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Urban water: A lost opportunity, or a time for change?

  • Urban water: lost opportunity, or time for change?
  • We lay on the table the challenges that urban water cycle management faces in Spain:  Are we on the right path?

In 2016 we brought together a group of experts to discuss the urban water cycle in Spain. Today, almost three years and 10 iAgua Magazine Forum events later, things have not progressed at the pace we expected, and the problems we analyse in this 22nd edition of the forum bear a striking resemblance to the earlier ones.

But not everything has stayed the same. The multi-million fine that Europe imposed on Spain in 2018 due to lack of waste water treatment in several municipalities has been a milestone that our country cannot afford to see repeat itself. Moreover, that wake-up call is only the tip of an iceberg that is drifting amidst meaningless political diatribes, which detract from focusing on the true needs of water management in our cities, and use a sensitive resource in almost the entire country for partisan purposes. The upcoming municipal (and national) elections do not help to focus on this issue.

However, there is no room for despair in this race against time that will determine the future of the water supply and sanitation infrastructure that the coming generations will inherit. The message about the lack of investment and the need for a regulatory entity is already out there: it is now up to the authorities and managers to pick up the baton and set the direction for the sector in the coming years.

With this in mind, in 2019 we brought together at the Roca Madrid Gallery Manuel Navarro, Water Cycle Director of ACCIONA Agua; Gonzalo Murillo, Director of Operations of Gestagua; Belén Benito, Director of Operations of Canal de Isabel II; and Alejandro Maceira, Founder and Director of iAgua, to discuss at length the prospects for this scenario we have to start changing.

Here we are

Manuel Navarro started off providing some context: 'In our country three government levels are responsible for water management: national, regional and local authorities. Local authorities are responsible for the urban cycle'. And here we start to find shortcomings: 'In Spain there are 8,200 municipalities', and he pointed out 'this is neither a good thing, nor a bad things, it is a fact, and we have to keep it in mind to manage the water cycle as efficiently as possible, because it will not change in the medium or long term'. Therefore, 'Public and private service providers and local authorities directly responsible for water management have to do so at the three levels', and 'do it efficiently, for the benefit of the user, providing the best service at the lowest possible price, and with the best quality'.

The 'ideal tariff' would be one that generates the income necessary to operate efficiently and make any investments required - Manuel Navarro. Water Cycle Director of ACCIONA Agua

'I agree completely', said Gonzalo Murillo. 'Powers are shared by different government levels, and it is not likely to change. But there are things we can do to avoid potential shortcomings'. And he emphasised 'This is where we can discuss how to address any shortcomings. Because there are different levels involved, too many in some cases'. His proposal? 'A common framework to harmonise water cycle management. To begin with, it should be integrated; right now it is fragmented with regard to competences. If we add to that the new contract law, which advocates for the division of contracts into lots, etc., we put at risk the efficiency of integrated water management'.

When someone is brave enough to adapt the tariff to include the costs of replacing infrastructure, then he/she falls from grace - Gonzalo Murillo. Director of Operations of Gestagua

From her position at a public company, Belén Benito knows the issues all too well: 'The different authorities have jurisdiction over different parts of the cycle, and that is inefficient'. Canal de Isabel II is an example of the opposite: 'We have tried to bring together local and regional competences through agreements with municipalities, making management more efficient'. Moreover, she recognised that 'it is practically impossible for a local government to invest in infrastructure and maintain it only with its own resources'. The alternative is either to 'delegate powers or bring together different municipalities'.

But not everything is bad news. Alejandro Maceira noted that 'water services in Spain are doing very well. Spain is one of the driest countries in the world. We host close to 90 million tourists every year, and we have devised a system that, with its pros and cons, is able to respond at the highest level'. Regarding the framework of powers, he understands that 'it is enough, but obviously it can be improved'. In addition, he considers that 'the fragmentation of powers introduces uncertainty concerning how to do things: tariffs, service quality, control of facilities, etc.'. And he referred to Belén Benito's company: 'The Canal model is ideal, but hardly replicable. When you have 8 million users in a very small area you can apply economies of scale. In regions with a sparse population we have to introduce other models'. His global insight goes further: 'When someone takes office at the ministry in charge of water, he/she hears the same old requests. When they see how complex the issues are, they let them sit in a drawer until the next person comes along', he noted.

