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Last Updated: Tuesday, 21 March 2006, 20:07 GMT
Argentina severs Suez water deal
President Nestor Kirchner (right) and former Economy Minister Roberto Lavagna (left)
President Kirchner (right) refused to allow water price rises last year
Argentina has terminated its contract with Aguas Argentinas, a company partly owned by French utility group Suez, to supply drinking water to Buenos Aires.

The government said Aguas had failed to meet its contractual obligations and had reneged on its pledge to improve the quality of the water it supplied.

A new group called Aysa, which is 90% owned by the state and 10% by workers, will take over the contract.

The long-running saga has soured relations between France and Argentina.

Suez, which owns 40% of Aguas, announced last year it wanted to pull out of Argentina for financial reasons.

It had called for 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.

Tense relationship

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.

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

In 2004, it was fined for cutting the supply of water during a recent heat wave and allegedly failing to keep up investment to meet the demand for water.

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

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

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