The government's sale of water utilities is "like selling your house to buy furniture"

Friday, January 21, 2011

Chilean President Sebastian Piñera's decision to sell the government's minority stakes in water utilities Aguas Andinas, Essbio, Esval and Essal has sparked a great deal of controversy, re-igniting a long-running debate concerning the privatization of water.

Despite the fact that water utilities were first privatized under center-left Concertacion coalition governments from 1998-2005, Chile's left has fiercely opposed the measure. Adding to the controversy is the fact that Chile's water code has allowed most of the country's water rights to fall into private hands. The Concertacion government attempted to modify the code under former president Michelle Bachelet; however, the proposed bill faded out when Piñera came to power.

Local NGO Chile Sustentable has been a vocal opponent of the sale of the utilities. BNamericas spoke with its environmental director, Cristian Villarroel, about the decision and its implications for Chile's water sector.

BNamericas: A recent bill aimed to specify the state control of all water. Do you think this is a necessary measure?

Villarroel: Water is defined in the constitution as a public resource - but it's been given to private users in the form of water rights.

So in practice, it's not available for public use. It is handed over to you - you can trade it and you can inherit it. We need to change an article of the constitution, which is pretty complicated as it means getting into property rights, which are sacrosanct.

BNamericas: Why do you think the bill failed?

Villarroel: It did well at first - it passed through two congressional committees. But when Piñera's government took over, its progress was blocked. And that's to do with the fact that there's a sector of parliament and a business sector, which ultimately controls the water, who have a powerful lobby that means these and other environmental measures are paralyzed or become more flexible. And that's what happened here.

BNamericas: What impact will the sale of the government's share in the water utilities have on the sector?

Villarroel: The proposal is to sell those shares so the state can be free of its role in the sanitation sector. If this is the case, it will make it even more difficult to attempt to change Chile's current water code.

We believe it's the state that should be acting as a guarantor to society, and not private companies. And this isn't for ideological reasons, but because the facts show that the country is full of conflicts over water, where the current water code simply doesn't provide an answer to the real needs of our country.

We think this is another step towards consolidating a privatized model of water management in Chile. Water is a common and strategic resource, and it's very scarce. It's also physically different across the country - it's not the same to apply the water code in the north of the country as it is in the south. So there's a whole group of irregularities and inconsistencies, and the current regulations aren't providing technical or physical answers. There's no more water.

In Copiapo, for example, there are more paper water rights than there is water; double, in fact. If everyone wanted to use the water rights that they have, there simply wouldn't be enough water.

BNamericas: What about the impact on water services? Do you think clients will see a difference following the sale?

Villarroel: The state will no longer be participating in the boards of directors of these companies. And this state participation has allowed some control over increases in tariffs, which are already quite high. So if the state moves away from this role, we think this will eventually lead to larger tariff increases, without meaning an increase in coverage or significant improvements for clients.

All this is taking place within a changing climate and a scenario where there are limited water resources. From this point of view, it causes even more concern to see that the government is withdrawing from its small share in these companies. They just won't have any kind of control.

BNamericas: Critics of the sale have said it could end up limiting the expansion of water and sewerage services.

Villarroel: I would actually put it the other way around. I don't think it's necessary to sell the shares in the utilities to reach that objective. This is like selling your house to buy furniture. It's illogical.

BNamericas: The government initially said it would use the proceeds to finance post-earthquake reconstruction. Doesn't that seem a good reason?

Villarroel: It's a way to make it more difficult to oppose the decision. We believe that if the state were to keep its share in the companies, it would receive the same amount in income from these shares that it expects from the net proceeds of the sale. With the price of copper as it is, and there's also the new voluntary royalty [for mining companies] that begins this year, we're doing fine. They're just putting the tombstone on the privatization process that began under the Concertacion.

There just isn't any real justification. They have this idea, or dogma, to get rid of these shares, which is legitimate. But you need to be careful when you're talking about a public resource that is strategic and increasingly scarce.

BNamericas: Is there any project that you think would justify selling the utilities?

Villarroel: Rural potable water systems and community potable water systems don't receive a lot of support from the state. So maybe if the sale were to go towards rural potable water, or towards improving two or three community water services in the provinces. But not for the earthquake [repairs], not to save Enap, and not to expand the Metro. It's not logical.

About the company

Founded in 1997, Chile Sustentable is made up of environmental organizations, academics and social leaders from diverse sectors. The group aims to encourage national debate and form proposals to help Chile move towards a more sustainable development.