History of Aguas Argentinas 1993 - 2005

History of Aguas Argentinas History of Aguas Argentinas 1993 - 20051993 - 2005

Composition of the shareholders in Composition of the shareholders in Aguas Argentinas Aguas Argentinas

SUEZ39,93%

Anglian Water Limited4,25%

Corporación Financiera

Internacional (CFI)0%

Vivendi Universal7,55%

Banco de Galicia y Buenos Aires

8,26%

Programa de Propiedad

Participada (PPP)0%

Sociedad General Aguas de Barcelona

25,01%

The Aguas Argentinas concessionThe Aguas Argentinas concession

RADIUS SERVED WITH DRINKING WATER

RADIUS SERVED WITH SEWERAGE SYSTEM

RADIUS SERVED WITH DRINKING WATER AND SEWERAGE SYSTEM

AREA TO SERVE BY 2023

RURAL AREA OR WITHOUT DEFINED DIVISION OF LAND

SANFERNANDO

SAN ISIDROVICENTE

LOPEZ

SAN MARTIN

CITY OF BUENOS AIRES

3 FEBRUARY

MORONLA MATANZA

E. ECHEVERRIA

LOMAS DE ZAMORA

LANUS

ALTE. BROWN

AVELLANEDA QUILMES

EZEIZA

TIGRE

HURLINGHAM

ITUZAINGO

Note: Radius served with drinking water and sewerage system. April 2005

Concession area1,830km2

Serviced area1,070km2

May 1993 saw the State grant a 30-year licence to Aguas Argentinas to manage drinking water and sewerage services for the city of Buenos Aires and 17 sections of the greater Buenos Aires area. 10

million people are housed in this area.

The model concessionThe model concession

Long-term collaboration

STATE

• Sets the objectives

• Establishes the resources

• Controls and regulates

PRIVATE OPERATOR

• Manages the service efficiently

• Maintains and expands the infrastructure (which remains the property of the State at all times)

Flexible systemProvides for 5-year review, with attention to developments in the environment

Aims and objectives contract(Investments not completed may only be considered as non-fulfillment

inasmuch as they do not allow the company to meet the objectives stated in the Service Improvements and Expansion Plan)

The concession's achievementsThe concession's achievements

AchievementsAchievements

in excess of US$200 million per year,a level previously unheard of in the history of the ex OSN

DRINKING WATER

2 MILLIONINHABITANTS COVERED

SEWERAGE SYSTEM

1 MILLIONINHABITANTS COVERED

6,000KM OF NEW NETWORKS

2,000KM OF REHABILITATED NETWORK

Investments totalling US$1,700 million between 1993 to 2001

Huge transformationHuge transformation

10 YEARS AGO

1 MAY 1993

10 YEARS LATER

Huge transformation: Change statisticsHuge transformation: Change statistics

Coverage

83%

54%62%

Drinking waterSewerage system

Percent of inhabitants (%)

65%

OSN (1993) Aguas Argentinas (2001)

Population served

5.535

7.767

4.557

5.821

in thousands of inhabitants



Network length


11.910

15.817

7.200

9.294

Network length - in km


Water quality

50%

2%

8%

0%

TurbidityBacteriology

Percentages not meeting standard (%)

May 1994 Aguas Argentinas (2001)Aguas Argentinas (2001)

3.714

4.090


Volume in thousands of m3 per day

Water production

Losses in the network

47%

34%

OSN (1993)

Percentages (%)

Most important works Most important works

CONSTRUCTION OF THE SAAVEDRA - MORON SUBTERRANEAN RIVER

These primary infrastructures are capable of supporting a significant portion of the expansion projects planned for the future.

EXTENSION OF THE SOUTH-WEST WASTEWATER TREATMENT PLANT

CONSTRUCTION OF THE NORTH WASTEWATER TREATMENT

PLANT

EXTENSION OF THE BELGRANO DRINKING WATER

FACILITY

Reduce network lossesReduce network losses

0

10

20

30

40

50

1993 2003

44% 32%

- 25%Losses*

Reducing network losses has resulted in savings of 1,000,000m3 of drinking water per day. This is equivalent to the production of drinking

water for the cities of Cordoba and Rosario combined.

