has water privatization peaked? the future of public water...

Water InternationalVol. 37, No. 2, March 2012, 87–90

Has water privatization peaked? The future of public watergovernance

Bernard de Gouvelloa* and Christopher A. Scottb

aLaboratoire Eau Environnement et Systèmes Urbains, Université Paris-Est, Ecole Nationale desPonts et Chaussées, and Centre Scientifique et Technique du Bâtiment, Marne-la-Vallée, France;bUdall Center for Studies in Public Policy and School of Geography and Development, University ofArizona, Tucson, USA

(Received 26 January 2012; final version received 1 February 2012)

The privatization of water supply and institutional restructuring of watermanagement – through decentralization and the penetration of global firms in local andregional markets – have been promoted as solutions to increase economic efficiency andachieve universal water supply and sanitation coverage. Yet a significant share of serviceprovision and water resources development remains the responsibility of public author-ities. The papers in this issue – with case evidence from Argentina, Chile, France, theUSA, and other countries – address critical questions that dominate the internationalagenda on public versus private utilities, service provision, regulations, and resourcedevelopment.

Keywords: water and sanitation services; public and private management; regulations

Background

The initiative for this special issue of Water International emerged from an internationalresearch network on urban water studies. The groupement de recherche international(GDRI) Wat-Cit-Ter, created in 2008 by the French National Center for Scientific Research(CNRS) and led by Graciela Schneier-Madanes, links researchers from France, the UnitedStates, Argentina, and Chile, with the aim of developing comparative research betweenFrance and the Americas. The network brings together numerous perspectives, drawingfrom economics, sociology, anthropology, politics, law, urban planning, and geography.Wat-Cit-Ter’s focal concerns are access to drinking water and water governance.

Several international workshops were organized by Wat-Cit-Ter during 2009 and 2010.The first and most important one took place in February 2009 at the University of Arizonain Tucson, USA. The workshop theme was Water Governance, with case studies from theUS, Mexico, Argentina, Chile, and France. Early discussions were held to propose a spe-cial issue of Water International, and as a result, “the public-private debate” became aunifying theme followed by Wat-Cit-Ter researchers. The second workshop, held at theEcole Nationale des Ponts et Chaussées in Paris in March 2010, dealt with ParadigmShift in Urban Water Management. Draft versions of the papers by de Gouvello et al.

*Corresponding author. Email: [email protected]

ISSN 0250-8060 print/ISSN 1941-1707 online© 2012 International Water Resources Associationhttp://dx.doi.org/10.1080/02508060.2012.663614http://www.tandfonline.com

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88 B. de Gouvello and C.A. Scott

and Valdovinos for this special issue were presented, and the decision was finalized topropose this special issue. The third workshop took place in June 2010 at the UniversidadDiego Portales in Santiago, Chile, on the topic of Governance and Water Conflicts in theAmericas; preliminary versions of the papers by Guiloff and Prieto and Bauer were pre-sented. These four papers were complemented by two contributions by researchers (Megdaland Scott) who had presented at the first workshop in Tucson. Finally, the paper by Sojamoet al. did not result from the GDRI process, but was added due to its clear relevance,following discussions with the special issue co-editors.

The public-private debate within the water governance paradigm shift

The 1990s constituted a turning-point in approaches to water management all over theworld. The decade was characterized by the commodification, internationalization, andinstitutionalization of a “global vision of water” (Schneier-Madanes, 2012). Following thewater decade of the 1980s, themes such as the administration of the resource itself, themanagement of public services, and the lack of access to such services on the part ofbillions of disenfranchised people became issues of central importance.

From that vantage-point, water was seen as an economic good, for which protectionand use could be ensured through market mechanisms and improvements in governance.In the 1990s, the predominant paradigm, led by international organizations such as theWorld Bank, was that growing recourse to the private sector would enable the public sectorto increase its efficiency while at the same time promoting a process of commodification ofwater. After the failure of numerous international contracts at the beginning of the 2000s,however, and the growing service provision gap for water and sanitation, this paradigmwas seriously questioned (Bakker 2010), including by many of the promoters themselves(Marin 2009).

In this new context, water governance, defined as “a country’s capacity to organize thedevelopment of its water resources in a sustainable fashion” (Pena and Solanes 2003), hasraised the need to reconsider the relationship between public and private interests (Lobinaand Hall 2007). And, just as water for human use has “peaked” globally (Gleick andPalaniappan 2010), the privatization model may have peaked. It is thus time to considerthe future of public governance of water, service provision, equitable access, and attendanthealth, livelihood, economic development, and ecological outcomes.

