Reversing privatization: Political distortions and performance outcomes in Buenos Aires water services

Abstract

We contribute to the debate on privatization reversals by examining the performance of the sanitation service concession in Greater Buenos Aires, one of the world's largest, across multiple political cycles. Using index number theory, we decompose operating profit growth into productivity and price performance, comparing political cycles during two distinct phases: private management and subsequent return to public management. Our findings show that under private management, productivity improved while prices declined. However, the privatization reversal is associated with a marked decline in performance, with productivity falling at twice the rate of rising relative prices. This adverse effect was somewhat mitigated under right-leaning governments. Furthermore, after the reversal, output prices fluctuated in line with the political cycle, suggesting potential price manipulation for electoral advantage. We also note that the shift to public management coincided with increased non-revenue water and a possible ideologization of commercial customer complaints.