* In 2003, the company exceeded the goals set forth in the Concession Contract.

AVERAGE PRESSURE HEIGHT 9.3 WCM

AGUAS ARGENTINAS (2002)(in WCM - water column meters)

Lack of water and pressure are a thing of the Lack of water and pressure are a thing of the past, except in very rare casespast, except in very rare cases

OSN (1992)

(in WCM - water column meters)

AVERAGE PRESSURE HEIGHT 5.5 WCM

Less than or equal to 6 WCM

Between 6 - 9 wcm

Greater than 9 wcm

Aguas Argentinas examines a wide range of physical, chemical, organoleptic, microbiological and bacteriological parameters, in

accordance with the World Health Organisation's recommendations.

The resulting water quality has substantially The resulting water quality has substantially improvedimproved

98%

50%

100%92%

0

20

40

60

80

100

1993 2002

Turbidity Bacteriology

Quality controlled by 500,000 tests

annually

Percent conformity

* Turbidity: this parameter exceeds the stipulations in the Concession Contract and Regulatory Framework

Human ResourcesHuman Resources

Training• 933,086 hours of training • Construction of a:

- Training Centre in the Drinking Water Treatment facility at Gral. San Martín

- Technical Training Centre at the Varela facility

Constructive relationship with the SGBATOS (The Trade Union of Sanitation Workers in the Greater Buenos Aires

Region)

Developing human resources has been one of the management pillars of Aguas Argentinas

Continued improvement in customer Continued improvement in customer satisfaction satisfaction

Consultant: GEA Market Research, sample from offices and Technical Services

40%

50%

60%

70%

80%

90%

100%

Offices 77% 84% 87% 89% 86% 76% 79% 87% 90% 95% 93% 94%

Work teams 67% 65% 69% 75% 72% 83% 88% 93% 91% 90% 89% 92%

1st 6mth 99

2nd 6mth 99

1st 6 mth 00

2nd 6mth 00

1st 6mth 01

2nd 6mth 01

1st 6mth 02

2nd 6mth 02

1st 6mth 03

2nd 6mth 03

1st 6mth 04

2nd 6mth 04

Aguas Argentinas has achieved a high level of satisfaction with its technical service and with its commercial contacts (more than 90% of customers give the company a score of 7 or

higher)

Pricing issuesPricing issues

Increase in prices to residential customers Increase in prices to residential customers since the start of the Concessionsince the start of the Concession

28.5% Due to additional investments 7.7% Due to variations in Infrastructure Charges (IC) and the Renovation of Connections Charges (RCC) 15.9% Due to increased costs

52.1% TOTAL

• The increase of 88% (vs. 52.1%) mentioned in a report issued by ETOSS to the UNIREN is not correct, because it counts charges already existing in the pricing base as increases (IC and RCC)

Out-of-step PricesOut-of-step Prices

The 15.9% review of the average residential price due to increased costs must be compared with the 73-% change in the CPI up to September 2004.

100

120

140

160

180

Aug

-92

Aug

-93

Aug

-94

Aug

-95

Aug

-96

Aug

-97

Aug

-98

Aug

-99

Aug

-00

Aug

-01

Aug

-02

Aug

-03

Aug

-04

Average residential price CPI

Note: August 1992: bid reference price

71% of residential customers pay less than 71% of residential customers pay less than $0.50 per day, incl. taxes $0.50 per day, incl. taxes (*)(*)

71%

Total Residential Customers (2,270,000 accounts)

Residential Customers with bills of less than $ 0.50 per day(1,610,000 accounts)

Note: (*)Taxes: VAT and Finance Charge to the Regulator

Relation between the average price per building and average family income per province

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

The impact of the Aguas Argentinas bill on the family The impact of the Aguas Argentinas bill on the family basket is one of the lowest in Argentinabasket is one of the lowest in Argentina

CONCESSION AVERAGE = 2.1

NATIONAL AVERAGE = 4.0

• The impact of the average price on the average family income for the main sanitation services in the country.

