WATER ABLAZE - Patagonia Sin Represas

complex details of the privatisation deal were laid down in 13 individual
contracts. Since the agreements between the council and the investors
were kept strictly confidential, only few details have become known.
One of the most important aspects, however, is the fact that managerial
control of the company was de facto conveyed to Eurawasser despite
its minority 49 per-cent share. Conflicts between Eurawasser and the
council became evident in 1999: the deputy managing director, who
had been delegated on to the board of the company by the council,
retired and his successor, Peter Pfaffhausen – who at the time was also
manager of the municipal electricity company – refused to go along
with decisions which would be detrimental to the city. These were,
among other things, decisions on procurement contracts in favour
of Eurawasser and the methods used by the company to record its
expenditure: Eurawasser was interested in recording expenses not as
operating costs but as investments, since the municipality was solely
responsible for financing the latter. As there was no satisfactory solution
in sight, the council began to develop a remunicipalisation strategy
behind the scenes. Due to the complex construction of the contracts,
these preparations took five months to complete. The formal act of
remunicipalisation eventually took place at the company shareholders’
meeting on June 19, 2000 – unknown in advance to Eurawasser. By
means of this meticulously-prepared trick, the council succeeded in
taking Eurawasser completely by surprise and getting the company to
agree to sell back its shares.
The formal possibility of buying back the shares had always
existed, but such a move seemed practically impossible because of
the necessity to gain the water company’s approval and to pay back
the purchase price. The council, however, painstakingly studied the
contracts and discovered that the original purchase price for the
privatisation deal had not actually been paid by Eurawasser. Instead,
the DM167 million had come from a bank which, in return, became
entitled to the revenue generated by company water charges over a
period of more than 20 years, amounting to about DM400 million
(€205 million) (non-recourse financing). Thus Eurawasser did not in
fact pay anything for the purchase. Consequently, the council reasoned
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