Water Supply and Sanitation in Venezuela - History and Recent Developments - First Phase of Decentralization (1991-2001)

First Phase of Decentralization (1991-2001)

When INOS was dissolved under the Presidency of Carlos Andrés Pérez the intent was to decentralize service provision to the municipalities that already had the legal responsibility for service provision. However, because of the lack of capacity and resources of most municipalities, service provision in 20 out of the 23 states was temporarily entrusted to the ten regional water companies under the holding company HIDROVEN (see above). In the remaining three states services were provided by the Corporación Venezolana de Guayana (CVG).The Pérez government also launched a bid for a private concession for the water and sanitation system of Caracas in 1992. However, the bid failed for lack of interested bidders under the proposed conditions.

Beginning in 1993 some states began to play a more active role in the sector. Until 1999 five decentralized water companies were created with a strong presence of the state governments (see above under service provision). This process began in Monagas in 1993 with support from the World Bank. Some of them also signed management contracts with private operators, which led to an improvement in the performance of the water and sanitation companies.

Between 1994 and 2001 water tariffs throughout the country were increased substantially, so that the ratio of cost recovery to operating costs increased from 27% to 87%. Such a substantial real tariff increase, which apparently did not cause political turmoil, is unusual in developing countries. However, the increase in tariffs was not paralleled by improvement in services. According to the IDB sector performance even deteriorated in this period.

The decentralization process remained very slow. Some municipalities refused to receive the service responsibility unless systems would be modernized, but a mechanism to finance the necessary investments was lacking. About 80% of the population thus continued to be served by HIDROVEN and its subsidiaries, and the slowness of the decentralization process consolidated institutions that were meant to be only temporary.