Note: (*) (*) EPH survey by locality in each province

(*)

(*)

(*)(*)

With its average price at 50% of the OSN price, With its average price at 50% of the OSN price, Aguas Argentinas has invested 4 times moreAguas Argentinas has invested 4 times more

Note: Changes in the price include the SUMA. The charge is taken as if it were a price increase and not a concept substitution (Infrastructure Charge and PSI differential costs)

Prices and Investments

0

20

40

60

80

100

120

1er b

im 8

0

5to

bim

80

3er b

im 8

1

1er b

im 8

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82

3er b

im 8

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1er b

im 8

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84

3er b

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1er b

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86

3er b

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1er b

im 8

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3er b

im 8

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1er b

im90

5to

bim

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3to

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91

1er b

im 9

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5to

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92

3to

. Bim

93

1er b

im 9

4

5to

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94

3er b

im 9

5

1er b

im 9

6

5to

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96

3to

. Bim

97

1er B

im 9

8

5to

. Bim

98

3to

. Bim

99

1er B

im 0

0

5to

. Bim

00

3to

. Bim

01

1er B

im 0

2

5to

. Bim

02

0

200

400

600

800

1000

1200

1400

Tarifa Real Promedio (1980 = 100) Inversión a Valores Constantes (2002 = 100)

OSM

AVERAGE PRICE

OSM AVERAGE

INVESTMENT

CONCESSION

START

AA

AVERAGE PRICE

AA AVERAGE

INVESTMENT

PRICE INDEX

Based on the CPI-adjusted average

nominal price (Consumer Price

Index)

INVESTMENT INDEX

Based on the WPI-adjusted average nominal amounts (Wholesale Price

Index)

Status of contract fulfilmentStatus of contract fulfilment

Status of contract fulfilmentStatus of contract fulfilment

Year 8 (2001)Population target

ORIGINAL

Population target

REVISED*

Drinking water 88% 79%Sewerage system 74% 65%

Population target

REACHED

78%

61%

Despite the difficulties, there is a limited difference between

the goals committed to and those achieved

Comparison: goals committed to and those achieved

Source: PMES (Plan for the expansion and Improvement of Service) approved by ETOSS (Water Regulatory body)

*The original goals were revised based on problems which arose during the first 5-year plan (see next slide)

Contract Difficulties during the 1st 5-year Contract Difficulties during the 1st 5-year PlanPlan

Contract difficulties

• Billing base 15% < than forecast

• Suspension of the Infrastructure charge (1995)

• Suspension of the Universal Service Charge (1998)

• Non-application of the pricing regulation (Art. 47MR)

First 5-year plan

• 87% of the original Water goal• 61 % of the original Sewerage

goal• Increase in debt

EARNINGS DEFICIT$493m

INVESTMENT DEFICIT$338m

Contract difficulties during the 2nd 5-Contract difficulties during the 2nd 5-year Plan year Plan

1999 - 2000 Investments of $395m FULFILMENT 100%

2001 Investments of $136m FULFILMENT 72%

THE FINANCIAL CRISIS PREVENTS THE RENEWAL OF THE FINANCING LINE FROM JUNE 2001

2002 - 2003 EMERGENCY

Price freeze vs doubling of investment costs Priority given to maintenance investment $140m Expansion (trust and own funds) $81m

Political, economic and social crisis Political, economic and social crisis December 2001December 2001

•From the start of the crisis, Aguas Argentinas From the start of the crisis, Aguas Argentinas managed to achieve three basic objectivesmanaged to achieve three basic objectives

• Maintain quality of service

• Reach the most vulnerable sectorsSocial Pricing

– The first company to implement a programme of social pricing: 85,226 residential customers benefited and 708 non-profit organisations

