Water supply and sanitation in Chile

Access

According to the 2010 data from the WHO/UNICEF Joint Monitoring Program (JMP) (see below), Chilean urban areas with improved water coverage stood at 96% and coverage of improved sanitation was also 96%, 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 84% 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 (24/7), 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. An estimated 96% of water consumption is measured resulting in precise information concerning water consumption. In 2006, the total water consumption was 958 million m³. Each customer therefore used on average 19.9 m³ per month, resulting in 196 liters daily p/capita. 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 public entities. The largest entity was the Sanitation Department (Dirección de Obras Sanitarias, DOS) of the Ministry of Public Works, which was in charge of service provision in towns outside of the two largest cities, Santiago and Valparaíso. 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. 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 Valparaíso were corporatized and modernized. During that time employment in the utilities was significantly reduced.

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

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 General 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:

1. The service providers should become self-financing through higher tariffs which represent the real costs of the services and more efficient performance
2. 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 Chile’s 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 Anónimas). 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.

1998-2004: Privatization

Under the government of 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. The government then 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 between 2001 and 2004. This latter way of private sector participation, also known as concession, differs substantially from selling shares of the companies because 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.

Further changes in ownership

In 2011, the state holding company Corfo sold its stakes in the three largest water companies—Aguas Andinas, Esval and Esbio—on the stock exchange, primarily to individual local and foreign shareholders. The sale of the 30% stake in Aguas Andinas alone brought the state revenues of USD 984 million. The sale of the stakes in the two other companies brought USD 564 million in revenues. However, the planned sale of shares in a fourth water company, Essal, was suspended because of low prices offered. In 2015, Antofagasta plc, which had won the concession for the local water supply in Antofagasta in 2003, sold its shares to the publicly owned Colombian multi-utility Empresas Públicas de Medellín (EPM)for USD 965 million.

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 (Spanish) SISS, the economic regulator in urban areas, and the Ministry of Health which controls drinking water quality standards in both urban and rural areas.

Regulation in urban 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. 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 supervising water cooperatives and water committees. In rural areas there is no independent regulator, such as the SISS in urban areas. Since 1994, the Direction for Water Works (DOH) is in charge of executing the national program of Rural Potable Water (APR). Unlike urban service providers, rural water supply and sanitation sector has not been subject of regulation like urban services. Currently, the Government of President Bachelet has submitted before the Chilean Congress a Bill to give this sector a new institutional framework. According to Law 19,549 of 1998, urban concessionaires have to provide technical and administrative assistance to water committees and cooperatives in their respective region.

Service provision

The responsibility for service provision is different in urban and rural areas.

Urban areas

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

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

Until 2011, the Chilean state held 36% of water and sanitation companies through its Production Development Corporation (CORFO). Today, this share has substantially decreased. As shown in the following table which shows the situation of 2006, the majority of the sector was still owned by Chilean actors.

The Ontario Teachers Pension Plan from Canada is a major shareholder of the private water utilities Essbio and Esval.

Rural areas

In rural areas, local water cooperatives and water committees provide water supply services. In concentrated rural areas (i.e. rural communitites with 150 to 3,000 inhabitants with a concentration of not less than 15 houses per km of water network), 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.

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% 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

Tariff level Water tariffs in Chile differ substantially between regions, reflecting differences in the cost of supplying water. 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

Affordability 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.

Financing and Subsidies Urban water and sanitation systems do not receive direct subsidies and are financed through the capital market, and ultimately through user fees. However, Chile has 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. By law, the subsidy can cover 25-85 percent of a household's water and sewer bill up to 15 m³ per month. The client pays the rest of the bill. Beyond 15 m³, households are charged full price. The subsidy is meant to target only those households that are unable to buy water at a subsistence level and is based on willingness to pay. In 1998, about 13% of households benefited at a level of ~$10 per month. The total cost of the program in 1998 was US $36 million. Opponents argue this subsidy program can act as a regressive policy and actually hurt the poor because a false assumption is made that high consumption is positively correlated to high income. On the contrary, poor families do not have access to efficient methods of using water in cooking, cleaning, and washing.

Investment 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.