"Investing in replacement and preventive maintenance is the best way of extending the useful life of infrastructure and guarantee the service" - Belén Benito. Director of Operations of Canal de Isabel II

'Maybe, if there is ever a Ministry with the word water in its name, we would move forward a little’ joked Belén Benito 'because it is not a new problem. At some point we will have to face it'. To address this predicament, Alejandro Maceira votes for the figure of a regulatory entity: 'We need an entity that coordinates, assesses and provides guidance on standards, water quality, tariffs, etc. It would be welcome by the sector, but also by users, who would have the information to know if a service is approaching excellence or not'.

An Integrated Water Cycle Law, the eternal promise

All of these demands need a common solution. 'The water sector has been asking for an Integrated Water Cycle Law for years', stated Manuel Navarro. He explained that 'It has to be a national level law, to be implemented by regional and municipal authorities'. Concerning costs, he considers 'inconceivable, with regard to the integrated water cycle, to pay less than the real cost of service delivery (and future generations will have to pay for that), or to pay more than the real cost, and then use the money for different purposes'. Another of the essential elements in that law, in his view, is 'a sanitation fee to raise income for investments and to maintain treatments systems in perfect condition in Spain, paid by everyone'. In Spain 'there are some regions with a sanitation fee used for specific purposes, some that have a general sanitation fee that goes to the treasury and yet other regions that do not have a sanitation fee. That is not the way to go'.

Financial sustainability would be another pillar of this law. 'The service has to generate income that can be used to pay for efficient operation and any required and recurring replacement costs', pointed out Manuel Navarro. This element has two components: 'Quality indicators that force all operators to provide a service that benefits citizens, and include investments'. That is, 'measure the economic side and service quality'. Concerning the regulatory entity, 'it has to be a national level entity, that sets policies to be implemented by regional governments, with price commissions that control financial sustainability and service quality according to law'.

Measuring seems like a good idea to end with one of the recurring debates in the sector, thinks Belén Benito: 'It would do away with the black-and-white view according to which everything public is inefficient, but provides an excellent service, and everything private only maximises profit at the expense of service. Regardless of the type of company, the indicators do not lie. That would allow a healthy and objective comparison, moving away from a debate that is not going anywhere'.

'Similarly' noted Gonzalo Murillo 'with regard to the details of the tariff structure. How did it come about? If we compare municipalities that are next to each other, there are unbelievable things in terms of tariff policies that should be harmonised. When someone is brave enough to adapt the tariff to include the costs of replacing infrastructure, then he/she falls from grace. If politics continue to play such a big role, we have a problem'.

Alejandro Maceira summarised it: 'There are two key words: objectivity and transparency. A regulatory entity could combine both'. And he gave an example: 'In Spain, in the past 10-12 years we witnessed a sharp decline in water investments. We will have to pay for it, and so will those that come after us. And not only the citizens, but also the country itself, in the form of fines from the European Commission for failing to comply with the waste water treatment directive and the Water Framework Directive. When it comes to assessing the state of water services, we encounter limitations with regard to objectivity and transparency: we don't have a benchmark. This situation leads us to a black-and-white debate on management models that wanders off from the keys to improve service quality'.

Where are the investments?

Cost recovery, tariffs, investments, etc. money moves around, but not in the right direction. 'If we continue with the current level of investment, the quality of the service is at risk', claimed Gonzalo Murillo. 'Either we realise that we have reached quality levels with regard to water supply services that we will not be able to afford in the future, or we will have a serious problem. We have gotten used to the national government taking responsibility for large infrastructure investments. Now we have to maintain what we have', he concluded.