Programmes in low-income neighbourhoods– Participative Management model: programme based on a model of collaboration and integration of:

the community, local authorities, the company and the regulator to find solutions to the problems of access to services. 150,000 inhabitants benefited / 93 works projects were finalised / 68 information and educational workshops were held

– Water and Work plan: with the help of the government, this programme was rolled out with the aim of expanding the provision of drinking water services in the La Matanza area.100,000 inhabitants benefited / 82 works projects finalised or in process / 77 work cooperatives with 1,200 members trained

• Protect the sources of work

Contract renegotiationContract renegotiation

Renegotiation ChronologyRenegotiation Chronology

07/ 01/2002 "Public Emergency" lawFreezing of prices and non-application of the contract clauses relating to indexation in the event of devaluation.

14/02/2002 Creation of the Contract Renegotiation Committeeunder the auspices of the Department of Finance

18/03/2002 Formal opening of the renegotiationThe Committee started by requesting information on the Concession's financial position and its short-term prospects

08/11/2002 End of the information-collection stageThe discussions start

10/04/2003 Negotiations break downHaving failed to reach an agreement on the proposals tabled by both parties.


27/04/2003 Presidential elections04/07/2003 Creation of “UNIREN” (Unit for the Renegotiation and Analysis of

Public Service Contracts)Under the auspices of the Department of Finance and the Federal Planning Department, its mission is to complete the renegotiation of public service contracts and to analyse the fulfilment of the obligations under previous contracts.

07/2003 Formation of a trust fundThe Regulator required Aguas Argentinas to form a trust fund, under threat of executing the contract guarantee.

22/10/2003 Extension of the renegotiation termThe deadline for renegotiating public service contracts was extended to 31 December 2004.

01/2004 Unilateral extension of the Trust by the Government


11/05/2004 Signature of the Protocol of AgreementAgreement establishing an investment schedule totalling $242 million, to guarantee the continuity of service quality and the expansion of supply. The agreement also established the bases for re-defining the contract during 2004.

06/2004 Request for information from UNIREN

05/08/2004 Response from Aguas Argentinas to this request for information

12/10/2004 Aguas Argentinas presents its proposal

31/12/2004 The Protocol of Agreement comes to termAguas Argentinas fulfilled its obligations under the terms of the Protocol of Agreement. The company received no response from the Government on its proposal.


2005

01/2005 Unilateral extension of the Trust

Kirchner-Chirac meeting in Paris

Document drawn up with the points of agreement

From 01/2005

to 06/2005 Exchange of proposals without achieving a consensus

07/07/2005 Aguas Argentinas' definitive and final proposal

Reaching an agreement is urgent as the company's operating and financial situation does not allow it to continue to satisfactorily ensure its customers continuity and quality of service

26/07/2005 Aguas Argentinas sends a formal request to the Government to take the necessary measures within 30 days to re-establish the equilibrium that existed under the contract


9/09/2005 SUEZ has decided to recommend that the next Aguas Argentina's Board of Directors meeting, planned for September 19, 2005, puts in place the withdrawal process from the contract

19/09/05 Taking note of the negotiations failure, the Board is forced to propose to the next general assembly, on the 22nd of September, to initiate the withdrawal process.

22/09/2005 The General Assembly ratified the Board’s proposal to initiate the contract’s withdrawal process and asked the Board to examine with Argentinean authorities the practical modalities to put in place an orderly transition, in order to preserve the continuity of the service as well as employees’ interests.

Concession's current economic positionConcession's current economic position

OPERATING MARGIN

150

INVESTMENTS500

AMORTISATION OF REGULATED

ASSETS300

ANNUALDEFICIT

650

RESOURCESM$ PER YEAR

REQUIREMENTSM$ PER YEAR

(AT CURRENT EARNING LEVELS)

• Average annual values in $ (2005-2023)• 2004 billing in the region of $650m

The Concession is currently

losing $300,000 per

day

Documents

History of Aguas Argentinas 1993 - 2005