Overview of this special issue

The present issue of Water International aims to contribute to the public-private debate,especially reconsideration of its implications for water governance, by addressing thefollowing framing questions:

(1) What have water and sewerage service privatization and resource commodificationtaught us? Are these processes now in decline?

(2) Can the market still be considered an efficient and effective mechanism to ensurethe equitability of water governance?

Several articles seek to tackle the first question. The privatization and subsequent rena-tionalization of water and sewerage services in the metropolitan region of BuenosAires, Argentina, is analysed by de Gouvello et al. Following a long period of federal

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Water International 89

management, Buenos Aires’s water and sanitation services were put into private conces-sion in 1993, which became a paradigmatic model within Argentina and internationally.However, this gave way to a new public organization after the 2001 Argentinean crisis. Theauthors show that what emerged followed the previous federal management model, butwith some features inherited from the “private parenthesis”: institutionalized regulation,social control of the services, and clear distinction between the operation of services andinvestments in infrastructure. By comparison, Valdovinos’s analysis of the “remunicipal-ization” of Paris’s water services demonstrates that, beyond the specific political contextof the process, a new political vision has arisen amongst local authorities concerning theirown roles as key actors in water services management.

Scott and Raschid-Sally highlight concerns over wastewater, which grows in tandemwith water supply, as a resource subject to commodification. Drawing from experiencein developing and developed countries alike, the authors find that public regulation andoversight of the (mostly private) use of wastewater is imperative, and increasingly practiced,for reasons of public health and environmental quality.

The paper by Megdal observes that the private sector has long had a role in waterprovision in the United States, although the function is largely one of the public sector.With reference to the state of Arizona, which has many similarities with other regions ofthe world experiencing population growth and water scarcity, Megdal concludes that, whilethe public sector dominates water supply provision and decision making, the private sectorwill play an increasingly important role in accessing financial capital for infrastructuredevelopment.

Three papers in this issue – two case studies of Chile and an analysis of global agribusi-nesses – deal with the second framing question. Guiloff explores how to shift orientationof Chile’s water institutional system, characterized by neoliberal emphasis on water asproperty, towards inclusion of multiple water uses. The author points out that water rightstransfers are prone to failure when multiple-use coordination is required. In this context, itis demonstrated that administrative tools (specifically, environmental impact assessments),in conjunction with legal processes (the courts), may help solve this failure.

Prieto and Bauer present an institutional analysis of hydropower development in Chile,focusing on the main legal institutions involved and the record of relevant jurisprudencein the Chilean context, characterized by a pro-market and private-sector orientation whichincluded reforms in both the water and electricity sectors. The authors argue against thepredominant orthodox view of the Chilean water and electrical model as neutral in termsof water allocations and electricity-generating technologies.

The paper by Sojamo et al. addresses the role of international capital in driving land andwater resource allocations. These are increasingly subject to capture and hegemonic con-trol, thereby restricting equitable access to resources, decision making, and outcomes. Thispaper has clear analogies with, but raises challenges for, the sequence from privatization toassertion of public control described in other papers in this issue.

In sum, the seven papers in this issue present varied perspectives – largely comple-mentary but at times contrasting – on public and private governance of water. Publicauthority in general is being reasserted over service provision, while resource devel-opment and investments in infrastructure continue as a mix of public and privateinitiatives. But more important, increased oversight and regulation of market-based ini-tiatives that until recently were touted as panaceas for water supply and sanitation areincreasingly being considered on the basis of social equity, environmental, and publichealth concerns.

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90 B. de Gouvello and C.A. Scott

ReferencesBakker, K., 2010. Privatizing water: governance failure and the world’s urban water crisis. Ithaca,

NY: Cornell University Press.Gleick, P.H., and Palaniappan, M., 2010. Peak water limits to freshwater withdrawal and

use. Proceedings of the National Academy of Sciences, 107 (25), 11155–11162. DOI:10.1073/pnas.1004812107.

Lobina, E., and Hall, D., 2007. Experience with private sector participation in Grenoble, France, andlessons on strengthening public water operations. Utilities Policy, 15, 93–109.

Marin, P., 2009. Public-private partnerships for urban water utilities. Trends and Policy OptionsNo. 8. Washington, DC: World Bank and Public-Private Infrastructure Advisory Facility.

Pena, H., and Solanes, M., 2003. Effective water governance in the Americas: a key issue. In: ThirdWorld Water Forum, 16–23 March 2003, Kyoto, Japan.

Schneier-Madanes, G. (ed), 2012. Globalized water, governance into question. Dordrecht, Springer,(forthcoming).

