US embassy cable - 05ALGIERS1289

UNCLAS SECTION 01 OF 02 ALGIERS 001289 
 
SIPDIS 
 
E.O. 12958:   N/A 
TAGS: ECON, EINV, EIND, ETRD, BEXP, AG, Economic Reform 
SUBJECT: UTILITY PRICES RISING AS THE GOA BEGINS TO 
PRIVATIZE WATER MANAGEMENT AND DISTRIBUTION 
 
 
SUMMARY AND COMMENT 
------------------- 
 
1. Parliament passed June 16 a revised Water Code allowing 
public water and sanitation services to take on private 
partners and to  adjust the sliding water tariff schedule, 
which will likely lead to more price increases.  (Minimum 
per cubic meter water prices for typical consumers already 
increased 61% in January.) The new Code will permit state- 
owned company Algerienne des Eaux (ADE) to award a water 
distribution management contract for Algiers to the French 
Suez Group. Once adopted by the Conseil de la Nation 
(Senate), the new Water Code will also permit the state to 
enforce environmental regulations and impose penalties for 
violations.  These revisions come at a time of acute water 
shortages in western Algeria, particularly Oran. 
 
2. Sonelgaz increased electricity and gas prices June 1 by 
5%, maintaining a general trend of price increases for many 
products in Algeria, including gasoline, whose prices have 
also increased within the past year. 
 
3. Comment: The press criticizes these Sonelgaz rate hikes 
for taking another bite out of consumer spending power. 
Press commentaries regularly call attention to the 
disconnect between rising utility prices and Algeria's fast- 
rising oil revenues.  It remains to be seen if the GOA will 
adjust its utility pricing in the face of consumer concerns, 
although the larger economic benefits of instituting a 
rational pricing system would argue against GOA changes at 
this point. 
 
END SUMMARY AND COMMENT. 
 
MANAGEMENT PRIVATIZATION FOR ALGIERS AND 
A NEW TARIFF SYSTEM FOR HIGHER PRICES 
------------------------------------- 
 
4. Parliament passed the revised Water Code June 16 to let 
water pricing reflect actual costs of production, 
exploitation, maintenance and infrastructure development. 
The sliding scale for water pricing will adjust the 
consumption brackets on which charges are based, and is 
likely to lead to price increases for average consumers. 
(Note: Water rates already increased 61% in January for the 
lowest consumption bracket from 3.6 dinar (5 cents) to 5.8 
dinar (8 cents) per cubic meter. The GOA continues to 
subsidize the difference between these costs and the actual 
cost of water, 25.5 dinar (35 cents). End Note.)  The 
effects of severe water shortages have affected both 
drinking water and irrigation supplies, leading the GOA to 
adopt large and ambitious water infrastructure investment 
plans, the costs of which the GOA plans to pass on to water 
customers.  The new Code represents the first change in 
drinking water pricing since 1995 and in irrigation water 
pricing since 1998. 
 
5. The Code grants Algerienne des Eaux (ADE) the right to 
create private-sector partnerships for water distribution 
and sanitation services.  Water will technically remain in 
state ownership, a point that Water Resources Minister 
Sellal has reiterated publicly in the face of minor 
opposition.  The GOA began negotiating in 2003 with the 
French Suez Group to manage the first stage of water 
distribution improvement in Algiers. The goal of the two- 
year management contract is to reduce water loss from 40% to 
between 5% and 10%.  A jointly-owned company, the Algiers 
Water and Sanitation Company (SEAL), would be created with 
state utility Algerienne des Eaux (ADE), the National 
Sanitation Office (ONA), and the Suez Group. Sellal has said 
that the contract with Suez would not privatize Algeria's 
water sector and that the State would continue to subsidize 
water prices.  Management privatization contracts would be 
granted in a second phase for Annaba, Constantine, and Oran, 
with tenders to be released in October 2005. 
 
ELECRITICITY AND GAS 
PRICES ALSO ON THE RISE 
----------------------- 
 
6. Electricity and gas prices rose 5% June 1 for households, 
consistent with a request earlier this year from Sonelgaz to 
the Regulatory Commission for Electricity and Gas.  Both 
rates increased 9.5% for small businesses, and 10.5% and 
9.5%, respectively, for heavy industries. Gas rates were 
lowered for the petrochemical industry to stimulate growth 
in that sector.  The GOA announced in a communique that 
these rate adjustments were designed to be in conformity 
with the 2002 Law on Gas and Electricity, and were not a 
result of the new Hydrocarbons Law, as opponents had 
claimed. 
 
MP'S CRITICIZE EARLY VERSION 
OF NEW WATER CODE DURING DEBATE 
------------------------------- 
 
7. The new Water Code's Article Two had initially changed 
the right of the public to "access" water to the right of 
the public to "use" water.  Most political parties deemed 
this shift "dangerous" for social stability, considering the 
right to access water as fundamental.  The new language, 
which was rejected, may have reinforced the GOA's ability to 
shut down illegal connections to the public water system. 
Such violations have been traditionally tolerated by 
authorities, but will be become harder to overlook as water 
meters in private homes become more universal. 
8. Outspoken Workers' Party (PT) deputy Louisa Hanoune 
declared that the new code violated Articles 17 and 26 of 
the Constitution, guaranteeing that public property belongs 
to the national collectivity.  She said the law's 
consequences would be disastrous, as it would restrict 
access to water and would "unquestionably" lead to "diseases 
and epidemics" that have already been eradicated.  A former 
deputy of the majority-aligned party RND declared that the 
new text had put into question the fundamental human right 
to use water. 
 
9.  Reacting to the privatization of Algiers' water 
management, the Worker's Party (PT), moderate Islamist party 
MSP, and FLN deputies opposed those portions of the new 
text, declaring themselves "outraged" to see economic and 
commercial interests taking control of a public service. 
 
"WATER POLICE" TO ENFORCE 
ENVIRONMENTAL REGULATIONS 
------------------------- 
 
10. The new code would also give more power to the 
government to regulate water quality and protect areas with 
vulnerable watersheds and ecosystems.  A new "water police" 
unit within the Ministry of Water Resources will be created 
to enforce both water and environmental regulations and set 
penalties and sanctions for violating them. 
 
MORE OPPORTUNITIES FOR U.S. 
FIRMS IN THE WATER SECTOR 
--------------------------- 
 
11. The four-year water infrastructure budget is USD 7 
billion, excluding funding for seawater desalination.  New 
strategies to address Algeria's 750 million cubic meters of 
wastewater, most of which are dumped in the Mediterranean, 
are a priority.  Tenders will be released in October 2005 
for water management contracts in Annaba, Constantine, and 
Oran, with 5 more tenders to be released in 2006 for 
Tlemcen, Skikda, Tizi-Ouzou, La Calle, and Temouchent. 
Western cities, particularly Oran, have experienced drinking 
water deficits for the last 20 years, exacerbated by low 
rainfall and poor technology in water demineralization and 
purification.  Nationally, ten new dam projects were 
recently launched and 15 projects are in the study phase. 
Flood protection technologies and aquifer replenishment are 
other key areas where the Ministry of Water Resources is 
actively seeking foreign participation. 
 
ERDMAN