Water privatization in Colombia

This article was last updated on substance in June 2010. Please update it further if need be.

Private sector participation (also called "water privatization" or "public-private partnerships", PPP) in water supply and sanitation in Colombia has been more stable and successful than in some other Latin American countries such as Argentina or Bolivia. According to the World Bank, between 1996 and 2007, more than 40 water and sanitation service provision contracts have been awarded to private or mixed companies in Colombia, serving a combined population of 7.3 million or more than 20% of the urban population. According to the Colombian water regulator, there were even more public-private partnerships for water and sanitation in Colombia in 2004: 125 private and 48 mixed public-private water companies, including large, medium and small companies. Most of the contracts were awarded in poor municipalities with highly deteriorated infrastructure. They relied mainly on public funding, complemented by limited private funding. The design was based on the central government providing grants in the start-up years to rehabilitate deteriorated systems and to expand access, while the contracting municipal governments also made budgetary transfers on an annual basis to complement revenues. Colombia thus departed from the standard concession approach, which requires private concessionaires to finance investments with their own resources.

According to the World Bank, the key to success of private sector participation in the Colombian water sector has been the development of homegrown solutions, and, at times, skillfully adapting models used elsewhere to the particular circumstances and culture of Colombia.

Private sector involvement in the Colombian water sector began in 1995 in Cartagena, with support from the World Bank. It was followed by a second contract in Barranquilla in 1996 and more concessions in the next years in Santa Marta, Tunja, Montería, Palmira, Girardot, and Riohacha. The first contracts followed mostly the mixed-ownership company model, with the municipality holding a majority of the shares but with management fully delegated to a private operator. In a "mixed-capital" company in which the service is jointly controlled by municipal governments and private "operating partners" operating partners must meet ambitious targets ensuring that coverage is extended to low-income areas quickly — sometimes before the current mayor concludes his term in office. In exchange they receive an annual management fee and a percentage of revenues. A second group of contracts started in 2001 with the implementation by the central government of the Enterprise Modernization Program (PME - Programa de Modernización de Empresas), which focused on turning around public water utilities in small cities and towns with high rates of poverty and poor network condition.

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