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The water path in Latin America

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  • The water path in Latin America
  • Representatives from public authorities, international cooperation and private companies get together to outline water challenges in the Latin American region 

Even though Latin America has one third of the world's freshwater resources, with 22,929 cubic metres per person per year, Latin America faces numerous challenges to provide adequate water supply and sanitation services to its population. Issues such as uneven resource distribution, water losses, deterioration and lack of infrastructure, lack of governance, population growth pressures in cities, or access difficulties in rural areas, make up a picture difficult to address for water resources managers. On the other hand, the challenges become excellent opportunities to replicate and improve the efforts done in other scenarios, such as the European one, one of the examples of success the region looks up to. To this effect, Spain is a major bridge between both continents; the common language and cultural similarities make our country a unique meeting point for the different cultures.

Using the Sustainable Development Goal (SDG) number 6 as a guide, at Smart Water Magazine we wanted to learn in detail about the problems to be overcome in Latin America from several perspectives: the perspective of public authorities, of international cooperation, and of private companies. These points of view, which complement each other, outline a vision: our contribution from Spain to moving forward in the path towards achieving this universal right.

To do this, last October we brought together Rafael Pérez Feito, International Operations Director at Aqualia; Rogerio Koehn, Director of Water Services Development at ACCIONA Agua; María Yebra, LATAM Business Development Manager at Almar Water Solutions; Eduardo Orteu, Coordinator of International Affairs with Regards to Water at the Spanish Ministry for the Ecological Transition (MITECO); and Natalia Gullón, responsible for partnerships and knowledge management at the Cooperation Fund for Water and Sanitation (FCAS) of the Spanish Agency for International Development Cooperation, AECID (Ministry of Foreign Affairs, the European Union and Cooperation), to discuss the principles necessary to move forward in Latin America.

A first look: governance

Eduardo Orteu started providing his assessment of the situation: 'We have been collaborating within the framework of the Conference of Ibero-American Water Directors (CODIA) for 20 years. When we meet, we choose a theme that deals with a specific water cycle management issue. And the bottom line challenge is a governance deficit'. He pointed out the basic weaknesses as 'those found in governance institutions, regulatory frameworks, authorities, the capacity of technical staff at authorities, etc.' 'I agree with Eduardo', said Natalia Gullón. 'The Spanish Cooperation has been collaborating with countries in Latin America for 30 years, and we sometimes find institutional weaknesses', she stated. Even though, in terms of water SDGs, 'Latin America is not doing badly if we compare it with other regions, but the numbers hide a very uneven access within the region itself'. And she provided some data: 'The numbers speak for themselves: 34 million people do not have access to an improved water source, 106 million people do not have access to sanitation, and 19 million people still have to defecate outdoors. Only 20% of waste water undergoes treatment'.

Without a doubt, except for Chile, and to a lesser extent, Colombia, in the remaining countries the main problem is governance', affirmed Rogerio Koehn. 'It has to do with lacking investment planning, or a long term vision, but, above all, lacking a legal framework and "professionalism" in entities'. But he qualified that: 'It is not so much a training issue: it has to do with who makes important decisions'. Based on his experience as manager at three different water organisations in Latin America, 'we cannot be politically correct. In many countries there are managers who are politicians, holding a managerial position at water organisations, which are municipal companies.  Providing access to water for citizens looks great and is popular. These organisations lack a long term vision, and those in power use them to give employment to personal friends'. 'The issue of sanitation is not so attractive; inaugurating a water supply system has greater political value', affirmed Natalia Gullón.

Rafael Pérez Feito pointed out: 'There is a certain trend towards talking about infrastructure, and not so much about services. As a result of this lack of focus, there have been investments in infrastructure which, in the end, have turned out not to be sustainable, or they did not have the intended impact'. And he added: 'Both the public and the private sector have demonstrated that they can solve the problem. The issue is not how difficult implementation is, but the concept of governance'.  And he elaborated further on governance: 'I would not say that Latin America has a governance deficit in terms of central government authorities. In fact, in some aspects they are quite ahead of the rest: in Chile, the complete privatisation of services in the 90s led to one of the most sophisticated regulatory systems in the world'. Thus, the governance problem 'occurs when we scale down to the municipal level: local authorities are the ones in charge of providing these services. This government level is influenced by external elements.

