How Mexico's water segment is expected to develop this year

Mexican water utilities will face budgetary challenges in 2023 due to the lack of resources allocated by the federal government, which will, however, pour funds into a few flagship projects.

BNamericas talks with Hugo Rojas Silva, head of water and sanitation association Aneas, to gain insights into the needs but also opportunities this situation creates.

BNamericas: What’s your view on most of the federal record water budget of 68.5bn pesos [US$3.5bn] going to just six government flagship projects?

Rojas: The clear budget with a significant increase is good news. But, indeed, it is going to certain special projects. These are large works that have to do with water supply to cities … but many irrigation projects and some dams are also included. So, operators are joined in another program related to potable water and sanitation. This is increased by about 5% on average in each state.

We assume that each operating agency will continue to be privileged to continue with their own efforts and collect [its own resources].

From a budget perspective, for operating agencies in particular, [the 2023 national budget] is not good news. The agencies remain at a marginal loss compared to 2022 and are still very far from 2016 investment levels. The amount of disinvestment accumulates each year.

It is necessary to accumulate compared to the previous year but currently we see a very strong investment and infrastructure lag that unfortunately translates into bad services, which are not sustainable, and which the operators are struggling to reconcile with the human right to water and sanitation and provide adequate service.

Once again, the situation looks complex. Isolated efforts will surely continue in each municipality and state, but as we have discussed on other occasions, these efforts are limited by states’ and municipalities’ financial discipline laws that prevent them from contracting programs, credits, international support.

BNamericas: What does Aneas think about concessions for operators, considering the government has criticized this approach?

Rojas: We have never seen concessions for private companies in a bad way. This option is established in the national water law, so we must consider it.

However, what is happening and what has happened in other countries is re-municipalization or re-nationalization of concessions. But this is not done assuming concessions are bad, but because contracting and the contract specifications are not the best sometimes.

The institutions negotiating these concessions do not establish the goals that must be met; they do not establish the commitments, the investments. They do not consider what is best for the population, and what has happened with some concessions is that they were not the most beneficial since there is a tendency for the benefits to go to the private [sector].

As long as responsibilities and commitments are well established, there should be no reason not to get good results if the government is making a point of monitoring compliance with service quality.

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BNamericas: Are there any new projects for operators this year?

Rojas: What is being pushed a lot and what operators will have to join is related to solutions based on nature, above all because of budgetary reflection, because obviously operators will look to reduce costs. They may increase water resources through nature-based solutions, such as rainwater harvesting or building treatment plants that utilize natural lagoons and don’t require large operating costs.

BNamericas: What are the biggest challenges operators face this year?

Rojas: There are big challenges in sanitation. Updates to standards such as NOM-001 by [environment ministry Semarnat] imply that operators must soon comply with new parameters for wastewater and potable water.

These are challenges we must face with innovative ideas, seeking alliances with international institutions to circumvent this little part of the financial designation law and that not everything has to come through the federal government, that alliances are forged beyond financing, beyond credits that are merely renewable or that have to be paid.

As always, there is opportunity in crisis and this has to be considered. But above all, much [has to do with] the internal strengthening of operators.

BNamericas: You referred to changes to standard NOM-001, regulating pollutants in wastewater discharged into national water bodies. What does the change imply?

Rojas: The standard causes a lot of economic complication because it was not accompanied by a budget or a bill to support compliance. We were waiting for an [annex] since we discussed it at different opportunities. Surely, we will have to review possible modifications and municipal fees to cover these new regulations. Otherwise, it will be impossible to fulfill them and above all, to fulfill them in the short term.

Authorities asked us to create a work plan to comply with the standard over four or five years. Well, this is the maximum they are giving us to convert our infrastructure and get it ready to comply with the rule.

[For big players] it is a matter of adjusting their infrastructure, more of an operational challenge. But for 98% of the new operators, the challenge is economic. Those without the resources to be able to comply with this regulation will face more pressure.

BNamericas: What do you think about the aqueduct and dam portfolio the government developed in response to water shortages in major cities in 2021?

Rojas: These works are necessary. For many years, this necessity was communicated for Monterrey, Nuevo León; to build the Monterrey 6 aqueduct, now called El Cuchillo II.

In Guadalajara, Jalisco, conduction lines with this El Zapotillo dam were considered a necessity for 20-30 years. And here in Mexico City, the issue is huge with the Cutzamala system and the renovation of its infrastructure.

However, we see it as necessary but not sufficient. We cannot infinitely continue looking for works that seek to increase supply. We also have to think about demand, in which cities it’s highest, what cities are doing to preserve the water we supply, what we are doing to be efficient in distributing and using wastewater.

Mexico City has some signed commitments [regarding] residual water to be returned to the areas where it comes from, mainly the states around the Mexico Valley.

In the other large cities, a lot can be done in terms of reuse. That’s why this is a solution but not a definitive one, since we cannot continue to bring infinitely more water. To also look at demand, not just supply, it is important to strengthen operators so they have the resources to renew infrastructure.