Water supply and sanitation in Chile

Water supply and sanitation in Chile is characterized by high levels of access and good service quality. Compared to most other countries, Chile's water and sanitation sector distinguishes itself by the fact that all urban water companies are privately owned or operated. The sector also prides itself of having a modern and effective regulatory framework, including an innovative subsidy mechanism to protect the poor. One weakness of the sector are the relatively high water losses. The situation can partly be explained using the gradually growing economic indicators and relatively stable politics of the country, which favored a sustainable development of the services.

This article is part of a comparing the institutional and financial characteristics of water supply and sanitation around the world.

Access

According to the regualatory agency SISS (see below), the Chilean urban areas access to water supply stood at 99.8% and access to sanitation at 95.2% in 2006, which is one of the highest levels in Latin America.

One of the reasons of the high coverage rates in Chile is the early effort for extending and improving the infrastructure (see below). As a result, in 1990 97% of the urban population was already connected to water and 82% to sanitation.

Service quality

Service quality is generally good in Chile. It is regularly controlled by the SISS since it was founded in 1990. The agency examines if the services comply with the Chilean norm NCh 409, which was modified for the last time in 2005 and includes standards concerning water quality, water pressure and continuity among others.

At the beginning of the 1990s, there were problems regarding the chlorination systems of some water service providers. Consequently, in 1991 20% of the companies did not comply with the bacteriological norms. In 2006, this share had dropped to about 1%. In the same period, compliance with disinfection norms increased from 89% to more than 99%.

Water supply is continuous, both in urban areas and in concentrated rural areas and water pressure is adequate

The sector currently undergoes a major wastewater treatment investment program with the goal of treating 100% of all collected municipal wastewater in 2012. This share has increased from 8% in 1989 to 82% in 2006.

Water use

Water use has gradually decreased since 1998. 96% of the water consumption is measured, which results in precise information concerning water consumption. In 2006, the total water consumption was 958 million m3. Each customer thus used on average 19.9 m3 per month, resulting in 196 liters per capita and day. Water consumption is highest in the capital region, ranging from 44m3/month (Aguas Cordillera) to 125m3/month (Aguas de Manquehue).

History and recent developments

The Chilean water supply and sanitation sector today is characterized by one of the best coverage and quality levels of Latin America. One of the reasons was a gradual and lasting extension of infrastructure which began in the 1970s. In the 1990s, most utilities improved their economic efficiency and became self-financing companies which were partially handed over to the private sector.

Before 1977: A fragmented sector structure

Before 1977 urban water and sewer services in Chile were provided by a multitude of entities. The largest entity was the Sanitation Department of the Ministry of Public Works, which was in charge of service provision in towns outside of the two largest cities, Santiago and Valparaiso. In these two cities municipal utilities were responsible for service provision. The Ministry of Agriculture and the Ministry of Housing and Urban Development also had water and sanitation departments. The sector was thus fragemented and also heavily overstaffed, partly as a result of the Socialist policies of President Salvador Allende. To guarantee its operation, the service was directly subsidized by the national government.

1977-1988: The National Water Company SENDOS

In 1977 the national public water and sanitation company SENDOS (Servicio Nacional de Obras Sanitarias) was created which had 11 regional branches. The municipal utilities in Santiago and Valparaiso were corporatized and modernized. During that time employment in the utilities was significantly reduced. Services were outsourced, but companies were required to hire a certain number of ex-employees of the public companies.

The public utilities for Santiago and Valparaiso, EMOS (Empresa Metropolitana de Obras Sanitarias) and ESVAL (Empresa Sanitaria de Valparaiso), were strengthened through loans from the World Bank during that period, although the government of Augusto Pinochet privatized the electricity and telecommunications sector at the same time.

Water coverage during this period increased substantially from 78% in 1976 to 98% in 1988. Sewer coverage increased from 52% in 1976 to 82% in 1988.

1988-1998: Corporatization and Regulation

In 1988, the Chilean people denied President Augusto Pinochet a new term in a referendum, thus passing a key step in the country's transition to democracy. Unlike the privatization and liberalization in other infrastructure sectors, reform of the water and sanitation sector was thus not imposed by the military government but initiated in a climate of democracy.

Between 1988 and 1990, a number of legal reforms and the creation of new institutions had two principal objectives:

The service providers should become self-financing through higher tariffs which represent the real costs of the services and more efficient performance

Water supply and sanitation coverage and quality should become universal

Therefore, in December 1988 the General Water and Sanitation Law (Ley General de Servicios Sanitarios) allowed the granting of 13 regional concessions to public, private or mixed shareholding companies in each of Chiles regions. In 1990 the regulatory agency SISS (Superintendencia de Servicios Sanitarios) was created through a separate law. An innovative model of tariff regulation was borrowed from the Chilean electricity and telecommunications sector: Efficient cost levels were estimated for an imaginary model company and used as a benchmark to set tariffs for the utilities. Means-tested subsidies (i.e. subsidies that are granted only to those that demonstrably have limited means) were also introduced at the same time to cushion the effect of the tariff increase on the poor. The legal framework with some modifications is still in force today.

