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Article – Corruption taints Spanish concessions market

Font: Global Water Intelligence

Spain’s economic crisis has created a climate conducive to cutting corners. The water concessions market is struggling to escape the contagion.

The municipal water concessions market has not been immune to the rash of scandals sweeping Spain in recent months involving alleged slush fund payments to politicians – including several government ministers – for preferential treatment in the awarding of public contracts.

In February, José Luis Míguez, director of Agbar’s Aquagest concession in Santiago de Compostela in Spain’s northwestern region of Galicia, was jailed on remand by magistrate Pilar de Lara, who is investigating alleged payments and gifts to municipal officials to ensure the renewal of Aquagest’s contract. Among those charged is the ex-mayor of Santiago, Gerardo Conde Roa.

An Agbar source confirmed to GWI that Míguez has since been sacked, but Agbar insists he was acting on his own behalf rather than carrying out company policy. However, as part of the same investigation, de Lara is looking into the alleged role of Joaquín Fernández, a senior Popular Party (PP) politician in the neighbouring region of Asturias, in the award of contracts to Aquagest in the municipalities of Cangas de Narcea and Llanes.

At the other end of the peninsula, Agbar’s biggest competitor in the municipal concessions market, aqualia, is the focus of controversy concerning a number of contracts it has recently won in the province of Huelva, Andalucía.

El País newspaper says it has documentary evidence that PP councillor José Carlos Hernández was employed both by aqualia and by municipalities which subsequently awarded service contracts to the FCC subsidiary. According to a legal report written by Huelva University law professor Javier Barnes, in two of these municipalities – Valverde del Camino and San Juan del Puerto – aqualia was awarded concessions without the formality of an open tender.

The secretary of the Socialist Party in Huelva, Jesús Ferrara, has called on the PP to explain whether Hernández “was acting to enrich himself or to make money for the party, and to clarify his relationship with the company [aqualia] which was awarded the contracts”.

Meanwhile in Catalunya, the civic platform Aigua és Vida presented a report to the anti-corruption prosecutor’s office in February urging a formal investigation into the decision last year by the Barcelona metropolitan authority (AMB) to award a 35-year integral water cycle concession worth an estimated €330 million to Agbar without a competitive tender.

The platform alleges that the operation, which the regional government is trying to block, involved “misconduct by public officials” and was based on a “fraudulent” claim by Agbar to title to the concession.

Further down the Mediterranean coast in Valencia, a court decision in January suspended a water service management tender for the city of Gandía which would have required the winner to pay the existing operator, Aguas de Valencia (AVSA) the sum of €86 million. The court agreed with the plaintiff, Agbar, that the tender had been expressly drawn up “to ensure the award of the contract to AVSA”, Agbar’s principal regional competitor.

Meanwhile, Valencia’s mayor, Rita Barberá, and other municipal representatives of the governing Popular Party, were accused in court this month of taking gifts and payments over a number of years from the politically appointed management of EMARSA, the now defunct municipal wastewater company.

Spain’s economic crisis has clearly created a climate conducive to cutting corners, with public authorities ever readier to use their water service assets to raise cash. “Since the collapse of the property bubble, municipalities can no longer sell off land, so they are selling off services instead, and creating a water bubble in the process,” according to Luís Babiano, director of the public sector water operators’ association AEOPAS.

At the same time, the crisis is squeezing margins for private sector companies, requiring them to fight harder for new business and to retain existing contracts. Competition is therefore intense, but also very limited as the two dominant operators, Agbar and aqualia, control around 80% of the private market in Spain.

There is now a growing consensus in the sector that the Spanish model for awarding municipal water concessions implicitly encourages bad practice and needs reforming. “The canon [a lump sum payment made by the concession-holder] incites bad behaviour. The law should explicitly prevent public authorities using money received for concessions for any other end but improving water infrastructure,” Babiano told GWI.

Roque Gistau, president of the Spanish water and sanitation association (AEAS), agrees. “The canon should be abolished because it has nothing to do with water, and it’s distorting the market,” he told GWI. Gistau also believes that Spain needs an independent water regulator. “A more regulated and transparent system would help to prevent cases of the kind we are now seeing,” he said, referring to the allegations of corrupt practice.

One thing is clear: each new allegation of corruption reinforces the impression that water service management is an industry in need of a clean-up.

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