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Sunday, 16 February, 2003, 13:44 GMT
Brazil cuts Vivendi off in water deal
Foz da Iguacu, in Parana state, southern Brazil
Plenty of water here, but how about in the pipes?
A state in southern Brazil has ignited a storm by taking back control of the state water utility from French group Vivendi.

The decision to remove the holding company in which Vivendi has a stake from the running of Sanepar, as the utility is known, comes after complaints about both water quality and under-investment.

A source close to Sanepar told Reuters that the decision to wield its 60% majority stake in the company sent worrying signals for foreign investors - just as new President Lula da Silva is trying to woo them back after a rocky 2002 for the Brazilian economy.

No-one puts money into a Brazilian company without getting some control," the source said. "Changing the rules of the game now that everyone has invested makes no sense."

'Social service'

Although Domino Holding, a group comprising Vivendi, asset management firm Opportunity and Brazilian builder Andrade Gutierrez SA, holds just 40% of Sanepar, a deal with the previous governor gave them power over staffing, loans, deals with shareholders and final say over tariffs.

But the current incumbent running the state - home to the massive Iguacu waterfalls - says his predecessor never signed the relevant decree.

"(The state government) understands that sanitation is not an activity to make a profit but a social service," a spokesman for Sanepar said.

The company has monopoly control over water and sewage for the state's 7.5 million people.

Dirty water?

The news comes amid a chorus of disapproval of water privatisations, notably several in Latin America which have allegedly gone badly wrong.

The Centre for Public Integrity, a US-based research group, is in the process of publishing a 10-part series by the International Consortium of Investigative Journalists outlining a series of problems with privatisations from Argentina to Australia.

"The Water Barons" expose accuses Vivendi, among other companies, of taking over water utilities worldwide by taking advantage of the doctrines of international groups such as the World Bank, which demand privatisation as the quid pro quo for development aid.

Its water-based profits have risen from $5bn in 1990 to over $12bn by 2002, the CPI says.

Among Vivendi's operations in 43 countries is one in Argentina, where - the CPI alleges - the 30-year concession to run Aguas Argentinas has produced a catalogue of unfulfilled improvements coupled with International Monetary Fund-backed increases in government payouts to the company.

See also:

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