Initially the regional companies remained public, but the intent was to prepare them for privatization. During that period they achieved financial self-sufficiency, were granted tariff increases, improved their efficiency and increased coverage . The regional companies were also transformed into private law companies (Sociedades Anonimas). Investments increased from less than US$ 80m annually on average during the 1980s to US$ 260m in 1998. However, regional utilities still did not have sufficient resources to expand wastewater treatment.

1998 and after: Privatization

Under the government of the Christian Democrat President Eduardo Frei the law was amended in 1998 to promote private sector participation. The stated motive was to increase efficiency, to improve service quality and to mobilize capital to extend wastewater treatment. Subsequently all regional branches of SENDOS, as well as the water and sanitation companies of Santiago and Valparaiso, were privatized. Staffing was further reduced, new complaints management procedures were introduced and the share of collected wastewater treated increased significantly.

Contrary to the case of many other Latin American cities where the private sector was asked to provide services, the Chilean service providers were financially self-sufficient when the private sector took responsibility for them. The public companies had been prepared to gradually improve efficiency and profitability since the legal reforms of 1988-1990. This may explain the stable process of private sector participation compared to other Latin American cases. A factor that explains the continuity of sector policies during various administrations is the fact that all Presidents since Chile's return to democracy in 1990 belonged to the same Coalition of Parties for Democracy.

The privatization was carried out in stages, beginning with the five largest of the 13 regional water companies serving more than 75% of users. Because of the staging, it is possible to compare the performance of the privatized and public utilities at that time. This comparison shows that from 1998 to 2001 private companies invested substantially more than public companies and - unlike the public companies - increased their labor productivity significantly. Tariffs increased for both types of companies, but more so for the privatized ones. However, according to one study, "in Chile a social consensus emerged that has made the higher water rates acceptable given the improvements in service quality and the addition of new services such as wastewater treatment."

The participation of the private sector occurred in two different ways. From 1998 to 2001, when the biggest companies were privatized, the majority of their shares were sold to the private actors. Since 2001, the government decided to not continue to sell parts of the companies, but to transfer the operation rights of the companies to private actors for 30 years. This latter way of private sector participation which is also known as concession, differs substantially from selling shares of the companies: (i) The period of participation is limited to 30 years and (ii) the infrastructure remains property of the Chilean state. All seven companies which were privatized in the second way merged in 2005, assuming the name ESSAN.

According to the World Bank's Private Participation in Infrastructure database, investment commitments by the private sector in Chile's water and sanitation sector reached US$ 5.7 bn in 1993-2005 through 20 projects, with US$ 4 bn of commitments made in 1999 alone through 4 projects. 7 projects were divestitures, 10 were concessions and 3 were greenfield projects in wastewater treatment plants.

The Socialist Presidents Ricardo Lagos (2000-2006) and Michelle Bachelet (since 2006) maintained the basic institutional structure of the sector established under previous governments based on private service provision, means-targeted subsidies and regulation by a public, autonomous regulator.

Responsibility for water supply and sanitation

Policy and regulation

Responsibility for sector policy in Chile is vested primarily in the Ministry of Public Works, which grants concessions and promotes rural water supply and sanitation through its Department of Sanitation Programs. The responsibility for regulation is shared between the Superintendencia de Servicios Sanitarios SISS, the economic regulator in urban areas, and the Ministry of Health which drinking water quality standards in both urban and rural areas.

The SISS controls water and sanitation services in urban areas according to financial and quality norms (see above). To guarantee political independence, it is a decentralized organization with its own budget. The SISS has the right to impose fines on the service providers in case of violation of norms, which directly flow in the regulator's budget. Furthermore, it receives user complaints, assesses their validity and acts on them them. The agency has databases of all 53 urban service providers.

The water and sanitation regulatory system in Chile is considered by the WHO to be a model not only for Latin America, but also for Europe. One of its innovative features is the use of a hypothetical efficient model enterprise to assist in determining if tariff increases requested by service providers are justified.

Rural areas

In the Chilean rural areas, the ministry of health and the ministry of economy are responsible for regulating and supervising the water cooperatives and water boards. However, in rural areas there is no public control agency such as the SISS in urban areas. Since 1994, the National authority for Water Works (DOH) is in charge of executing the national program of Rural Potable Water (APR). Unlike the urban service providers, the rural water supply and sanitation sector was at no time included in the modernization and privatization processes. According to Law 19,549 of 1998, urban concessionaires have to provide technical and administrative assistance to the water boards and cooperatives in their respective region.