Rafael Pérez Feito, International Operations Director at Aqualia

Rogerio Koehn continued along the same line of thought: 'I agree. The framework at a macroscale in Latin America is really better than the European, because they have copied and improved it, but it is only applied to a small degree'. Natalia Gullón believes, however, that ‘the reality is quite different in Honduras, Haiti or Bolivia. Some countries have been working on a water law for years and cannot get it done, such as El Salvador. The legal framework in some countries is not clear at all'. Furthermore, 'we are encountering problems with regulations, dealing for example with discharges, imported from other countries: they are so strict that they cannot be applied. Particularly when not every country has implemented river basin planning and sometimes they apply the regulations rigorously, independently of the characteristics of the receiving water bodies'.

In fact, 'good governance', according to Eduardo Orteu, 'entails integrated resource management, based on river basin planning. And the reality is that very few countries in Latin American have really implemented this, or something that could be at least close to integrated water resource management'. And he replied to Aqualia's International Operations Director: 'In the past few years, the paradigm is changing from infrastructure planning, to service planning. The definition of new public water policies in Spain and Latin America revolves around that paradigm shift'.

Where is the money?

Once the first big problem was identified, the discussion moved on to money issues. 'A lot needs to be done. Infrastructure and services cost money, and the problem is who pays for them, because you cannot charge a tariff to people with no income to pay for it', remarked María Yebra. Besides, it is a vicious circle: 'Society does not accept a hike in tariffs by the government. But if tariffs are not raised, there is no budget available, and without a budget, there are no projects. Ultimately, there is no progress', pointed out the LATAM Business Development Manager at Almar Water Solutions. 'It is the governments' duty to provide minimum services: water, electricity, etc. But if citizens do not pay for them, who will pay for the tariffs? How will the services be charged?' she wondered.

Rogerio Koehn confirmed: 'Entities only charge for water services wherever it is easy to do so. That makes it very difficult to structure a long term vision. Thus, management indicators of water organisations in Latin America show a decline'. And he compared different time periods. 'Compared with the situation in the 90s and 2000s, with a few exceptions, all management indicators of water infrastructure show a decline.  And it is unfortunate, because investments have been made. Maybe it was not always done as wanted or as required, but now the cost of reversing that trend is very high.

Rafael Pérez Feito explained it, or at least part of it: 'Authorities involved in water and sanitation in Latin America are quite prone to political swaying'. Eduardo Orteu added that “the issue of tariffs is frequently discussed at the CODIA and it politicises the water debate. It is misconstrued, we mix up charging for the resource with charging for providing a service.  And service planning is not only a matter of governance, but charging for a service'. On the other hand, he thinks that 'when we talk about water, usually we only think about the urban cycle, and that is an error. In Latin America, agriculture consumes 70% of the water resources, as it occurs in Spain. When we are asked how do we charge farmers in Spain, we see that the problem is exactly the same, even though here we have a more developed governance system.

However, Rogerio Koehn believes that 'in Spain, except for rare exceptions, there is a charge for the service. We pay for investments through our taxes, and large investments are done by the government. The operating or service costs are included in the water tariff, but not the recovery of the infrastructure investment. In Latin America, investments are made where they can generate more political benefits, not according to a global vision of the basin, the municipality or the service'. Politics rear their head once again: 'In the region the investment in water is high because there is a high political return. However, there is reluctance to secure government resources to invest in sanitation: sewerage and waste water treatment are not so conspicuous', he concluded.

Rogerio Koehn, Director of Water Services Development at ACCIONA Agua

More money, more problems

The discussion on economic aspects went on non-stop: Eduardo Orteu affirmed that the 'issue of financing infrastructure in development cooperation fora puts developed countries in a difficult situation. In Spain, this process has been supported by European funds, but that is not the case in Latin America. Coming in from a developed country talking about financing investments and setting tariffs is complicated'. And the added: 'The infrastructure deficit is high. Water supply to cities depends on that infrastructure. We focus on the urban water cycle, but it should be part of an integrated system'. And he noted a well-known example: 'During the drought that took place in Sao Paulo a few years ago, we had water dams around the city. But they were not linked; there was no basin-wide management'.

Rafael Pérez Feito corroborated: 'In a large portion of Latin America, agriculture and industry jointly amount to up to 90% of the total consumption, and in both sectors water is a major input, an essential production factor. In these cases the debate is purely an economic one, about the availability and price of the resource used to transform and produce goods with an economic value, not about other basic components, such as social and environmental components, which we cannot forget about.

At the user level, the International Operations Director of Aqualia thinks that 'the issue is not that society does not understand the value of the service. I do not believe that citizens are not willing to pay for a service that amounts to 3-4% of their household income in return for potable water, sanitation and waste water treatment that are adequate in terms of quantity and quality'. 'The problem is a lack of awareness', thinks María Yebra. 'Often politicians do not tell people everything that is going on'. 'I think' — concluded Rafael Pérez Feito — 'it is part of the political debate in many countries, often used as a political football.