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Changing paradigms in water and sanitation services in Argentina:towards a sustainable model?

Bernard de Gouvelloa*, Emilio J. Lentinib and Federica Brennerb

aLaboratoire Eau Environnement et Systèmes Urbains, Université Paris-Est, Ecole Nationale desPonts et Chaussées, and Centre Scientifique et Technique du Bâtiment, Marne-la-Vallée, France;bCentro de Estudios Transdisciplinarios del Agua, Instituto de la Universidad de Buenos Aires,Argentina

(Received 1 April 2011; final version received 27 January 2012)

Within a very short period of time, the Buenos Aires metropolitan region has imple-mented a number of different water and sanitation service models: a federal welfaremodel (Obras Sanitarias de la Nación, OSN, created in 1912), a regional decentralizedmodel (1981), concessions to the private sector (1993), and a new public organiza-tion (2006). Analysis of various facets of the sustainability of this new organization inArgentine cities demonstrates that it seems to approach the OSN model, but with ter-ritorial limitations and some features inherited from the “private parenthesis”, such asinstitutionalized regulation and social control of services.

Keywords: water and sanitation services; public and private management;sustainability; Argentina

Introduction

During the 1990s, private concessions of public services were considered by internationalorganizations (World Bank, Inter-American Development Bank, International MonetaryFund) as means to achieve better management and development of these services in manycountries. In this context, the federal government of Argentina launched an extensive pri-vatization program of public enterprises and administrations. In 1993, the governmentgranted a regulated concession to an international group covering Buenos Aires and13 nearby municipalities (then with more than 9 million inhabitants). This concessionbecame a model at the international level (Lorrain 1999) as well as for the inner provincesof Argentina, and most of them chose to follow it. After the Argentinean economic crisisin 2001, these arrangements weakened and finally broke down. In 2006, the federal gov-ernment implemented a new public organization in the Buenos Aires Metropolitan Region(BAMR), with ambitious targets in terms of service accessibility.

This article describes this new organization from the perspective of sustainability,analysing it in relation to the different previous models adopted by Argentinean water andsanitation services over the years. The first part of the paper describes the water and san-itation service organizations and their evolution in Argentina from the beginning of thetwentieth century, through the creation of the first services, up to the present. The second



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92 B. de Gouvello et al.

part of the paper focuses on an analysis of the BAMR. The political, economic, financial,institutional, and social sustainability of the current organization in the current context ofArgentina is analysed.

Part 1: Historical and institutional evolution of water and sanitation services inArgentina

Four main periods can be identified in the history of the water and sanitation services inurban Argentina. The first is the “federal welfare period”, embodied by the paradigmaticOSN (Obras Sanitarias de la Nación), a national public enterprise. The second period beganwith the decentralization to the provinces1 that occurred in 1981 and led to the creation ofprovincial public enterprises or administrations. The third period refers to the privatiza-tion era during the 1990s, which led to water and sanitation services being administeredas concessions by international groups. The fourth and current organizational phase ischaracterized by renewed public involvement in the water and sanitation industry.

Each period is characterized by a specific organizational model. The present paperindicates the conditions of the genesis of each model, its main features and, for the firstthree, the reasons for their decline.

The “welfare state” model: OSN

The implications of the federal state model

According to national and provincial legal frameworks, water management is a local com-petency, although the role of the federal government has been fundamental in the genesisand development of water and sanitation services. The lack of hygienic conditions in thealready growing city of Buenos Aires at the end of the nineteenth century resulted in twomajor epidemics – cholera in 1867 and yellow fever in 1871 – with 8,000 and 20,000 deathsrespectively (Dupuy 1987). Due to the incapacity of the city and province of BuenosAires to deal with the situation, the federal government created a National Health WorksCommission (Comisión Nacional de Obras de Salubridad) in 1880 to build water and san-itation networks. This was the starting point for a growing role of the federal governmentin the water and sewage services in Buenos Aires and other inland cities. In the first phase,the federal government only subsidized the construction of networks, but soon decided tobuild and operate every subsidized network by itself. Institutional changes were introducedat the same time: in 1903, the commission was transformed into a directorate, which in1912 became the National Sanitation Works (Obras Sanitarias de la Nación, OSN) (deGouvello 2001).