Service provision

Water supply and sanitation services in Chile's urban areas is provided by 53 entities. To prevent monopolization, the providers were classified into three categories according to the percentage of the population served by them. No person or society is allowed to possess more than 49% of the companies within one category:

The three largest companies are

Aguas Andinas, serving the capital Santiago, majority-owned by the Spanish company Aguas de Barcelona,

the Empresa de Servicios Sanitarios del Bio-Bio ESSBIO in the sixth region and eighth region around Concepcion, majority-owned by the Latin American Investment Fund Southern Cross, and

The Empresa Sanitaria de Valparaiso ESVAL in the Valparaiso Region owned by various institutional investors.

Together the three companies serve 63% of urban water customers in Chile.

Even though the sector is privatized, the Chilean state still holds 36% through its Production Development Corporation (CORFO). As shown in the following table which shows the situation of 2006, the majority of the sector was still owned by Chilean actors.

Rural areas

In rural areas, local water cooperatives and water boards provide water supply services. In concentrated rural areas , there was a significant development due to the national program of Rural Potable Water (APR). However, most isolated housings in Chile still lack adequate water connections. Even though some villages have developed sanitation solutions, most of them have operation problems.

Efficiency

Non-revenue water ("water losses") in Chilean water companies was on average 34% in 2006, an unusually high level for a sector that is so modern in so many other aspects. The level of non-revenue water is thus still higher than in Germany, France or the United Kingdom. (see e.g. water losses in Germany). Indeed, non-revenue water in Chile increased from 29% in 1999 to the current 34%. The regulator considers a level of 15% as efficient.

In 2006, on average one employee of the urban water supply and sanitation providers served 418 clients, resulting in 2.4 employees per 1000 connections, below the Latin American average of 5.

Financial aspects

Tariffs

According to the different availability of the resource in the Chilean regions and the premise, that water tariffs should reflect their real value, they differ substantially. Tariffs in urban areas varied between US$0.8 (Aguas Manquehue in Chicureo) per cubic meter and US$ 4.1 (Aguas Patagonia in Coyhaique) per cubic meter in 2006. In rural areas, tariffs only cover operation and maintenance costs

On average, the water and sanitation bill accounted for 1.14% of household income according to a 1998 survey by the National Statistical Institute. They varied between 0.77% for the highest (wealthiest) quintile and 2.35% for the lowest (poorest) quintile.

Investment and Financing

Urban water and sanitation systems do not receive direct subsidies and are financed through the capital market, and ultimately through user fees. However, there is an innovative system of means-tested subsidies that allows qualifying poor households to receive a subsidy administered by the municipalities to pay parts of their water and sanitation bills. Rural water systems receive a partial investment subsidy that is defined in the Ley del Subsidio al Agua Potable y Saneamiento.

Since the sector was prepared for self-sufficiency, investment increased significantly from an annual average of about US$ 100m in the period 1965 to 1989 to an annual average of US$ 242m in the period 1990 to 1998, when the first company was privatized. According to SISS, since 1998 the annual investment ranges between US$ 151m (1999) and US$ 443m (2002). Total investment in 2006 was US$ 325m.

External support

Interamerican Development Bank

The IDB supports the water and sanitation sector in Chile through two technical assistance grants:

TC0207000 : Local Development Access to Basic Water and Sanitation Services

CH-T1004 : Water Services for Disperse Rural Communities

World Bank

The World Bank supports the water and sanitation sector through a US$90m project approved in 2005, of which about 30% will be used for rural water supply and sanitation. The project is being executed by the Vice-Ministry of Regional Development in the Ministry of Interior. Investments are being undertaken in Coquimbo, Maule Region, Bio-Bio Region, Araucania Region, and Los Lagos Region.

Approved June 14, 2007, 20% of the US$30 million loan will be spent in the general water, sanitation, and flood protection sector.

See also

Electricity sector in Chile

External links

Policy and regulation

General Water and Sanitation Law (1988)

Ministry of Public Works - Ministerio de Obras Publicas (MOP)

Ministry of Health - Ministerio de Salud (MINSAL)

Superintendency of Water and Sanitation Services - Superintendencia de Servicios Sanitarios (SISS)

Service providers

National Association of Water and Sanitation Service Providers (ANDESS)

Aguas Andinas, service provider in Santiago de Chile

ESSBIO, service provider in Bio-Bio

ESVAL, service provider in Valparaiso

ESSAN, service provider in several provinces

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article Water supply and sanitation in Chile