International cooperation and investment: the dilemma

Concerning the participation of multilateral organisations, Eduardo Orteu was adamant: 'multilateral development banks are multilateral and support development, but they are banks, and ultimately they are interested in recovering their investment. Because they are public, they are also interested in providing a service with the money they lend. Not so say that recovering their investment is their main driver, but it is their duty to do it, and they want to provide an effective service. Without appropriate medium and long term water resource planning, and appropriate regulatory frameworks, you cannot plan for infrastructure. With their somewhat altruistic interest in mind, the banks have approached other governments, such as the government of Spain. Since these are very long term investments, they request from Spain our collaboration in technical matters.

And that is because 'Spain has a planning culture with cost recovery systems and legal regulations. Water infrastructure have been operating in Spain for years, and the banks want to replicate that in Latin America. It has a lot to do with multipurpose infrastructure'. Eduardo Orteu explained what is meant by that: 'You build a dam that performs several functions: urban water supply, irrigation, power generation, flood risk prevention or drought preparedness. Multilateral development banks are interested in this vision of water and infrastructure serving different purposes.

'Multilateral organisations have an essential role wherever other actors cannot participate effectively single-handedly', recognised Rafael Pérez Feito. 'For example, in rural areas, or in urban systems which are not sustainable initially. In these situations, I think their participation should not only contemplate financial help, but also effective support and backing in projects where the level of risk cannot be entirely assumed by other financial and industrial actors at the onset. Concerning financing, he pointed out that 'there is no shortage of financial resources. If a project is well structured, clear and gets going, people line up to finance it'. 

It has to do with the cost-effectiveness of investments', confirmed Eduardo Orteu. 'Sometimes only the financial return is considered, yet other times the social or environmental value is also taken into account. And private banking or investment funds are not interested in those values. In Latin America they need to build infrastructure that, aside from being cost-effective, perform another function: ensuring water security'. Is there are role for private banking there? 'It is difficult to see the financial value of these investments', observed the Coordinator of International Affairs with Regards to Water at MITECO.  

Rafael Pérez Feito did not entirely agree: 'Water and sanitation companies like ours work with a long term vision, so we increasingly take more into account social and environmental aspects. And it is not just altruism, it is because a project that is social and environmentally responsible will be sustainable in the long term. That is the best guarantee for the private sector to recover the investment effort and ensure a return on it. I would not rule out the private sector's participation in projects in rural or semi-urban areas, something different from the classic projects such as a large plant in Bogotá or a large desalination plant in Brazil'. And he concluded: 'The issue is the legal framework. If the rules of the game are clear and credible in the long term, there is no reason for the private sector not to participate'. 

 

Frameworks, laws and regulations

Following up on the previous conversation, project conditions were then discussed. 'Multilateral organisations have to establish certain conditions in order to lend their money', noted Rogerio Koehn, 'in order to avoid situations such as those with Asian companies, who have political agreements and bring their Asian employees and almost semi-slavery practices. Public authorities can require compliance with regulations according to the context'. 

The problem is that 'there are no universal standards in terms of water policy', said Eduardo Orteu. 'There are multilateral fora which issue recommendations, but there is no regulatory framework the bank can resort to and tell a country: "if you want me to lend you money, you need to adapt your regulatory framework to these guidelines". And I think it would be risky for the bank to be the one establishing the standards. It would undermine the sovereignty of countries, and there is a slippery slope between the desirable and the way things really are. Would it be necessary and desirable to have a common regulatory framework? Probably. In Latin America, it would be very difficult', he noted.  

María Yebra shared her view: 'I belong to a group working on public private partnerships (PPP) with the United Nations, for the United Nations Economic Commission for Europe (UNECE). We are creating generic protocols on how to apply PPPs in water projects at the global level. Specifically, we are involved in creating a PPP standard for water supply and sanitation projects. Although it is a complex issue, work is under way to at least set some general guidelines, which governments can then implement as best they can. The group comprises between 20 and 30 people from private companies, governments and other organisations'. The downside: 'The project is very time consuming. We have been working for four years on a generic document, and it is difficult to harmonise criteria'.  

