The economics of providing utilities in Latin America is a perpetual source of strife. If the high cost of building and maintaining infrastructure in difficult terrain with extreme weather and geology isn’t enough, entrenched unions, price controls, nasty neighbors and underinvestment can put paid to even the best projects in the region.
That is why it is no surprise that, in countries like Bolivia, the government has reversed course with a wave of nationalizations in key energy and utility sectors to try to pick up the slack left by a limp private sector. The Economist’s view on these expropriations / returns to state control are surprisingly sanguine, given the paper’s pro-market orientation.
What’s really special about the piece, though, is that it expresses in two sentences the central problem with utilities in Latin America:
“The privately run electricity companies have not been able to invest as heavily as their public water counterparts. Part of the reason is that the government has forced them to cut their prices.”
With the exception of places like Chile, where there is broad consensus around the private operation of certain utilities, the new normal in many Latin American utilities is a world where state price controls compete with private profit needs, and consumers fail to understand the true cost of the services they receive.