Water Management in Mexico City

Special Report: Deregulation, State of Affairs
The Role of the Private Sector
By Lilian Saade Hazin

This paper analyses the involvement of the private sector in the water sector in Mexico’s Federal District. In October 1993, after an international bidding process, four private firms were awarded service contracts to implement universal water metering, rehabilitate the distribution system and carry out a loss detection programme. The decision to involve the private sector was motivated by the urgent need to reform and improve water services in one of the largest cities in the world. Given the lack of information regarding the customer base, water consumption levels and network conditions, a phased approach to Private Sector Participation (PSP) was considered most appropriate.
This paper provides a description of the reform strategy adopted in the Federal District. It reviews the merits and the risks associated to the use of a phased approach to Private Sector Participation, as well as the decision to use four different consortia for the service contracts (seeking to introduce some competition to improve performance). The implementation of the contracts was hampered by a number of setbacks, including the 1995 financial crisis of the country and the lack of co-ordination among the institutions involved in the sector.
The political changes in the Federal District have had an impact on the implementation of the project. However, the need for this type of project in Mexico’s Federal District clearly goes beyond political considerations and PSP may assist in ensuring that this is so. Finally, factors to be considered in the implementation of new schemes are contemplated.

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