Abstract:
This case focuses on the privatization of water and sanitation services in the city of Cancún, Mexico. Cancún's growth from a small fishing village in the 1970s to a major international tourist destination by the 1990s overwhelmed the city's public drinking water and sewerage systems. Insufficient coverage, deficient budgets, poor output quality, and environmental pollution were long-standing problems. With the aim of solving some of these problems, Cancún privatized water and sanitation provision in 1994, granting Mexico's first comprehensive private concession for water or wastewater system operation. Two years later, the concessionaire's inability to fulfill its service coverage and investment commitments led to a major legal confrontation with the state government of Quintana Roo and state administrative takeover of the concession company's operations.
Learning Objective:
The case is designed to be used in discussions about (1) the problems generated by the absence of competitive bidding and transparency in concession processes; (2) the difficulty of raising tariffs without visible service improvements; (3) the role of regulatory monitoring and enforcement of concession performance targets; and (4) the impacts of contingencies like macroeconomic instability (Mexico's 1994 peso devaluation) on concession commitments.
