The multinational water company, Suez has formally initiated legal action against the Bolivian state saying that Bolivia has infringed investment accords signed between the French and Bolivian governments.

In a letter sent to the Ministry of Public Services, Jean Louis Chaussade, the Director General of Suez notified the government of a six month legal process that he hoped would be settled amicably. However he stressed that the French multinational reserved the right to take Bolivia to arbitration at an international investment court overseen by the World Bank.

Suez is the largest multinational shareholder with a 55% stake in Aguas del Illimani Sociedad Anónima (AISA), the water utility that was privatized on 24 July 1997, as a condition of debt relief. It was granted the concession to supply water to the residents of El Alto and La Paz for a period of 30 years.

Within a few years, however, the company became a target of protest as it failed to live up to its commitments to extend water and sewage service to tens of thousands of families in the city’s impoverished outskirts and as it increased costs to hook up to the system to more than half a year’s income at the Bolivian minimum wage.

These protests came to a head in December 2004 and January 2005, when El Alto was paralysed as residents of the city blockaded the city and went on strike to demand the expulsion of Aguas del Illimani. Finally in mid-January 2005, the Government announced that it would “initiate the termination of the concession contract of Aguas del Illimani in a coordinated way through a legal process.”

That legal process and the negotiations for terminating the contract have been going on for the last 6 months and are not yet finished. The stated aim of the Bolivian government is to come to a mutually agreed end of the contract that would prevent accusations that Bolivia had unilaterally ended the contract, making it susceptible to legal action.

However in the letter, Suez pre-empts conclusions to the negotiations and accuses Bolivia of already having breached its legal obligations by unilaterally changing prices and tariffs, and by initiating a unilateral process to end the contract with Suez.

The French multinational firstly cites the Government decree, 27965 of 6 January 2005 in which Carlos Mesa instructed the Superintendent of Basic Health (SISAB) to proceed with the revision of the contract in legal, technical and financial areas as well calling on it to reset the goals for expansion of the water network for 2002-6 and to end the fixing of rates in dollars (a policy that had been particularly unpopular)

Suez also cites government decrees 27973, 28100 and 28101 as violations of the contract. These instructed SISAB to take “all actions necessary to immediately end the contract” and authorized SISAB to contract audits, and undertake legal, financial and technical assessments. They also set up a Commission to look at the appropriate model for a new water and sewage utility.

Suez concludes by saying that “Bolivia has taken a series of unilateral actions and terminated the contract which has a highly negative impact on Suez and its investments.” Suez’s letter clearly intends to shortcut the process of termination, by saying Bolivia is responsible for unilaterally ending the contract.

Their determination to prove that the contract has been unilaterally ended is closely linked to AISA’s contractual obligation before 30 June to renew its financial guarantees of $12 million dollars and the annual rent of $3 million it pays SAMAPA for use of the water network. If it doesn’t pay, AISA is culpable for the end of the contract. In May, AISA wrote to the government saying that as Bolivia had unilaterally ended the contract, AISA was freed from the obligation of renewing the guarantees. However, if the Bolivian government were to free AISA from paying these guarantees, this action could be legally interpreted as a formal and unilateral ending of the contract before negotiations have concluded.

The reality however is that the contract is still live. While negotiations continue, Suez remains in control of Aguas del Illimani. Suez itself recognized this when it send a letter on 20 April to the municipal utility, SAMAPA, saying that it could not revise the water and sewage infrastructure as AISA was still in charge. If that was the case in April, then how can AISA say in May that the contract had been unilaterally terminated?

Many independent observers have pointed to Suez’s unwillingness to negotiate a solution which has forced the Government to take unilateral actions. In particular, Suez has refused a thorough and independent audit to assess how much it has invested, an essential requirement for working out how much indemnity the State owes for ending a contract.

Instead Suez is already making claims for $65 million dollars, when the value of their fixed assets was only $22 million dollars at the end of 2004. Without an audit, it is also impossible to examine how this $22 million dollars was invested, whether it was truly additional finance or whether it includes the $9 million dollars paid in rates by local residents.

 Behind all the actions of Suez, lies their refusal to acknowledge that initiation of proceedings to end their contract was a result of huge public protest against their failure to deliver affordable safe drinking water to impoverished residents of El Alto. In that respect, the culpability for the end of the contract lies firmly in their hands.