'For a long time we received a lot of money from Europe', noted Belén Benito. 'But that is over now'. She describes an appalling case: 'In some places, the facilities built deteriorate due to lack of maintenance or investment. Once they are in a state of disrepair, it is a lot more expensive to get them working again. We should realise that investing in replacement and preventive maintenance is the best way of extending the useful life of infrastructure and guarantee the service'.

Manuel Navarro is specific: 'Companies have to deal with this on a daily basis. When we present a tender proposal, we define the assets we will receive and estimate their average useful life, to then determine the funds required to replace assets. What the authorities propose in the tender is infinitely lower. What is the outcome? At the end of the contract term, the assets you leave are in worse condition than when you received them'. His warning is quite clear: 'We have to pay for the costs of maintaining in good condition what we have. Costs related to operations or replacement have to be included in the bidding specifications'. In this situation, he imagines the following scenario: 'A national level regulatory entity would first require efficiency, measured through indicators. Those water service providers that are below the standards have to assume the costs of reaching the required quality and efficiency levels. And secondly, a return on assets of 1, 2 or 3% per year should be compulsory. We would do a favour to the local authorities, and everyone would bid'.

National Water Treatment, Sanitation, Efficiency, Saving and Reuse Plan: more of the same thing

If investments in infrastructure are not happening, regarding waste water treatment the progress so far is not as needed either. The National Water Treatment, Sanitation, Efficiency, Saving and Reuse Plan (DSEAR) is not enough. 'It is an update of earlier plans in terms of waste water treatment needs', explained Manuel Navarro. 'We have been reviewing what has to be done for years, but little gets done. This is the challenge ahead, getting started on this with the next Administration', he said. 'Although a high percentage of the population has waste water treatment, there are still small settlements without that service. We also have to improve treatment in sensitive areas. But where we are farthest from our European neighbours is concerning tertiary treatment, required for water reuse'.

Belén Benito continues with the same line of thought of the Water Cycle Director of ACCIONA Agua: 'This plan comprises the waste water treatment, sanitation and reuse activities in river basin management plans, and organises them. We are still at the stage of assigning responsibilities and competences for those actions, so issues around financing and responsibility remain to be solved'. She added: 'There is still a large number of treatment plants that need to be upgraded to reduce the nutrient load prior to water reuse. At Canal we still have ten plants to upgrade which we finance directly, because if we waited until the national government has funds for it, it would not get done. Some regional and local authorities cannot do this'.

Gonzalo Murillo identified further challenges: 'Those municipalities that on their own initiative embarked upon investments, now have a double payment: users have to pay for the investment through the tariff, and also, they continue to pay for the fee. We cannot have these situations, because they are not fair. So a key aspect of the DSEAR Plan, aside from updates, is addressing financing'. And he underscores that 'It has followed the same old approach: a series of needs are outlined, which Europe was going to fund for the most part. Now we have the needs identified, but we don't know what to do with it'.

"Getting into a debate on whether water services should be managed by public or private providers is not what our country needs" - Manuel Navarro. Water Cycle Director of ACCIONA Agua

Alejandro Maceira confirmed his words looking back in time: 'The National 2007-2015 Water Quality Plan included an investment of 15,000 million euros. A huge amount by current standards, because the water quality budget has been around 200 million per year in the past few years. The entire national government's investment in water is around 1,200 million'. His warning is quite clear: 'DSEAR is a new packaging for the National Water Quality Plan, where water reuse has a greater weight, because we are now in a circular economy paradigm and right now it is easier to get money from Europe that way. It is unbelievable that, after 10 years of the paradigm shift in the fiscal situation in Spain and the investment capacity, no steps have been taken to devise new models to finance pending investments'. 'There are many millions still pending', concluded Belén Benito.

