Background
The state of affairs in the Portuguese water and wastewater sector in the late 1980s was unsustainable. For instance, 20% of the population did not have access to public water services and only 50% of the drinking water complied with European standards. A much-needed reorganization of the sector started in the early 1990s and the results were quite successful, leading to a significant improvement on key indicators. This success was only possible due to political commitment, correct identification and implementation of a set of global, integrated and stable public policies, involvement of all stakeholders and availability of funds.
The preservation of stable policies over the last 30 years, despite the necessary adjustments based on the achieved results, proved to be crucial. In this regard, the development of broad strategic plans outlining the strategy for the water and wastewater sector, at a national level, was an essential tool since it promoted the definition of medium/ long-term goals in a clear and precise way. Elaborated in stages, the strategic plan benefits from the collaboration of different stakeholders whose contributions are fundamental to ensure the robustness and quality of the plan. The plans have been adjusted over time; currently, we are heading towards the fourth plan. However, overall guidelines have been consistent allowing for stability and providing direction and vision.
In the early 90s, an agreement between the central government and most municipalities enacted a split between bulk and retail operations
At the beginning of the 1990s, the sector was composed of small operating entities that did not have the financial resources or the HR/ technical capabilities required to carry out the necessary changes and investments. At the time, the only way to scale and gather the necessary conditions to move forward with the required investments was to separate high and low (bulk and retail) services. An agreement between the central government and most municipalities enacted a split between bulk and retail operations and the creation of the company AdP- Águas de Portugal, responsible for bulk operations, along with several regional companies for bulk water and wastewater management activities. The municipalities kept responsibility for retail operations (i.e. distribution of drinking water, drainage of wastewater and interface with the end-user). These models proved to be stable and allowed for an increase in investments in a collaborative manner while delivering a sustained increase in service coverage and quality standards.
Achievements and challenges
Portugal witnessed a significant improvement in the sector with very positive results in key indicators, in particular, access to water supply services (above 96%), drinking water quality (above 99%) and access to wastewater services (above 80%). Moreover, the quality of water resources, as well as the quality of coastal water improved considerably, whereas new cases of Hepatitis A decreased sharply, enabling the country to comply with the EU water directive standards. This favourable trajectory has been consistent resulting in wide international recognition.
However, when extending the evaluation of the sector to the universe of the operating entities and their performance, the issues that arise are far more complex and harder to tackle. Finding the optimal scale of operation, ensuring the adequate maintenance of infrastructures (through monitoring and incentive programs) and finding an adequate cost recovery policy are some of the challenges that lay ahead.
At the time, this model was the only way to scale and gather the necessary conditions to implement the required investments
Policy drivers and regulatory goals
With the successful reorganization in terms of bulk operations, where the investments are practically completed, the focus shifted to small operators, with low financial and technical capacity to carry out the necessary investments.
A diverse range of entities in terms of size, structure, management models and technical capabilities make up the fabric of the sector (around 400 operators, distributed between different management models).
This diversity has been an obstacle for the development of the sector and for regulation. Recognizing the importance of addressing this issue, in 2015, ERSAR created a technical support unit with three strategic goals: i) offer technical support to small-scale operators including updating and improving their technical and managerial knowledge, ii) evaluate alternative management models for municipal operators (retail) to facilitate and promote the aggregation process iii) and analyse municipal concession contracts.
Operating entities have been encouraged to promote the aggregation of the systems at a technical and economical level and look for the convenient regional scale and for economies of scope, where relevant.
Simultaneously, a specific EU line of funding (Poseur) of €75M was made available by the government and to be able to apply operators needed to serve a certain size of the population and apply jointly, hence, pushing the aggregation's agenda forward.
.jpg)
Ana Albuquerque, Executive Board Member at ERSAR
Main results of the technical support unit
The support unit started the fieldwork in 2016 and, as a first step, focused on a group of existing "Intermunicipal Communities" (IMC), evolving around an anchor municipality/ county (and therefore operating with some degree of collaboration), analysing it thoroughly. Based on this analysis, Pilot projects were carried out enabling the identification of opportunities and encouraging the discussion with a supported basis.
Presentations were made at these IMCs identifying advantages and difficulties based on a benchmark of best practices, offering support for the development of existing solutions or the identification of alternatives, including integration and exchange of services and municipal powers, as well as guidelines for the integration and exchange of services between municipalities. Additionally, several support tools were shared – information regarding legal models, draft contracts for the constitution of new aggregated operators and economic and financial models.
A diverse range of entities in terms of size, structure, management models and technical capabilities make up the fabric of the sector
Concurrently, a broad study was made to cover around two hundred municipalities (the ones that showed problems of economic sustainability) highlighting the advantages of aggregation with references drawn from the Pilots. Different alternatives were analysed and the tariffs that ensure cost coverage and economic sustainability were compared. Within the scope of this study, for each operator, the respective sustainability tariff was calculated based on a model that allows simulating the impact of a set of corrective measures on the income and expenses (reported annually to ERSAR). Through the comparison between sustainability tariffs, considered individually and jointly, the advantage of pursuing the aggregation was widely demonstrated. Furthermore, this allows for standardized rates, optimized budgets, normalized accounts, better information systems and finally, yet importantly, the engineering capabilities required to provide a high-quality service.
Each entity has total flexibility to decide if it wishes to move forward and chose the aggregation model that better suits its needs. Although the decisions are mainly political, with the responsibility lying in the hands of the municipal executives, ERSAR issues an opinion on these processes by analysing the technical and economic viability of the model and verifying its benefits. Aggregations are an overly complex matter involving a thorough analysis of infrastructure, investment and tough negotiations between municipalities, which often belong to different political parties; however, the overall balance has been positive.
So far, ERSAR received ten aggregation processes for analysis, involving seventy-five municipalities. Five of these processes moved forward and are complete (mainly in the northern and central region) and the remaining ones are being set-up. It is expected that these numbers will increase because firstly, during the first phase, only some of the municipalities of the same IMC joined in and, secondly, there has been an extension of the process to other IMC.