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ABSTRACT.
Many concession agreements between governments of developing countries and corporations have failed to produce expected infrastructural, monetary, and efficiency gains. This Note argues that these agreements fail in part because the parties construct them as traditional private contracts. Given their subject matter, their noneconomic focus and purposes, and the ways in which they shape future economic development strategy, international policymakers and business leaders should conceptually and procedurally recast concession agreements as traditional matters of public policy. This reinterpretation will make the agreements more stable and successful by making their costs and benefits more transparent, their drafters more accountable to the populations they are intended to benefit, and their terms more responsive to the concerns of those populations.
INTRODUCTION
In September 1999, the Bolivian government signed a forty-year concession agreement with Aguas del Tunari, a consortium led by a British subsidiary of Bechtel, for water supply and sanitation services in Cochabamba, Bolivia.1 Six months later, the government cancelled the agreement amid sustained and escalating rioting by the local population and returned responsibility for the water service to the municipal authority.2 Although the Cochabamba concession is remarkable for its swift and abject collapse, its fate is part of a larger pattern.
A concession agreement is an agreement between a government and a private company (the "concessionaire"), in which the government transfers to the company the right to maintain, produce, or provide a good or service within the country for a limited period of time, but the government retains ultimate ownership of the right.3 A substantial number of these agreements signed between the governments of developing countries and foreign corporations have recently failed, across many different subject matters and geographic areas.4 In the water industry alone, at least seven major concession agreements have collapsed in the last decade.5 Some experts estimate that as many as fifty percent of all concession agreements signed since the mid-1980s have been renegotiated or cancelled.6 This Note seeks to aid the understanding of why these concession agreements break down. It argues that concession agreements fail because their governmental function clashes with their private method and venue of creation.
In their regulatory, proprietary, and administrative capacities, governments perform a variety of functions, not all of which qualify as public policy creation. Under...