Discussing tariffs

We continue talking about money. 'Up to now, the investments in the integrated water cycle in Spain were partly subsidised by the European Union and public funds. But we will no longer receive funds from those sources. The future of the integrated water cycle will not rely on subsidies: we need to raise funds though a tariff that allows efficient operations and paying off the debt and interest from investments' stated Manuel Navarro. 'Here is where economically sustainable companies come in. Public companies, such as Canal de Isabel II, can approve sustainable tariffs, then approach the financial market to obtain funds and make investments. But, what happens with small and medium local authorities who do not have such a large-sized public company? They can rely on private service companies that, with a sustainable tariff, can borrow money to carry out the construction'. He summarised it as: 'It has to be paid by the user in easy instalments, well controlled. And it has to be financed by public or private operators'. Gonzalo Murillo ratified his words: 'I absolutely agree, there is no other way out'.

"As service providers, we find that we have to work to lower the demand, when in fact we live off the demand" -  Gonzalo Murillo. Director of Operations of Gestagua

Belén Benito added 'anyhow, if we are going to ask the user to accept a tariff increase, we go back to the beginning:  we will have to explain very well why and what for. If we have transparency indicators, comparing companies, whether they are public or private, it becomes easier'.

Alejandro Maceira reflected on those last words: 'You are talking about consequences for users. We have the example of Flint in the United States, a case that stemmed from the deterioration of infrastructure'. He went back to Spain: 'We are far from that situation, but the renovation of infrastructure is not taking place at the place it should, and the efficiency of the networks is decreasing. The surveys done by the Spanish Association for Water Supply and Sanitation (AEAS) every two years show this. This deterioration has consequences. Hopefully we will not get to the point where we have a public health crisis as in the United States, a country with adequate resources and advanced technology to avoid it, which has experienced issues because they failed to keep up with infrastructure upgrading and maintenance'. On the other hand, he concurred with the Director of Operations of Canal de Isabel II: 'Another way is to explain to citizens what would be the consequences of inaction. Moreover, Spain receives 85 million tourists. Our country cannot afford to have beaches closed off to swimming because there isn't a waste water treatment plan discharging properly treated water. It has to be a priority, and we have to convey to citizens that this is one of the consequences of not taking care of water, not upgrading infrastructure, and not having a system that is sustainable over time'.

"The renovation of infrastructure is not taking place at the place it should, and the efficiency of the networks is decreasing. This deterioration has consequences"  - Alejandro Maceira. Founder and Director of iAgua and Smart Water Magazine

Looking for the ideal tariff

Is there a perfect tariff then? According to Manuel Navarro, it would be 'the one that generates the income necessary to operate efficiently and make any investments required'. Nothing more, and nothing less. 'We are not realising that tariffs have to generate income to provide a service today and into the future. And it is easy: it involves efficient operating costs and investments'. 'The latest data from AEAS', continued Manuel Navarro, 'indicate that, in Spain, the average tariff is 2 euros per cubic metre. In some areas the tariff is above 4 euros, such as the islands and the Mediterranean coast; in inland areas, where water is easier to get or does not need to be transported, the water tariff amounts to 1 euro. The average tariff has to generate an income in the long term. we are still revising the tariff year by year, when our contracts and investments involve 30 year terms'. And he pointed out: 'In more advanced countries they have five-year plans: a tariff is set that will be adjusted according to inflation automatically, and investments are taken into account. Tariffs are revised every five years. That would give confidence to banks to lend money for projects, for example. A regulatory entity could change things'.

For Gonzalo Murillo, the issue is that 'as service providers, we find that we have to work to lower the demand, when in fact we live off the demand. It does not make sense; this has to end. Service providers have to do their job, and they should be rewarded for doing it well. We have to move towards management models where someone with a more technical criterion is responsible for monitoring that'. Concerning tariffs, Belén Benito thinks that 'increasing block tariffs are quite persuasive. If someone wants to consume more water and can afford it, he/she should know that water is a scarce resource and he/she will have to pay more for it'. In fact, 'that improvement in the tariff structure has been the key for Spain's water consumption to be among the lowest in Europe: about 110 litres per person per day', stated Alejandro Maceira.

