Cosmol's offices near the center of Montero.

Just ask the members of Cosmol, a cooperative that provides water and sanitation services to Montero, a town of around 90,000 people in the tropical lowlands of eastern Bolivia. Five years ago, many members were complaining that the water coming out of their taps was rust-colored, a consequence of deteriorating pipes dating from the 1960s. Others had questions about the coop’s management board, which was taking forever to make needed repairs while disclosing little information about revenues and expenses.

When José Gabriel Roca was elected to head Cosmol’s management board in late 2000 he got an earful from disgruntled members. In addition to the water quality problems, people complained that the coop was being run like a private club, with key decisions made behind closed doors by a small group of cronies and their relatives. Meanwhile, only 20 percent of Cosmol’s members were connected to the sewer service, and untreated wastewater from the remaining homes was seeping down into the aquifer that provides all the town’s water.

A successful cattle rancher with no previous public service experience, Roca quickly concluded that Cosmol’s situation was untenable. The service needed millions of dollars in loans and a substantial increase in user fees in order to finance maintenance and expansion. But with the prevailing mistrust of Cosmol’s management, members were unlikely to accept any rate hikes. And banks would not lend to an institution that could not clearly account for its funds.

With vocal support from Cosmol’s members and key leaders in the community, Roca and the other newly elected members of the management board undertook a thorough housecleaning. What they found wasn’t pretty. Arbitrary rules introduced by the previous board had prevented many members from exercising their vote or running for election to Cosmol’s management and audit boards. The rules effectively kept key jobs in the hands of small group of upper-income individuals and excluded poor members, who are mostly from the Colla indigenous group.

The state of Cosmol’s finances was also alarming. Among other irregularities, Roca’s team discovered a special fund that the seven former members of the management board had created to pay for premium health insurance policies. The policies, which cost $27,000 per year, gave the board members and their families unlimited benefits at expensive private hospitals in the nearby city of Santa Cruz.

“They were using Cosmol’s money to give themselves luxury healthcare, while most of the members couldn’t afford basic medicines!” recalls Roca.

True cooperativism. Roca and his colleagues eliminated the management perks, repealed the exclusionary voting rules, and announced a “total transparency” policy regarding Cosmol’s finances. Detailed information about salaries, contracts, suppliers and revenues is now available on request at Cosmol’s customer service office, according to Roca. “We have nothing to hide in this cooperative,” says Roca. “Now we’re working on setting up a web site where our accounts can be consulted by anyone—even if they’re in Germany!”

Sofía García de Badani, a Cosmol member who was elected to head the audit board, said that in the past the managers had hand-picked the accounting firm that reviewed the coop’s accounts. This contributed to the perception that managers did not want independent scrutiny. Today, García and her fellow audit board members pick the accounting firm, following a call for bids from qualified local companies. “There are no secrets here,” she said. “We can demand any information we want [from the managers].”

Along with these measures, Cosmol’s managers began holding regular information meetings in neighborhoods throughout Montero. At each meeting Cosmol officials would explain the service’s investment needs, describe possible solutions, and solicit input from members.

Mario Chirico, chairmanof an oversight committee that represents Montero’s various neighborhoods, said that the transparency policy and the meetings went a long way toward restoring people’s trust in the cooperative. “We supported these policies because we believe that when you work in coordination with the community, and when the community understands what you’re doing, then they are not going to oppose initiatives that benefit them,” Chirico said.

Voluntary rate increase. Even as these changes were being implemented, Cosmol’s managers contacted the IDB office in La Paz to see if the Bank could help finance the expansion of Montero’s sewer network through an existing loan managed by the National Fund for Regional Development (FNDR, for its Spanish initials). Denis Gravel, a IDB water and sanitation specialist who met with Roca and his colleagues, recalled that their expectations were initially unrealistic.

“They thought the Bank would simply agree to finance the entire thing,” he said. “We wanted to see evidence that Cosmol’s members were committed enough to the project to make their own financial contributions to the cost.” Gravel suggested that Cosmol consider introducing a monthly surcharge that would be used to save up a down-payment on the new sewers plus pay for some other service that might serve as an incentive to coop members.

Cosmol’s managers went back to Montero and held a new series of meetings to ask members if they would be willing to pay a surcharge and to see what additional services they needed most. It soon became apparent that access to healthcare was the most pressing concern among the members. So Cosmol’s management board proposed creating a supplemental health insurance scheme that would cover basic preventive and hospital services. Both the insurance program and sewage surcharge would be paid for by a US$2 increase in the monthly water rate. After each family had contributed the equivalent of US$150 to the sewage fund, the surcharge would drop to US$0.50—enough to continue covering the insurance plan.

A US$2 increase seemed like a lot, given that the average monthly wage in this agricultural region is around US$70. Nevertheless, the members voted to adopt the plan, and by late 2001 Cosmol had raised US$1.5 million of the US$7.5 million needed for the project.

At that point the FNDR agreed to finance the balance of the project through the IDB loan. Cosmol solicited bids from several companies and awarded contracts to Argentine and Bolivian firms. Work began in July of 2002 and was completed in early 2005. The bulk of the funds went to expand Cosmol’s sewer network, which now has the capacity to serve 65 percent of the population. The project also included a new high-capacity well and two sewage treatment ponds that will keep wastewater from filtering back into the local aquifer.