Working side by side with countries, who are our partners, is key', corroborated Natalia Gullón. 'The CODIA, for example, does an excellent job: planting the seed of what could be a common regulatory framework in the future, it is a forum that can produce guidelines such as, for example, the guide we are working on for water resource planning in Latin America. At AECID we also work in a context of collaboration with countries: we back them, we encourage them to work in water and sanitation and in sector governance, but letting the country take the lead, while the remaining actors align with that lead', she defended. 

Natalia Gullón, responsible for partnerships and knowledge management at the Cooperation Fund for Water and Sanitation (FCAS) of the Spanish Agency for International Development Cooperation, AECID (Ministry of Foreign Affairs, the European Union and Cooperation)

Participation and bottled water Public and private participation was another topic discussed. 'Latin America has its peculiarities in terms of public participation, and there are some good lessons to be learned about the things they do better than we do', pointed out Eduardo Orteu. On the other hand, Rogerio Koehn recalled the experience of private participation in the continent: 'The first examples of private participation in the sector took place back in the 90s. The model used failed due to the unpredictability of Latin American economies. The model was not appropriate for Latin America, or at least for some of the countries. In Chile it does work reasonably well. Nowadays, changing the view that a certain part of society has about private participation is not easy'. 

Changing the paradigm and allowing again the entry of private capital is a solution to be considered. 'In many areas — specially rural and suburban areas — people are paying a lot more for bottled water or water from water kiosks or tanker trucks. Sometimes, the quality and the amount available is mediocre. And thus the requirements to ensure the human right to water are not met, not even a minimum amount of 30 to 50 litres per person per day', observed Natalia Gullón. 'People do not drink tap water because of safety issues: they think that tap water is not good', explained Rogerio Koehn. 'If we can provide an adequate service, it would probably be worth paying for, a lot more so than paying for the current cost of water. But nobody talks about that, and companies selling bottled water invest heavily in marketing. Local companies that deliver water for a price that is probably higher than the one paid in Europe are involved. The situation is difficult to change without proper governance'.

Sometimes 'people refuse to pay because the service provided is not a regular, consistent and quality service', noted Natalia Gullón. 'It is a vicious circle: since there is no revenue, the service is not good, and since the service is not good, people refuse to pay for it. We have to make some progress so that it can be financially sustainable, especially in rural areas, where operation and maintenance costs are often left to rural water boards; there are some 80,000 of them in Latin America. Service provision is highly fragmented: water and sanitation services for 70 million people are in the hands of community organisations that, in most cases, are not supervised, nor do they receive any technical assistance or any kind of support'. She added that 'often, after a few years go by, these systems do not work properly. We have to think about management models for each situation. In Spain, service provision in rural areas has been addressed with "mancomunidades" (associations of municipalities), or through urban service providers that also provide services in rural areas; we have to search for solutions such as those. It is a big area, and the networks that allow the exchange of experiences are key, such as CLOCSAS, the Latin American Confederation of Water and Sanitation Services Community Organisations'. 

Rafael Pérez Feito noted that 'the rural environment is so different that it requires an analysis of its own: many elements do not work as in other settings. In order to provide solutions in small Latin American rural communities we need specialised resources and actors, and the private sector can work along with them'. he recognised that 'aside from the rural environment, which requires very specific solutions, the wheel has already been invented. We are reinventing a model we know it works, and when it did not work, we know the reasons for it’.  

Where are the projects? With regards to the business, there is a larger niche in certain sectors and regions than in others. María Yebra stated it this way: 'In the water business there is a broad market: the per cent of population with waste water treatment is about 14% in the whole Latin American region, and a lot remains to be done in Colombia, Peru or Chile.  Desalination is another growing market'. She believes that 'the trend in the type of contracts is shifting from engineering, procurement and construction (EPC) contracts to build-operate-transfers (BOT), transferring the risks to private companies, such as Almar Water Solutions. A real life example of this is mining in Chile'. She pointed out something else, 'projects are comprehensive in nature, so not only do you build a waste water treatment plant, but also other elements such as connections, etc.'  

Rogerio Koehn added that 'there is an important market for concession contracts: Brazil, Mexico, Colombia; there are municipalities where the ideological debate is put aside and financing is needed. We are comfortable working with integrated cycle concessions, because they allow a sustainable vision and long term planning'.  

 

María Yebra, Business Develiopment Manager Almar Water Solutions​

To this effect, Rafael Pérez Feito noted that 'unfortunately, the need for infrastructure does not always translate in the short term in the launching of projects where companies such as ours can participate'. But 'we are all working in the same markets: Chile, Mexico, Colombia, etc. In this group of countries, a stable legal framework and sustained political will have allowed the private sector to contribute to solving the problem'. This could possibly change: 'Other countries are trying to become part of that group, such as Argentina, Peru or Panama'. 

