Chilean urban water services – 25 years of experience improving access to and quality of water services presented by Mª Angélica Alegría Calvo , Chilean Directorate of Water at GWP Consulting Partners meeting 2010

1. Chilean urban water services – 25 years of experience improving access to and quality of water services Mª Angélica Alegría Calvo Chilean Directorate of Water

2. Chile’s population is mainly urban and urbanization is steadily increasing, which is a major challenge to water services. In 2002 urban population was 86.6% while in rural areas it was 13.4% (Compared to 16.5% in 1992) In the 80’s, the provision of these services was transferred to private hands with some very specific purposes that require a careful description and analysis, in order to understand the reforms and mechanisms in place that allowed the improvement of the provision of water services. From 1860 until 1977, urban water supply & sanitation services were provided by the Government

3. Until the late 70´s , investments in UWSSS were supported by the Central Government budget to develop infrastructure In 1977: coverage for urban drinking water supply was 86% and for urban sanitation it reached 56%. » concept of a general tariff A subsidized price for drinking water was maintained until the end of the 70’s. Everybody paid the same price for WSS regardless of their income and water tariffs covered less than 50 percent of the cost of the service and only 20 percent in some regions where production costs were higher.

4. As a result of flat tariffs and since government resources for investment always had to compete with other government priorities there were sectors that suffered lack of development, By the end of the 70’s there where still a number of institutions involved in UWSSS showing a diversity of goals and objectives, coordination deficiencies, lack of financial and administrative autonomy, etc.

9. In other words, this legal reform of the sanitation industry considered the necessary investment required for its development and quality improvement, which were to be financed by the industry through charging real prices to cover investments and operational costs, and produce some profit.

10. Also, the Government set the goal to reach 100% of urban drinking water service coverage by the year 2000 & 100% of urban waste water treatment by 2010 , which required fast and considerable investments in the following years, as well as the need for developing more complex technologic and managerial projects for the construction of waste water treatment plants.

11. At the same time the Government made a political decision: Not to allow indebtedness of the State owned sanitary companies. Such decision, and the fact that governmental service providers couldn’t reinvest the total amount of their revenues since part of them had to return to the State, made possible the privatisation option .

12. The 1988 reform included a set of five very important laws: Sanitation Services General Law, established operational rules for companies, service conditions and types of water concessions. Tariffs General Law , established procedures and norms for tariffs setting and a mechanism for self financing. It also gives incentives to incorporate efficiency and reduce crossed subsidies.

13. A Law that authorized the State to develop entrepreneurial activities in drinking water supply and sanitation through the constitution of joint-stock companies in each one the administrative territorial regions of the country . Law of Water Consumption Subsidies , established a direct subsidy to consumption of drinking water and sanitation service for low income family groups or residential clients. Law that created the regulator , established the technical, normative and supervisory framework.

14. State Joint-Stock Companies Governance & Institutions Tariffs System Subsidy System Regulator (SISS)

15. Water & Sanitation Industry after Reforms Some results

18. Historical Evolution of Waste Water Treatment Coverage Year National Waste Water Treatment Coverage 1989 8% 1990 10% 1995 14% 1998 16,70% 1999 22,60% 2000 20,90% 2001 39,40% 2002 42,30% 2003 66,00% 2004 71,60% 2005 73,30% 2006 81,90% 2007 82,30% 2008 82,60% 2009 83,30%

19. Historical Evolution of UrbanWater Supply & Sanitation Coverage Year Population Millins Inhabs. Water Supply Coverage(%) Sanitation Coverage (%) 1975 1976 1977 1978 1979 7.62 7.75 8.21 8.55 8.70 77.4 78.2 85.6 86.0 90.1 43.5 51.5 55.9 56.3 62.4 1980 1981 1982 1983 1984 8.89 9.07 9.26 9.55 9.78 91.4 91.5 92.1 92.7 94.3 67.4 68.2 70.0 70.6 72.9 1985 1986 1987 1988 1989 9.66 9.99 10.32 10.54 10.76 95.2 97.0 97.2 98.0 98.2 75.1 77.2 78.8 80.8 81.5 2000 2001 2002 2003 2004 13.3 13.6 13.9 14.1 12.9 99.6 99.7 99.7 99.8 99.7 93.1 93.6 94.1 94.7 95.0 2005 2006 2007 2008 2009 13.3 13,6 14,0 14,4 14,8 99.8 99,8 99,9 99,8 99,8 94.9 95,2 95,2 95,3 95,6

20. Geographic distribution of water companies with concessions in 2003

21. Some of the lessons learnt and conclusions

22. Sanitation services in Chile have been developed during more than a century and thanks to the level reached in the 80’s, it was possible to implement changes of the legal framework allowing privatization. It is essential to have a strong regulator as a counterpart to the concession, as well as having the necessary administrative and legal tools to protect the users’ interests. The subsidy is an essential element for the companies to be able to function properly. In Chile the subsidy for consumption satisfactorily covers almost 100 per cent of the needs of the poor population.

24. In the Chilean case, privatization represented a financial tool for wastewater treatment mainly, but not the solution to get universal access to water supply and sanitation services. The real mechanisms that allowed this universal access, were vision and political will to invest in basic services for the population, and a clear understanding that water is essential for development .

25. Universal access to water has been possible in Chile because an institutional framework was generated, which gave legal, administrative, economic and technical sustainability, with clear rules so that any sector, public, private or mixed could join and develop this industry. The option of privatization was a political decision made among a wide range of possibilities, within them to continue with the water provision service through the State, a mixed solution or private participation.