The main features of the OSN model

According to its legal status (defined by National Act 10.998/1919 [Government ofArgentina 1919]), the OSN was charged with bringing water services to localities with pop-ulations of 3,000 or greater and sewage to those with populations of 8,000 or greater. Untilthe 1950s, the OSN built and/or operated water and sewage networks in cities throughoutArgentina, starting with the largest. During this period, the OSN pursued three main goals:public hygiene, income redistribution, and territorial equity (which means same conditionsof access to the services within all the national territory and economical solidarity amongthe provinces) (Coing et al. 1989). Unified and ambitious technical norms were created toattain public hygiene (e.g. the dimensioning of the water works was based on 700 litres per

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person per day), and connections to the networks were made compulsory. Income redistri-bution was assured through a tariff system of fixed rental charge called cuota fija. Therewere no meters; water bills were based on complex formulas where dwelling features (con-structed area and land surface, localization, quality of the construction, etc.) were takeninto account to create cross-subsidies between the different economic classes. Territorialequity was sought by progressive unification of the tariffs throughout the country, whichled to subsidizing the operational costs of smaller services through the national budgetstarting in 1937 (Brunstein and Montaño 1990). During this period, the OSN was clearlysupported by the state and could be described as a “welfare state model”.

The crisis of the OSN model

Starting in 1950, however, this model entered into crisis. Demand for Argentina’s mainexports, cereals and meat, fell notably after the Second War, as did the prices obtained,resulting in an economic recession. Consequently, the state began to cut the subsidies ofpublic enterprises, which led to financial problems and decreasing investments. The extentsof the services were reduced and tariff uniformity was abandoned. At first the crisis wasnot overtly apparent, with the extension of services being greater than urban growth. Butby the end of the 1960s, coverage and quality started to deteriorate (Zorrilla and Guaresti1986). From the 1970s, with National Act 18.586 (Government of Argentina 1970), thefederal government initiated the transfer of the responsibilities for education, health, andwater to the provinces. In 1976 the federal government halted all investments in the waterand sewage sector.

The decentralization period of provincial public administrations

An unprepared decentralization

The decentralization of OSN services to the provinces became effective only in1980 through Federal Decree 258/80 (Boletin Oficial 1980), issued by the military govern-ment. All local services were transferred to their respective provinces, with the OSN lim-iting its services to the federal capital and 13 of the 19 municipalities of Greater BuenosAires. Most of the provinces reorganized their administrations to integrate these services,creating provincial administrations based on the OSN model, while others decided torapidly transfer these services to the municipalities or (as in La Pampa and Chubut) tocooperatives, limiting their activities to planning. But the lack of federal policies in thesector and the poor preparation of the provinces for managing their own services led tonoticeable decreases in total investments in this area (see Table 1). It is worth noting that inother Latin America countries (notably Venezuela and Colombia as well), decentralization

Table 1. Total investment in water and sewerage in Argentina (million ARS, 1960).

Period Total for the period Annual average

1966–1970 207 41.41971–1975 278 55.61976–1980 271 54.21981–1985 82 16.4

Source: 1986 data from Secretaria de Recursos Hidricos de la Nación, quoted in de Gouvello(1993).

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reforms during the 1980s led to disappointing results, the transfer to ill-prepared localgovernments often resulting in massive reductions in investments (Marin 2009).

Searching for a new model

In 1982, the Federal Council for Water and Sewage Entities (Consejo Federal de Entesde Saneamiento, COFES) was created with members from provincial public compa-nies and the OSN. COFES sought to organize information systems, define standards,and foster technological development. The association was short of resources; its staffwas limited to 10 professionals assigned by the OSN and headquartered in one of itsown buildings (interview with Nora Mendiburo, chairman of COFES, 28 May 2010),but it provided a forum where provincial water administrators could exchange ideasand experiences. The principal idea was to strengthen institutional autonomy and effi-cient management procedures. That is the way most provinces introduced changesin the legal status of their water administrations, and some of them (e.g. BuenosAires, Misiones, Santa Fe) made plans to transform their administrations into publicenterprises (sociedades del estado), following the example of the water and sewagepublic enterprise created in Mendoza (Obras Sanitarias de Mendoza Sociedad delEstado). But in most cases these projects could not be realized as they were chal-lenged by the neoliberal logic that arose at the beginning of the 1990s (de Gouvello2003).

The private model of concessions to international consortia

Neoliberal reforms and water and sewage services

Although neoliberal forces were already present during the military dictatorship(1976–1983), the pressure they exerted on the Argentinean economy came to the forefrontwith the Peronist president, Carlos Menem, who came into power in 1989. The economicreforms put in place by his administration were largely based on massive influxes of foreigncapital underpinned by a US dollar–based monetary policy (Argentinean peso convertibil-ity) and the privatization of all of the major national utilities (gas and petroleum, powerand transport) and pension funds.

