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This case focuses on the privatization of water and sanitation services in the city of Cancun, Mexico. Cancun''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, Cancun 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. 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. In 1996, the state government of Quintana Roo took over operation of Cancun''s water and sanitation services, privatized only two years earlier. The sequel describes the ensuing changes to the concession contract and regulatory oversight structure, and the return of operational control to the private concession company, Aguakan. It briefly discusses the financial and political difficulties that follow the concessionaire''s reinstatement in Cancun, and the eventual sale of the concession in 1999 to a division of Enron Corporation.