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Cancun, Mexico: Water System Privatization Case Solution & Answer

This case is about  INTERNATIONAL BUSINESS

PUBLICATION DATE: August 01, 2000

Cancun, Mexico: Water System Privatization Case Solution

This note emphasizes on the privatization of sanitation and water services in the city of Cancún, Mexico. In the period between the 1970s and the 1990s, Cacun had rocketed from being a small fishing village to an international tourist destination, and had overwhelmed the city’s public drinking water and sewerage systems. Insufficient coverage, less budgets, poor output quality, and environmental pollution were long standing difficulties. Along withthe objective of solving a few of these problems, Cancún privatized water and sanitation provision in 1994, giving Mexico’s first comprehensive private concession for water or wastewater system functioning. After two years, the holder of the concession was unable to oblige to the investment commitments and its service coverage resulted in a major legal confrontation with state administrative takeover of the concession firm’s businesses and the state government of Quintana Roo. The case was made to be used in discussions about (1) the problems generated by the lack of competitive bidding and transparency in concession procedures; (2) the difficulty of raising tariffs without visible service developments; (3) the role of regulatory monitoring and enforcement of concession performance objectives; and (4) the impacts that would show on concession commitments because of contingencies like macroeconomic instability (e.g.: The 1994 devaluation of the Mexican peso).HKS Instance Number 1593.0

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