However, we have not achieved good results in terms of 'cost recovery, as required by the Water Framework Directive. The issue is not even mentioned: nobody knows whether we are recovering the costs of services or not', the Director of iAgua explained. 'I also miss comparability. Manuel talks about variations which amount to 300-400% between tariffs in Spain. That leads to confusion among users. At that point politics comes in with a demagogic message: those who do not increase or who lower tariffs are “good” and those who increase tariffs are “bad”’. Gonzalo Murillo substantiates that; he has found that 'some municipalities have not changed the tariff in 10 years, and they want to have social tariffs for political reasons'.

Furthermore, Belén Benito points out that 'this is an infrastructure-intensive sector, and sustainability can be achieved if infrastructure is shared. The Canal model is difficult to replicate, but models that comprise several municipalities would result in better tariff application'.

'We have seen successful solutions: associations of municipalities, consortia...smaller municipalities group together and seek common operators to create economies of scale and synergies, that translate into a better service and a better price', goes on Manuel Navarro. 'This is the ideal model for our country, outside of large cities'.

"It is practically impossible for a local government to invest in infrastructure and maintain it only with its own resources" - Belén Benito. Director of Operations of Canal de Isabel II

Models for everyone

Talking about models, Manuel Navarro explained that '50% of the water in Spain is supplied by private companies, and the remaining 50% by public companies or authorities. It is a healthy balance'. And he maintained that 'as a sector professional, I am not talking about private and public, but about efficiency. Whomever can provide a quality service at a lower cost, deserves recognition. We have examples of public companies who do an excellent job, and the same thing goes for private companies. Both models work, an efficient public model, and an efficient private model. Or a public-private one'.

'I agree', concurred Belén Benito. 'Vilifying everything public as lacking efficiency is meaningless, because companies like mine show quite the contrary.  And vilifying everything private because they prioritise financial gain at the expense of the services is also false, because we have examples of the opposite. At each place there will be a model that fits best, and we have to get the best one for the service to be efficient'.

'It is a dogmatic debate, because it cannot be argued with certain people', adds Alejandro Maceira. Moreover, 'nowadays, in any type of public company in Spain there is collaboration with private companies. At this point, doing away with public-private collaboration is a bit outdated'. Without such collaboration addressing challenges is complicated: 'European legislation is increasingly more encompassing, and it is impossible for a small local government, regardless of political will or engineers on staff, to provide a service. There has to be public-private collaboration where both parties are involved. It is a shared responsibility', he affirmed.

'How can investment be mobilised without this collaboration involving public and private companies?' wonders Gonzalo Murillo. 'This is key point: if we lose sight of the big problem for the sector right now — the investment deficit — we risk losing our footing'.

Elections around the corner

Faced with this demagogy, 'I would tell our political representatives' suggested Manuel Navarro 'that in the electoral campaign they should propose quality public services. Getting into a debate on whether water services should be managed by public or private providers is not what our country needs', he indicated. 'I would prefer if that is not part of the debate', suggested  Gonzalo Murillo. 'I hope the discussion focuses on efficiency' pointed out Alejandro Maceira. 'We are now at a different point than when the 2015 elections were held, were privatisation was an important topic in many places. Politicians fall for that because water is something that citizens see as theirs, and it is easy to inspire fear with fake news and arguments that cannot be defended. But we are now at a different point, and I hope the debate is more constructive now', he said.

Is water a political weapon then? 'Not at the local level', answers Manuel Navarro. 'The debate over the privatisation of water is a wrong one. In my view, the solution in the medium or long term in Spain is water reuse and desalination in coastal locations. We have the technology and the resources. Not having water is more expensive'.

Concerning the other big political issue, the interbasin transfer, Manuel Navarro thinks that 'it is a 20th century issue. In the 21st century, we have to support water reuse'. Gonzalo Murillo ratified his words: 'It is an old way of doing things, at the time people thought the problem was resource distribution. Now we have a water stress problem everywhere, it is not a matter of sharing'.