An expanded social role. Though they are proud of these investments, Cosmol’s members and managers are even more enthusiastic about the cooperative’s new social role. As an acknowledgement of the economic difficulties that most of its members face, Cosmol’s managers suggested using the US$27,000 that their predecessors had been spending on private insurance to create a new funeral benefit for all the cooperative’s members. The benefit, which pays US$300 to cover funeral expenses for any member or immediate relative, has turned out to be very popular, because funeral costs often leave local families in debt.

Cosmol officials and doctors stand outside the municipal hospital that provides subsidized services to the cooperative's members.

The health insurance plan covers routine preventive care at the Alfonso Gumuncio Reyes Hospital, Montero’s only public hospital, and it offers discounts ranging from 25 percent to 50 percent on surgery, tests and a variety of medical procedures performed there. Although the hospital’s regular fees are already heavily subsidized by the government, in the past a majority of Montero’s residents were still unable to afford them.

Today, Cosmol members make around 900 visits per month to the hospital, according to Julio Vaca, its director. The hospital’s revenues have grown by nearly 50 percent and its occupancy rate has risen from 44 percent to more than 80 percent since Cosmol’s insurance scheme was implemented. “This has been a tremendous benefit for people who did not have insurance,” Vaca said. “It has allowed us to socialize access to healthcare for all of Montero’s population.”

Performance leader. Cosmol has managed all this while attaining financial and management indicators that are among the best in its sector. Around 97 percent of the families in its service area have water connections in their homes. Thanks to a focus on cost control, bill collection and attracting new members, the coop has earned a modest operating profit every year since 2001 (total revenues in 2004 came to approximately US$990,000). According to analyses published by the Superintencia de Saneamiento Básico, the government body that regulates all of Bolivia’s water and sanitation services, in 2003 Cosmol had the lowest rate of “unaccounted for water” (ie, water lost through leaks or theft) of any producer in Bolivia. It lost only 11.56 percent of its water this way, compared to the 50 percent lost by many larger providers. Cosmol is one of a handful of providers in Bolivia that has installed water meters on 100 percent of its connections. It’s water quality control and customer service indicators are also among the best in the country.

Despite these accomplishments, Cosmol still faces serious financial challenges. Though revenues are sufficient to pay for managing and maintaining the current network, they will not cover both additional expansion and debt service. In order to pay off the FNDR loan, for example, Cosmol is adding a new sewer fee to the water bills of each family that connects its home to the expanded sewer lines. The fee is equal to 85 percent of the water bill, meaning that those members can expect to nearly double their monthly outlays.

Moreover, the IDB-funded project did not include funds for laying pipes between the new sewer mains and each member’s home (or for installing toilets, sinks and showers in homes that lack them). These costs, which amount to several hundred dollars per household, must be borne by each member.

“This was a mistake in the design of the project,” said the IDB’s Gravel. “In the future, we should make sure that plans include financing the final connection to the home, because otherwise there is a risk that people will not use the sewer system.”

According to Miguel Fernando Roca, Cosmol’s general manager, the cooperative is setting aside around US$300,000 from its own funds to help finance 1,500 of these connections. The  FNDR has also just approved a US$150,000 loan that will be used to provide pipes, toilets and sinks to as many as 720 poor families, provided they are willing to install them themselves under Cosmol’s supervision. For the approximately 4,000 families that would still need to be connected to the sewer system, Cosmol officials are exploring the possibility of obtaining low-interest loans through a local microcredit organization.

Worth the sacrifice? Some water and sanitation experts argue that such large financial burdens should not be placed on low-income consumers. According to Cosmol’s figures, its members consume around 15 cubic meters of water per month, a relatively modest amount for a tropical climate. Their average monthly bill, however, is around US$10, nearly 15 percent of a local laborer’s monthly income. Roca said Cosmol’s managers are acutely aware of this reality, and are in constant consultation with members regarding their ability to pay.

By charging enough to recover its costs and finance expansion, Cosmol is allowing its members to improve their quality of life today. The alternative, unfortunately, is to wait for state-funded services that may never materialize.

Cosmol’s members seem willing to make this trade-off. Teófilo Tapia, a farm hand who lives in Villa Copacabana, a hamlet on the outskirts of Montero, told a visitor that he willingly pays his monthly water bill, which comes to around US$8.50, because of the convenience of having water in his home and the impact this has had on his family’s health. Before Cosmol built a deep well in Villa Copacabana a few years ago, he explained, each family relied on shallow, hand-dug wells that were tainted by filtration from nearby outhouses.

“My kid’s bellies were always swollen because of parasites in the water,” he told a visitor. “Now, they’re much healthier.” Tapia said his family also makes frequent use of Cosmol’s health insurance plan.

Asked if he considered the US$100 fee that Cosmol charges for new connections to be excessive, Tapia shook his head. “They’re letting me pay it off over a five-year period,” he said. “I’ve only got two years to go, and after that my bill will drop by two thirds.”

José Gabriel Roca, the head of Cosmol’s management board, explained that Tapia also benefits from a 25 percent discount to the water rate that the coop offers to customers in the poorest rural areas.

“We don’t give anything away,” said Roca. “But we’re flexible.”

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