The construction and engineering conglomerate wants $25 million in compensation from Bolivia for canceling a water contract with Cochabamba, the nation's third-largest city.

The conflict began two years ago when thousands of residents poured into the streets of the city to protest hefty price increases by the local water company, which is a subsidiary of Bechtel.

After clashes with soldiers firing tear gas and bullets left a 17-year-old protester dead, hundreds injured and more than a dozen protest leaders in jail, Bolivia's government suspended its 40-year lease with the company.

Bechtel now demands compensation for the canceled contract. An arbitration board sponsored by the World Bank is expected to decide within the next few weeks whether to consider the case.

Since Bechtel is one of the most powerful corporations in the world -- with $14.3 billion in revenue in 2000 -- some critics have suggested that it should merely absorb its losses rather than exact payment from impoverished Bolivia, whose national budget is only $2.7 billion, compared with $642 billion for last year's U.S. budget.

Others say the legal imbroglio is a symbol of globalization run amok.

"These investment treaties (such as trade pacts and privatization) make the profits of multinational corporations more important than the basic rights of people," said Joshua Karliner, executive director of CorpWatch in San Francisco, a watchdog group that tracks corporate behavior worldwide.

Gail Apps, a spokeswoman for Bechtel, said the legal action is "not a lawsuit. Resolving this issue in an orderly way through an independent body . . .preserves both the rule of law and the incentive for governments to honor agreements."

A LEGAL OUT

Bechtel claims that when the water contract was canceled, Bolivia violated a bilateral investment treaty with the Netherlands, where the company, called Aguas del Tunari, is incorporated. The company's majority owner is the London- based International Water Limited (IWL), which is a subsidiary of Bechtel.

According to Johnny Cuellar, head of the Bolivian agency in charge of water service, Bolivia has a legal out -- a clause called "impossible survivability" -- that can terminate a contract between the state and a private corporation when uncontrollable forces such as prolonged protests occur.

However, John Newman, the World Bank's representative in Bolivia, blamed the dispute on the Bolivian government's desire to leverage the water deal as part of an ambitious future project to transport water from the Misicuni River across a mountain ridge to Cochabamba. Government officials had linked the water deal to the complex $200 million engineering project, involving Aguas del Tunari, that they hope will someday solve the city's water problems.

"They (Bechtel) were going into a bad situation," said Newman. "We advised the Bolivians long ago that Misicuni was not viable."

Samuel Soria, a director at SEMAPA, the municipal utility that regained ownership of the water system, says the government's major mistake was not requiring Bechtel to find outside financing for Misicuni. "They were using water rate hikes to pay for future infrastructure investments," he said.

But Pablo Solon, a political analyst in La Paz, says the price increases cannot be blamed solely on the Misicuni project.

"This company had a sweetheart deal. It was a typical case of Bolivian corruption," said Solon.

Cochabamba is a tranquil city with a moderate climate, Spanish colonial buildings and scores of informal street markets. The minimum monthly wage of Cochabamba's 500,000 residents is $67, in a country in which 65 percent of the 8 million population are mired in poverty.

The city's water company, prior to Aguas del Tunari, was debt ridden and had a reputation for mismanagement. Only 60 percent of Cochabamba residents have access to water.

For those who do have water, the price increases were at the heart of the dispute. Many residents say the price increases levied by the Bechtel subsidiary rose by as much as 200 percent. Some say the increases were even greater.

Eduardo Camacho, the 51-year-old owner of an electronics repair shop, says his bill skyrocketed by 500 percent from $4 a month to nearly $20 a month. Camacho, who during slow months barely earns $50, said there was no way he could afford the increase.

"Bechtel should pay us for the damage they did to us," he said.

Oscar Olivera, who led protests against the rate hikes, and who won a prestigious environmental award last year from San Francisco's Goldman Foundation, said the Cochabamba conflict was over water, plain and simple.

"People need water to cook, clean, drink, grow crops. We simply could not pay the rates they wanted," he said.

MORE WATER USE

Bechtel spokeswoman Apps argues that the government agreed to a maximum price increase of 35 percent and that "for the poorest people in Cochabamba rates went up little, barely 10 percent." She says Aguas del Tunari improved water service by increasing the hours of service and the pressure, which caused many consumers to use more water than customary.

"It's important to understand the difference between water rates and water bills," Apps said in the same statement.

Mike Curtin, president of Aguas del Tunari, said that his firm didn't do anything that wasn't agreed upon in the contract.

"We negotiated a financing model that was accepted by them (government)," he said. "The model showed the necessary price increases."

But SEMAPA General Manager Rodrigo Alvarado says his company recently analyzed Aguas del Tunari's billing process. He said the study showed that the average price increase regardless of how much water was used was 51 percent, including as much as 43 percent for the very poor.

"Aguas del Tunari did not stick to its commitments in the contract," he said.

Federico Diez de Medina, president of the water commission for Cochabamba's Chamber of Commerce, says the project was doomed from the start.

"I don't think the (San Francisco) executives understood what happened here, " he said. "The prices, the contract, it was a recipe for disaster."

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