By RAUL BAGINSKI

In most countries this question is not even on the agenda. But in Paraguay, a country where only 43 percent of the population has running water, a lively debate over the issue has emerged in recent years.

On one side is CAPA, a trade association that represents some 400 small, privately owned providers of water service known as "aguateros". These entrepreneurs have sprung up as a natural response to the lack of public water service in many districts. They dig their own wells, install pumps and run pipes into people’s homes, all for a fee of around $250 that can be amortized over three years. These companies serve around 7 percent of Paraguay’s population.

The aguateros have won plaudits from development experts as an example of how an unfettered private sector can sometimes provide public services more efficiently than governments. So when the Paraguayan legislature recently proposed a new law regulating competition in the water sector, capa and its supporters were understandably alarmed. In a February 4 editorial in the Wall Street Journal, Paraguayan journalist Porfirio Cristaldo claimed that the new regulations will shut down the aguateros and create an inefficient regulatory bureaucracy that will stifle competition.

The IDB helped to finance preliminary studies on which the new law is based. One of those studies was commissioned by capa, and a look at the new law shows that the aguateros’ concerns were clearly addressed. The law offers existing private water providers the option of obtaining renewable 10-year operating permits. After that, the aguateros will be able to bid in open competitions to provide service for even longer periods. Providers who do not win a concession will be compensated by the government for the loss of their assets.

Although this last point has been seized upon by critics of the law, it is important to remember that the legislators’ goal is to extend water and sewerage service to as many Paraguayans as possible. This goal can never be reached by merely perpetuating the status quo. The aguateros only operate in areas where the water table is high enough to supply a well and where customers are concentrated enough to keep pipeline costs low. They also cater only to customers who can afford the $250 connection fee, a prohibitive figure for most low-income Paraguayans.

The aguateros have already covered the areas that meet these conditions. Under the old regulatory framework, the rest of Paraguay was simply not an attractive investment for private water providers, large or small. The new law combines financial incentives with legal guarantees that will make it feasible for private companies to offer affordable service to the millions of Paraguayans who still lack water. It is intended to ensure that sewerage service, which is not provided by the aguateros, will be included along with water service—thus addressing a critical public health problem. It will also begin to ensure minimum water quality standards and continuous supply services.

In this respect the new law reflects the IDB’s commitment to flexible policies that fit local conditions and encourage private sector participation. In Haiti, for example, the IDB is financing the expansion of "water committees" that have devised a profitable fee-based service in the slums around Port-au-Prince. And in Bolivia and Argentina, the Bank has helped to finance large-scale water concessions to private providers who are rapidly extending service to hundreds of thousands of low-income homes. Paraguay’s balanced approach also promises to vastly increase the number of people with water service—while preserving a role for the aguateros.

PRESS & PUBLICATIONS       PRIVATE SECTOR      PROJECTS      RESEARCH & STATISTICS