Suez Strikes Back in Bolivia
by Susan Spronk
12 July 2005
In his address to the nation on March 6, 2005 now deposed President Carlos Mesa warned that Bolivian citizens could not exercise their democratic rights to decide the future of their nation’s natural resources. Should private gas and water companies be expropriated, he warned, Bolivia would have to pay the multinational corporations that invested in privatized water, gas, and other key enterprises. As we shall see, Mesa’s threat was not a hollow one. Bolivia faces an impending lawsuit for cancelling the water contract with Aguas del Illimani, the private consortium controlled by majority shareholder Suez. Thanks to a bilateral investment treaty signed between France and Bolivia, Suez has the right to sue the Bolivian government for breach of contract.
Over the last 20 years, neoliberal administrations have slowly been dismantling policies that provided a degree of democratic control over economic policy, creating legal mechanisms that entrench corporate rights to profit in their place. Given the unpopularity of global trade agreements such as the World Trade Organization and the Free Trade Area of the Americas, bilateral investment agreements (BITs) have become an important part of the neoliberal or "free trade" agenda accomplishing similar goals on a smaller scale.  BITs are designed to break down barriers to trade and investment, creating more freedom for corporations to pursue profits at any social or economic cost. The bilateral investment treaty is another example of an international "conditioning framework" that restricts the ability of a government to meet the democratic demands of citizens for social rights such as a safe environment or access to water when these demands violate a corporate contract.  To date, the Bolivian government has signed a total of eighteen BITs.
The private consortium Aguas del Illimani, controlled by majority shareholder Suez was granted a 30-year contract to run the public water services in La Paz and El Alto in 1997. Facing intense social pressure, the Bolivian government announced in January 2005 that it would terminate the contract with Aguas del Illimani.  The Bolivian government has since pursued a passive strategy of negotiation, hoping that by coddling the company they could reach a "mutual accord" and therefore terminate the contract without provoking a lawsuit. Overall, Aguas del Illimani’s behaviour suggests that it was never interested in reaching a "mutual accord." Rather, Suez has its eyes on a much bigger prize. As a multinational corporation based in France, Suez knows that its investments in Bolivia are protected by a BIT.
A letter sent from Suez to the Bolivian government on May 20 squashed any hope that a soft negotiating strategy was to avert a lawsuit. Signed by the General Assistant of Suez of France, the letter accuses the Bolivian government of violating the terms of the BIT and officially opens the six-month negotiation period required by the treaty before the initiation of legal proceedings. The Bolivian government will likely find itself in court as early as December of this year facing off one of the largest water companies in the world.
While liberal theory suggests that courts of law are level playing ground for neutral arbitration, three factors indicate that the deck is clearly stacked in Aguas del Illimani’s favour. First, there is a clear conflict of interest between the Bolivian government and the World Bank. After the "Water War" that expelled American transnational corporation Bechtel from Cochabamba, private investors have been more cautious about investing in the water sector. In order to restore investors’ confidence, the World Bank became an associate of Aguas del Illimani through its private sector-lending arm, the International Finance Corporation (IFC), which purchased 8% of its shares in 2001. This move has put the Bolivian government in a very vulnerable position because the most likely location for the legal showdown is the ICSID, an international court founded by the World Bank. It was founded in the 1960s to facilitate the settlement of investment disputes between governments and foreign investors. While the ICSID describes itself as an "autonomous international organization", it acknowledges that "it has close ties with the World Bank."  Indeed, reading their website, one wonders in what manner the ICSID is "autonomous." It operates from the Bank’s premises and the World Bank’s Senior Legal Counsel oversees the creation of ad hoc panels of experts to decide on each case brought before it. As Carlos Crespo has observed, as indirect shareholder of Aguas del Illimani the World Bank is now in a position to act as "judge and jury" in the forthcoming lawsuit. 
Second, Suez has much greater capacity than the Bolivian government to pay for the preparation of the lawsuit. In 2004, Suez made $48.9 billion in revenue and $2.2 billion in profit. By contrast, 67% of the population of Bolivia lives in poverty. A country of more than 8 million people, its Gross Domestic Product last year was $8.8 billion. Bolivia’s public budget is tightly squeezed by a growing fiscal deficit and a crippling foreign debt. Obviously, it is much easier for Suez to pay experienced lawyers whose sole goal will be to suck every possible cent out of what is left of Bolivia’s public coffers. Needless to say, ICSID does not have a system of legal aid.
