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Chilean urban water services – 25 years of experience improving access to and quality of water services

Chilean urban water services – 25 years of experience improving access to and

quality of water services

Mª Angélica Alegría Calvo

Chilean Directorate of Water


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


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% In 1977: coverage for urban drinking water supply was 86% and for urban sanitation it reached 56%.and for urban sanitation it reached 56%.

» concept of a general tariffconcept of a general tariffA 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 andand 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.


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 there were sectors that suffered lack of development,of development, By the end of the 70’s there where still a number of there where still a number of institutions involved in UWSSSinstitutions involved in UWSSS showing a diversity of goals and objectives, coordination deficiencies, lack of financial and administrative autonomy, etc.


As a first step the Government decided:• to promote structural changes & establish a structural changes & establish a single institution to provide UWSSSsingle institution to provide UWSSS, integrating and coordinating existing institutions and services in order to reorganize the sector, achieve investment capacity and improve coordination and decentralization.

• to transform the sector into an industry to into an industry to achieve efficiency gains, decentralization and achieve efficiency gains, decentralization and self-finance through real tariffs.self-finance through real tariffs.


First Reform - 1977

• A National Institution for Water Services was created, to put together all operating entities in the sector and provide services to all urban areas throughout the country, becoming a normative and regulatory agencynormative and regulatory agency, and

• The Ministry of Economy was appointed as the regulatory regulatory agency for the prices of servicesagency for the prices of services, through tariffs setting.

• This new structure allowed for a more coherent more coherent development of the sector, increasing increasing the quality and quantity of services, generating more transparency more transparency in resources allocated, more flexibilitymore flexibility in decision making and direct control over the sanitation industry.


• Companies raised raised their tariffs gradually, contracted credits contracted credits with multilateral organisms, & increased increased their coverage in a sustainable way. Nevertheless, the Government continued supporting them with funding supporting them with funding from the national budget.

• In 1985, an assessment of the role of the Government in the role of the Government in the water and sanitation sectorwater and sanitation sector started, and a set of water billswater bills reformulating the role of the Government in the sector were prepared to perform the second reform of the sector in 1988.

• By 1988, urban service coverage had reached 98% for coverage had reached 98% for drinking water, 81% for sanitation & approximately 8% of drinking water, 81% for sanitation & approximately 8% of urban waste water treatmenturban waste water treatment, the latter being the weakest aspect of the sector at the end of the 80’s.


Second Reform - 1988

• Separated the regulating & normative roles from the regulating & normative roles from the executing and operating rolesexecuting and operating roles

• Created a legislation to regulate legislation to regulate companies in the sector, both private and public,

• Established a tariffs setting system tariffs setting system to raise prices to true economic cost,

• Established a direct subsidy system direct subsidy system to the consumers of less income, to protect them & provide with a drinking water and sewage services to all.


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.


Also, the Government set the goal to reach 100% reach 100% of urban drinking water service coverage by the of urban drinking water service coverage by the year 2000 & 100% of urban waste water treatment year 2000 & 100% of urban waste water treatment by 2010by 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.


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 optionprivatisation option.


The 1988 reform included a set of five very important laws:

Sanitation Services General Law,Sanitation Services General Law, established operational rules for companies, service conditions and types of water concessions.

Tariffs General LawTariffs 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.


A Law that authorized the State to develop to develop entrepreneurial activities in drinking water supply entrepreneurial activities in drinking water supply and sanitationand sanitation through the constitution of joint-stock companies in each one the administrative territorial regions of the country.

Law of Water Consumption SubsidiesLaw 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 regulatorLaw that created the regulator, established the technical, normative and supervisory framework.

State Joint-Stock CompaniesState Joint-Stock Companies

Governance & InstitutionsGovernance & Institutions

Tariffs SystemTariffs System

Subsidy Subsidy SystemSystem

Regulator (SISS)Regulator (SISS)


Water & Sanitation Industry after Reforms

Some results


TARIFFS vs WASTE WATER TREATMENT COVERAGE

0

0,2

0,4

0,6

0,8

1

1,2

1,4

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

YEAR

US

$

0,0%

10,0%

20,0%

30,0%

40,0%

50,0%

60,0%

70,0%

PE

RC

EN

TA

GE

Average Tariffs US$ Wate Water Treatment Coverage (%)


MARKET BEHAVIOR OF URBAN WATER SERVICES

0

1

2

3

4

5

6

7

8

9

10

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

YEAR

26,0

27,0

28,0

29,0

30,0

31,0

32,0

33,0

PE

RC

EN

TA

GE

Average Tariffs US$ Per Capita Consumtion m3/1000

Per Capita Production m3 /1000 Network Loses(%)


Historical Evolution of Waste Water Treatment CoverageHistorical Evolution of Waste Water Treatment Coverage

YearYear National Waste Water Treatment CoverageNational Waste Water Treatment Coverage

19891989 8%8%

19901990 10%10%

19951995 14%14%

19981998 16,70%16,70%

19991999 22,60%22,60%

20002000 20,90%20,90%

20012001 39,40%39,40%

20022002 42,30%42,30%

20032003 66,00%66,00%

20042004 71,60%71,60%

20052005 73,30%73,30%

20062006 81,90%81,90%

20072007 82,30%82,30%

20082008 82,60%82,60%

20092009 83,30%83,30%


Historical Evolution of UrbanWater Supply & Sanitation CoverageHistorical Evolution of UrbanWater Supply & Sanitation Coverage

YearYearPopulationPopulation

Millins Inhabs.Millins Inhabs.Water Supply Water Supply Coverage(%)Coverage(%)

Sanitation Coverage Sanitation Coverage (%)(%)

1975197519761976197719771978197819791979

7.627.627.757.758.218.218.558.558.708.70

77.477.478.278.285.685.686.086.090.190.1

43.543.551.551.555.955.956.356.362.462.4

1980198019811981198219821983198319841984

8.898.899.079.079.269.269.559.559.789.78

91.491.491.591.592.192.192.792.794.394.3

67.467.468.268.270.070.070.670.672.972.9

1985198519861986198719871988198819891989

9.669.669.999.9910.3210.3210.5410.5410.7610.76

95.295.297.097.097.297.298.098.098.298.2

75.175.177.277.278.878.880.880.881.581.5

2000200020012001200220022003200320042004

13.313.313.613.613.913.914.114.112.912.9

99.699.699.799.799.799.799.899.899.799.7

93.193.193.693.694.194.194.794.795.095.0

2005200520062006200720072008200820092009

13.313.313,613,614,014,014,414,414,814,8

99.899.899,899,899,999,999,899,899,899,8

94.994.995,295,295,295,295,395,395,695,6


Geographic distribution of water companies with concessions in 2003


Some of the lessons learnt and conclusions


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.


In Chile, success in universal access to drinking water supply and sanitation was not achieved as a result from privatization process. It was a result of:• the structural change that established a structural change that established a governance frameworkgovernance framework for the urban sanitation sector through a single overarching institution, that integrated and coordinated service suppliers among them• the separation of the normative and supervisory separation of the normative and supervisory role from the operational rolerole from the operational role, and• the conversion of the sanitation sector into an conversion of the sanitation sector into an industryindustry.


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.


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.


Thank you!