Water row hits Argentine capital

President Kirchner has refused to allow water price rises

Water firm Aguas Argentinas has decided to give up supplying drinking water to Buenos Aires after the government refused to allow big price increases.

The move was initiated by French group Suez, which owns 40% of the firm and now wants to pull out of Argentina.

It wanted a 60% price rise to pay for infrastructure improvements, but the government offered just 16%.

Prices were frozen under an emergency law in 2002 after Argentina was plunged into economic crisis.

The second-biggest shareholder in Aguas Argentinas, the Spanish company Aguas de Barcelona, is also considering withdrawal, casting doubt on the firm's future.

The Argentine government says it will guarantee water and sewerage services, but has not said who will take over the supply contract.

Tensions

Aguas Argentinas' troubles began during the economic turmoil of 2001-2002, when the government was forced to abandon its policy of holding the Argentine peso at parity with the US dollar.

The utility's charges were forcibly converted from dollars into devalued pesos and frozen by law.

AGUAS SHAREHOLDERS Suez - 39.93% Aguas de Barcelona - 25.01% P.P.P - 10% Banco de Galicia y Buenos Aires - 8.26% Vivendi - 7.55% Corporacion Financiera International - 5% Anglian Water - 4.25%

Since then, the company has maintained a tense relationship with the Argentine government.

Last year, it was fined for cutting the supply of water during a recent heatwave and allegedly failing to keep up investment to meet the demand for water.

President Nestor Kirchner rejected any tariff increases, saying customers could not afford to pay more.

He also asked for Aguas to provide $136m in new investment - but with debts of $700m, the firm was unable to oblige.

The row over Aguas Argentinas is not the only setback that Suez has faced in Latin America.

Last year, Suez lost a water concession in Bolivia, after mass protests against high water charges in the city of El Alto forced the government to cancel the contract.