Third, Suez has considerable expertise in conducting lawsuits against states, since it is becoming somewhat of a veteran of the ICSID. It is currently suing the Argentinean government in three different lawsuits regarding breach of water contracts in Santa Fe, Cordoba and Buenos Aires. Corporations like Suez are increasingly using the ICSID to settle their investment disputes. A report published by the ICSID in October last year showed that 145 live cases were registered there, while a few years ago cases trickled in at a rate of less than five a year. By contrast, this will only be the Bolivian government’s second time confronting a powerful multinational corporation at the ICSID. Its first experience was the lawsuit launched by Bechtel for the termination of the Aguas del Tunari’s concession. Due to a successful international letter writing campaign co-ordinated by the Democracy Centre, Becthel dropped the lawsuit in last year.  But the story is far from over. Minority shareholder Abengoa of Spain picked up the ball and has kept running, assuming responsibility for the lawsuit for $25 million. 
The Bechtel/Abengoa experience calls attention to the fact that it is necessary to always keep eyes on second base and include the other international shareholders protected by BITs in international solidarity campaigns. In the case of Aguas del Illimani, the other shareholder to keep an eye on is Inversora en Servicios S.A., a fairly unknown multinational consortium that owns 9% of shares. Inversora en Servisios is composed of Argentinean capital and may therefore also be protected by a BIT signed between Bolivia and Argentina.
There is no easy exit from this situation. Given the collusion between the Bolivian state and Aguas del Illimani, it will be a challenge to present a strong defence, but there are some possibilities. Aguas del Illimani has committed several violations of the contract that could potentially provide a solid case on the Bolivian side, should the government find the resources necessary to arm itself appropriately. In particular, an integral audit of the company’s investments is required to determine whether it complied with all aspects of the contract. The government finally announced July 4th that there will be an audit, although the auditor has not yet been named and it is unclear how much money will be dedicated to the task. The social leaders are demanding an "integral audit" that will inspect both the quality and quantity of Aguas del Illimani’s investments, since there are allegations that the company cut costs to increase its profit margins and purchased materials at over-valued prices from its affiliates. Little is known about how much the company has invested since it has been protected by a secrecy clause in the contract that restricts access to information.
On its part, Aguas del Illimani claims that the Bolivian government owes it $65 million for investments. An article by progressive news agency Bolpress argues that this claim is grossly exaggerated. They point out that under the contract the government is only obligated to compensate the company for its fixed net assets and as of December 31, 2004, this amount did not surpass $22 million. Furthermore, if the costs recuperated from connection charges alone are discounted against this amount, then the State would only owe Aguas del Illimani a maximum of $9 million. 
Another avenue that the Bolivian state is unlikely to pursue is to claim that the contract itself is illegitimate. It is a testament to the resilience of the Bolivian struggle for control over natural resources that the continual threats of lawsuits have not limited the political imagination. During recent protests in June that pressed for the nationalization of gas and petroleum resources despite the threats of powerful transnational companies, there was constant public debate about the illegitimacy of these contracts. Given that the great "sell-off" of major public enterprises in the late 1990s was riddled with corruption, the contracts signed during the period of "capitalization" are largely seen as illegitimate and so to the claims for compensation of the companies that signed them.
In this conjuncture, international solidarity with the Bolivian government and the residents of El Alto in their fight against Suez are crucially important. At a broader level, the Bolivian case also demonstrates that attention must be paid to the local level to stop the slow "globalization through stealth" brought by the proliferation of bilateral investment treaties.  While global justice movements have effectively derailed international trade negotiations such as the WTO in Cancun, the bilateral investment treaties are similarly restricting the possibility for democratic control over economic policy making and therefore must also be dismantled.
Susan Spronk is a graduate student at York University currently living in La Paz.
 Ricardo Grinspun and Robert Kreklewich (1994) "Consolidating neoliberal reforms: "Free Trade" as a conditioning framework," Studies in Political Economy 43.
 Bolpress "¿Por qué Aguas del Illimani quiere irse desesperadamente sin permitir que se le haga una auditoría integral y a fondo?" June 17, 2005. Available at http://bolpress.com/economia.php?Co....