Turning the Taps Back to the States

"It would seem that so many years of bad service and very high costs weren't enough to demonstrate that these roads lead to failure," said Adrian Menem, an Argentine congressman and nephew of former president Carlos Menem, who led the privatization efforts of the 1990s. "We are returning to the blind state of the past century."

President Nestor Kirchner's decision to terminate the French contract and put water in the hands of a new state-run entity is not without precedent. In 2003, he took the nation's postal service out of private hands, and it has since turned a profit.

A desire to replicate that experience in part fueled the decision on water service, said Nicolas Ducote, an analyst with the Center for the Implementation of Public Policies Promoting Equity and Growth, based in Buenos Aires. But popular politics, he said, was just as important.

"The president knows that it's politically popular to bash the private sector," Ducote said. "That sort of approach focuses only on the short term. Six months down the road, if there is one problem with someone's water, he'll pay a price for this."

Suez officials countered Kirchner's criticisms of their performance, saying that the company improved service despite being handcuffed by the government's mandated price freezes after a national economic collapse in 2001. A spokeswoman said the company invested at least four times more than the previous state-run enterprise did, added more than 3,700 miles of new pipes and provided more than 2 million new customers access to drinking water.

The company also said Kirchner's claim that it made "hundreds of millions" of dollars in Argentina was wrong; it asserted it lost nearly $900 million on the deal.

"In certain countries we've found that the governments are not living up to their side of the bargain," the spokeswoman, Luan Greenwood, said in a telephone interview from Suez's Paris headquarters. "We've learned that. We're not going to be burned again."

The financial markets have taken note as well. In the days after the contract was cut, Argentine stock trading slowed considerably. In Bolivia, foreign investment has slowed since President Evo Morales, elected in January, vowed to partly nationalize the energy sector.

In Peru, financial markets took their sharpest tumble of the year this past week when an opinion poll showed that the front-runner in next month's presidential election is Ollanta Humala, a nationalist who is promising to rewrite contracts to make the state an equal partner in the mining and energy sectors.

In Lomas de Zamora, a community of small brick houses and cobblestone streets, some residents say their only concern is getting access to clean, safe drinking water. Marta Guzman, 47, said she had stomach problems earlier this year and attributed them to contaminated tap water.

"Whether it is the state or a private company, I don't care," Guzman said. "All I want is good water. I don't care who I get it from."