Rogerio Koehn concluded that 'in terms of services, Latin America is a market for Spanish companies'. 

Mexico: showcasing successful projects 

After such an extensive analysis of the continent, the time came to be positive and look for examples of good practice where Spanish companies have been or are involved. Rafael Pérez Feito outlined several cases in the region where Aqualia has participated: 'We have two drinking water PPPs in Mexico. One of them is the Querétaro system, a drinking water treatment plant with a capacity of 1.5 m3/s, and a conveyance system with more than 130 km, pumping stations, water tanks, power lines and service roads. It has been working for almost 10 years'. The other project, El Realito, is located in San Luis Potosí, and has  a capacity of 1 m3/s: 'The El Realito aqueduct has lowered the overexploitation of groundwater aquifers in the area and the problems of excess fluoride it was causing. This project has been financed at a cost below the Mexican sovereign debt, a significant improvement over the status quo for a project like this. It has attracted 130 million in private investments, provides service to a population of 800,000 people, has employed 1500 people for three years and will employ 200-300 people in the next 25 years, and has a demand for services and assets worth 700 million dollars throughout its useful life. It has been a complete success, and it is not particularly sophisticated'. 

Rogerio Koehn also described some projects carried out by ACCIONA Agua: 'In Mexico we have Atotonilco, the largest waste water treatment plant in the world. And we have recently signed a contract with the local government of Boca Río (Veracruz), a tourist area with an important infrastructure and management deficit. We have been working there for a year now, operating a concession for a 30 year term, which is starting to yield results in terms of satisfaction of the population in a popular tourist area'. In addition, he highlighted that 'people from other Mexican municipalities are visiting the project to learn about it and replicate it at home'. 

Concerning the Water Fund, the story is a different one: 'There is a little bit of everything: we never had before a fund of that nature and magnitude', noted Natalia Gullón. 'Initially, the Fund had 300 million euros per year, and programmes focused more on building infrastructure to provide water and sanitation services, together with institutional and community strengthening. It gradually shifted to public policy making and sector governance', she said. 'We have learned a lot, and the outcome is positive. The initial investment was necessary to generate trust. Now we also act as a link between public or private entities in Spain and in Latin America. There are partnerships and networks in place that enable direct dialogue; this allows other actors to come in and progress can be made with less aid funding, using instead other financial resources'.

Latin America, Spain and the future  The forum came to an end with a last thought about the future of water resource management in Latin America and the potential role of Spain. All guests are well aware of the opportunities it represents and value the ties between the region and Spain. Natalia Gullón is clear about it: 'The water and sanitation sector in Latin America presents huge challenges and opportunities. We are at an interesting point in terms of maturity and knowledge exchange. The countries themselves are placing water and sanitation in their political agenda, and they want to invest in it. Some countries are advocating a significant sector reform. Bolivia, Haiti, Nicaragua, etc.: less developed countries are focusing on this. We have to find a way for everyone to collaborate: public and private entities, civil society, international organisations, and organisations in Latin America and Spain. The key word would be partnerships'. 

 

Eduardo Orteu, Coordinator of International Affairs with Regards to Water at the Spanish Ministry for the Ecological Transition (MITECO)

Eduardo Orteu spoke for the Spanish government: 'I see a future where the collaboration that already exists between Spanish water authorities and Latin American water authorities steps up, because the challenge of ensuring water security is growing. In the context of climate change adaptation, water management is increasingly complex, so there is a greater need to combine efforts. Spain is in an excellent position to collaborate in technical matters and there is political will to do so, in the form of PPPs, associations with banks, with cooperation agencies, with the countries themselves, etc.' 

María Yebra also believes that 'the opportunities are huge. It is a strategic market for any private company. We have to focus on it, provide resources and do our best on our side to foster collaboration'. Rogerio Koehn agreed: 'Latin America is a market for permanent services. Water is not only about infrastructure: it needs a long term vision, and Spain can play a key role providing its experience with this process for the past 100 years'. 

Finally, Rafael Pérez Feito concurred: 'The challenges are huge, with tremendous difficulties to access basic services, both for rural and urban populations, which keep on growing. For private businesses, this is an opportunity. We are and will continue to be willing to collaborate in the search and implementation of solutions, as we have always been. We don't have all the time in the world, and I would like to wrap up with a sense of urgency. We are talking about a basic service: not having it causes deaths and diseases, and it is necessary for development. It is not like we can look, ponder and redesign for decades, because the problem needs a solution in the short term'.