For Alejandro Maceira 'The key is water security: that is what we should be debating and that is the goal'. Also, he noted that 'the same way that there is a debate about energy with solid arguments, there should be a debate about water'. His surprise is even greater when he comments that 'The World Economic Forum in Davos has presented a report with the ten top risks and five of them are related to water'. The sector also has a role there. 'This is the homework for sector stakeholders: ensuring those topics are part of the political agenda and become a priority'.

Corruption, the great challenge

"When it comes to assessing the state of water services, we encounter limitations with regard to objectivity and transparency" - Alejandro Maceira, Founder and Director of iAgua and Smart Water Magazine

Sadly, politics are linked to corruption and the judicialisation of certain procedures. The water sector is not immune to it, but there is room for optimism: 'As a result of the crisis, corruption in Spain is substantially lower now' noted Manuel Navarro. 'Although I am no expert, I vouch for regulations that put pressure on those that want to deviate from ethical standards'. At ACCIONA Agua, for example, 'we implemented a Compliance model four years ago. The ethics in my company go beyond the legislated requirements'. 'All companies are now taking that approach. At Gestagua we have now a Compliance certification, and we expect corruption to continue to decrease. A regulatory entity can be helpful' affirmed Gonzalo Murillo.

'Everything that is measured becomes easier to control', confirmed Belén Benito. 'At Canal we have an internal audit model and codes of ethics and conduct implemented. That brings about transparency. We are all following that path, and those that are not doing it yet, are destined to be'. Alejandro Maceira goes further: 'The number of cases, given the number of services in Spain, is a small one. They have been important, but the judiciary system has worked'. There is also a negative element, according to the Director of iAgua: 'The worst thing about those cases that are solved by the judiciary is the message conveyed to society. To address that, as Belén says, we can implement regulatory and transparency tools that prevent it from happening. Most companies that are involved in those cases are aware that the message transmitted to society is not the best, and that it leads to a certain mistrust and image of the water sector that is not in our best interest. Reducing the extent to which cases are solved by the judiciary should be a future goal for the sector'.

Communications, a pending task

Transparency is inevitably linked to communication. Alejandro Maceira, as a mass media director, has a clear vision: 'There has been great progress, and we have witnessed in the past few years a path of no return towards transparency. Citizens are asking for it and companies are aware that it makes them better'. He recalled how things used to be:  'When we started with iAgua, we found that many companies were not able to convey what they did. A great effort has been done since then, and increasingly we are more able to lay the key issues on the table, although we have not been able to reach the general public and political decision makers'. And he criticised 'the lack of agreement in the sector and of a visible face or a valid representative that can promote these issues. I am sure that this challenge will be addressed in the coming years, it cannot be otherwise: water has to be a priority'.

Gonzalo Murillo agreed: 'Communications is a pending issue for companies. There are many communication levels we have to strengthen: there is significant room for improvement'. 'I go back to square one', stated Belén Benito, 'education is essential; if people do not know what is involved in bringing water from a reservoir to the tap, they will hardly understand whether the service is expensive or cheap'. She claimed that 'if you educate children about it, they will understand things better later on; and we are talking about drinking water, which is easier to know about. Waste water is out of sight and nobody knows anything about it'. In summary: 'The water cycle should be studied at school, that way we would convey knowledge to future citizens'.

This thought led to new tools and new ways of providing information to the user. 'Thanks to social media and mass media, the public participates more and more. The next step would be to tell the user about the company's strategy', stated Manuel Navarro. 'A participatory society can express what it wants or needs, which translates into investment plans in the medium term that are supported by user requirements, not just by what the company thinks it is best. And maybe people will be willing to pay for that'. Ultimately, 'Water is a public service, and companies are just instruments to operate the assets for a period of time', concluded the Water Cycle Director of ACCIONA Agua.

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