“Chilean water utility model: A case of social and financial sustainability” Guillermo Pickering de la Fuente Executive President, Andess Istanbul, March 2009.

Information about Chile  Chile is located to the extreme south of Latin America. It borders Argentina to the east; Peru to the north, and the Pacific Ocean to the west. Southwards, it extends to the Antarctic continent. Chile also includes Easter Island, situated at approximately 27º south lattitude and 109º west longitude. The total area of Chile (continental, Antarctic and insular) is 2,006,096 km 2.  Out of its population of 15,116,000 (at the last census in 2002), some 90% live in urban areas.  With a GDP of US$ million in 2008, Chile has one of the most open and competitive economies in Latin America. Its income per capita in 2008 was close to US$ on p.p.p.basis.  The Chilean government is currently headed by President Michelle Bachelet, the first woman to fill this position in Chile in its 200 years of history, whose anniversary is in 2010.

 The National Association of Sanitation Services (Asociación Nacional de Empresas de Servicios Sanitarios A.G.), Andess, represents the Chilean water- utility companies in Chile, supporting their business with respect to the different public and private sector organisms and institutions, and in the dissemination of their contributions and their environmental role.  The member companies today provide water, sewage and sewage treatment services to 94% of the population, corresponding to close to 14 million urban-living people. The Mission of Andess

Arguments for a change  Until the mid 1990s, the Chilean nation had reached levels of water and sewage coverage that were acceptabl for the region. The treatment of sewage was very much in its infancy despite its relevance for the country’s environmental development. Year Water coverage (%) Urban sewage coverage (%) Sewage treatment (%) The challenge was to decide how to improve and continue extending the coverage and quality of the services efficiently, with state control and financial sustainability. The challenge was to decide how to improve and continue extending the coverage and quality of the services efficiently, with state control and financial sustainability.

How was this achieved?  A public-private sector alliance was designed as the most efficient formula for the development of the Chilean water-utility sector, using the model of Transfer of Ownership and/or Concession Contracts.  For the correct application of this strategic alliance, the regulatory framework in existence until 1998 was changed, setting conditions for the incorporation of private capital and management, and giving the state strict regulatory powers through a technical organism called Superintendencia de Servicios Sanitarios (SISS) (Superintendency of Sanitation Services).. The formula applied in Chile is not necessarily replicable in other nations.. The formula applied in Chile is not necessarily replicable in other nations..

Strengths of the Chilean sanitation system  With respect to the transfer of assets and/or concessions contracts, the state received funds of close to US$ 3,000 million, leaving it with an equity holding in the sector of about 35%.  The state’s holdings in the ownership of the companies enables it to receive some US$ 80 million annually in dividends.  The state implemented a system of demand subsidies that was socially efficient, amounting to the equivalent of US$54 million annually, focused on the most socially-vulnerable households, with a present coverage of about 17%, thus benefiting more than 680,000 Chilean homes.  The performance of the companies is monitored through tthe SISS, a technical body with broad sanctioning powers. It also regulates the tariff-setting process every five years. STATE : The system is self-financing, it requires no public funds.

 All the customers of the water-utility companies receice a service of quality, and continuity 24 hours a day.  Each household pays according to their consumption, providing accuracy in the charges.  The price paid for the service is set by the authority through public tariff-setting processes and based on the so-called “model business”, which consists of making the real company compete as well as the fictitious company in terms of efficiency, which guarantees a fair tariff for the customer as it takes into account real costs and there are no cross-subsidies.  A subsidized monthly bill amounts to $4,000 Chilean pesos; that is no more than six dollars. Strengths of the Chilean sanitation system CUSTOMERS : Quality service and fair payments

 Chile has a regulatory framework that has proved to be attractive for the entry and maintenance of new operators, as it guarantees a minimum return and defines through development plans the investments that the company should make to meet future demand.  Tariff revision every five years plus adjustments in line with inflation.  It is legal in Chile to cut off supplies in the event of non-payment. But there are also alternatives prior to this happening, like special payment agreements.  A correct payment culture in Chile enables bills to be paid at between 30 and 45 days from the time the bill is received.  Low degree of past-due payments in the system, with a minimum of 3% and a maximum of 7% (depending on the company). Strengths of the Chilean sanitation system COMPANIES: Clear regulatory framework that ensures stability.

Achievements of the system Year Water coverage (%) Urban sewage coverage (%) Sewage treatment (%) ,895,284 Thanks to this model, and with an investment of over US$ 3,300 million in ten years, Chile today has more than 14 million people who receive running water, sewage and sewage treatment services.

An environmental industry  Thanks to the cleaning-up of waters undertaken by the sanitation companies, Chile has cleaned its rivers, lakes and coasts.  Thousands of hectares have been recoverd by irrigation, providing river waters that meet the new environmental standards and which permit the development of a world-class agribusiness sector.  Enteric illnesses have reduced significantly, which has especially benefited the poorest people and enabled the state to save large resources.

“Chilean water-utility model: A case of social and financial sustainability” Guillermo Pickering de la Fuente Executive President, Andess Istanbul, March 2009.