are the other way around; in a country where water is scarce the more water you use the less you pay per unit. We proposed that the municipality implement a tariff structure that would put no or few increases on poorest citizens and increase substantially the bill for the large users, which happen to be the wealthy. This structure was reluctantly accepted. During the course of the negotiations, we were unsuccessful in obtaining amendments from the state or the municipality that would have allowed for a lower increase in tariffs. For instance, the municipality wanted us to repay Semapa's previously accumulated debt and roll that cost into the rate structure. Similarly, the municipality insisted that we sign and execute the construction contract of a treatment plant with OTV (a subsidiary of Vivendi) that we thought excessive in price and not necessary. Also, the state decided that AdT pay for using the tunnel under construction and the municipality decided to charge AdT for the existing Semapa assets. In short, we had to reflect in the tariff increase all the increases that had never been implemented before. When you add these requirements to the early building of the Misicuni project, we estimate they account for more than 50% of the tariff increase, each of these was not necessary and done against our advice. After several months of negotiation with the municipality and the state, assisted by their financial and legal advisors, the concession contract was finally signed by the State Water Regulator in the presence of the President, the Mayor and all the Ministers in charge. In our contract the tariff structure and the level of services to be delivered by AdT were very precisely defined as well as were all other customary clauses in such a contract. While the main portions of the contract were published in the press, we strongly recommended to the municipality to engage in an information campaign in order to inform the population of the changes that were to be implemented. For reasons beyond our understanding, this action was never taken. On November 1, 1999, the concession was finally handed over to us. The new tariffs had been made public by the Regulator and were enforceable starting on the first of January 2000, as agreed in the contract. We began to operate, with the immediate goal to reduce the losses in the network and to get as much water as possible from existing sources. This action proved to be effective, as we were able to deliver water to more consumers for more hours of the day and at a higher pressure. Many consumers expressed their satisfaction and our employees were developing a new mode of operation and pride in their work. We were confident that we could implement this program in a shorter period of time than the one required by the contract. Unfortunately in mid-January, opposition to the contract emerged, first from the Civic Committee and then from a newly created entity, the Coordinadora, presenting itself as the protector of the interests of the people of Cochabamba. Very quickly it became apparent that the Civic Committee wanted a renegotiation of the contract and that the Coordinadora wanted the termination of the contract. It also became apparent that the Coordinadora was mostly composed of people and organizations having an interest in the parallel water market or being part of the most affluent sector of the population. In a sense it was logical to see them strongly against our contract. What was disturbing was to see this group manipulating small farmers from the surrounding countryside and organizing them into violent action against a contract that had nothing to do with them whatsoever. Several wealthy interests paid poor people - many bussed in from outside the area - to demonstrate against the concession. Moreover, national water legislation (unrelated to the Aguas del Tunari concession) placed restrictions on new wells - particularly unpopular with small farmers and wealthy landowners. Opposition to the proposed new water law also came from coca leaf growers who, the state asserted, were supported by their cocaine connection. As the demonstrations evolved, we asked the Water Regulator to instruct us on a course of action and he did so by rolling back the tariff to previous levels. While this was a clear beach of our contract, we decided to continue to operate the company in order to allow time for the municipality and the state to find a solution and work with the Civic Committee and the Coordinadora in helping them understand our contract and responsibilities. Unfortunately, neither the municipality nor the state was able to convince the Coordinadora to refrain from misleading the community. Unfortunately this situation has had a tragic ending. Aguas del Tunari managed the water network until the lives of our employees had been threatened and the concession contract terminated by the Regulator. We can understand why the State, unable to control the violent action of some local and national economic interests, decided to terminate our contract. Nevertheless AdT shareowners have had their property expropriated, the lives of their employees and their families have been threatened and they have been wrongfully held partially responsible for tragic events that have nothing to do with them. Our loss is important but what is more important for us is the sadness of these events and the criticism of all our efforts to find a good and fair solution to the problem of water in Cochabamba. Today, Semapa is back to its previous style of operation. The poorest part of the population will continue to subsidize the wealthiest and the industries. The water truckers have regained their thirsty customers, and nothing has been resolved. We trust that you will help in avoiding this status quo from continuing and refrain from spreading misinformation about our activities and motives. It may serve your purposes, but it will not help the people of Cochabamba solve their water problem. Sincerely, Didier Quint Managing Director International Water LLC > -----Original Message----- > From: Enrique > Sent: Tuesday, April 11, 2000 3:43 PM > To: BecWWW, Northame > Subject: Bechtel Corp > > Riley Bechtel, Chairman and CEO, Bechtel Corp > E-mail: northame@b... > Tel: (415) 768-1234 > Fax: (415) 768-9038 > Address: 50 Beale Street, San Francisco, CA 94105 > > Dear Sir: > > Bolivians have made it absolutely clear that they want Bechtel's water > company, Aguas de Tunari, out of Bolivia, through a week of huge protests > that have nearly shut down the country. To protect Bechtel, the Bolivian > government has now put the country under martial law, leaving many dead > and > wounded. Bechtel has a responsibility to honor the wishes of Bolivians > and > bring the crisis to an end by immediatley signing an agreement to turn the > > water system back over to Bolivians. > > Thank you, > Enrique Alonso
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