The implementation of these reforms took place in a more general context, character-ized by the imposition of conditions linked to World Bank and IMF loans to countries inAfrica, Asia, and Latin America. During the 1990s, almost all the public utility privatiza-tion contracts (outside of western Europe and the United States) occurred through activeWorld Bank/IMF participation. About 51 million people were using water provided by pri-vate water companies in 1990, mostly in Europe and the United States, but by the beginningof 2000 this number had risen to more than 460 million (Goldman 2007).

The first concession to a private company in Argentina was given by the province ofCorrientes in 1991. Nevertheless, the real “turning-point” was in 1993 when the servicesheretofore operated by OSN were delegated to the consortium Aguas Argentinas. In thefollowing years, about 20 concessions of water utilities to private companies were car-ried out in inland regions. These concessions involved large cities, whole provinces, ormedium-sized municipalities, and in most cases local governments were of the same polit-ical affiliation as the national government. The peak of the dissemination of this modelwas reached at the end of the 1990s when private enterprises (including cooperatives) wereproviding 70% of the water services throughout the country (de Gouvello et al. 2010).

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The main features of the private model

Due to the earlier decentralization of water services and the federal organization ofArgentina, each water privatization contract had its own specifics, but four main commonfeatures can be identified.

First, while the government had sold public firms outright in other sectors, the own-ership of water company assets were not transferred, but rather given in concession for afixed term (generally 30 years).

Secondly, the private companies were, in most cases, international consortia, includ-ing Argentinean capital investment firms and specialized international water firms (e.g.Lyonnaise des Eaux for Aguas Argentinas, Aguas Cordobesas, and Aguas Provincialesde Santa Fe; Thames Water for Aguas de Corrientes; Azurix (an Enron subsidiary) inBuenos Aires province; Vivendi for Aguas del Aconquija in Tucuman province; Saur forObras Sanitarias de Mendoza, etc.). Nevertheless, the level of foreign participation in theseconsortia differed from one case to the next, reaching (at the beginning) 90% for AzurixBuenos Aires, more than 65% for Obras Sanitarias de Mendoza, about 50% for AguasArgentinas and Aguas de Santa Fe, 40% for Aguas Cordobesas, and only 2% for Aguas deCorrientes (Azpiazu et al. 2008).

Thirdly, this economic model was based on the “full cost recovery” concept, whichmeant that the operation, maintenance, and extension of the services within each conces-sion area had to be paid though the water bill within the term of the concession.

Fourthly, all these concessions were controlled through specific regulatory frameworksand “independent” regulatory bodies (entes reguladores). These regulatory frameworksand regulatory bodies differed in terms of some important aspects of their juridical sta-tus and jurisdictional scopes. For instance, ETOSS (Ente Tripartito de Obras y ServiciosSanitarios) was composed of representatives of the federal government, the province ofBuenos Aires, and the city of Buenos Aires, and its jurisdiction was limited to AguasArgentinas. In contrast, the regulatory body of Santa Fe, ENRESS (Ente Regulador deServicios Sanitarios), was a self-governing administrative entity dependent on the provin-cial Ministry of Works, Public Services and Housing. ENRESS controlled not only the15 services operated by Aguas de Santa Fe but also all other water and sanitation services,regardless of their operators (mainly cooperatives). It is worth noting that the regulatorybodies were sometimes “captured”2 and contractual breaches by private operators weretolerated. The process of privatization in Argentina led to “capturing” by the private con-sortiums mainly at the level of political authorities rather than technical bodies (OrdoquiUrcelay 2007, Lentini 2011). An example of this situation was the renegotiation of theAguas Argentinas contract in 1997.

The growing questioning of the privatization model

At the end of the 1990s this model began to be questioned as user organizations startedmobilizing against private companies and the “full cost recovery” concept began to showclear limits. In 1998, after three years of recurrent conflicts, the concession contract ofAguas del Aconquija in the Tucuman province was cancelled when the opposition partygained power (de Gouvello and Fournier 2002). The Azurix concession that covered mostof Buenos Aires Province was awarded in June 1999 but rapidly ran into trouble followingallegations of poor service quality, contractual commitment failures, and financial prob-lems; Azurix announced in 2001 that it would withdraw from the contract (Hall and Lobina2002).

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Conflicts emerged in 1995 in the Buenos Aires Metropolitan Region in relation tochanges introduced by financing procedures for expansion services in the concession areaof Aguas Argentinas (Schneier-Madanes 2005). These conflicts did not, however, call intoquestion the continuation of the concession. The truly critical time for this contract (andmany others) was the crisis of December 2001 and its consequences.

Today’s organization: back to regional public companies?

Economic crises and unsuccessful renegotiation processes

In addition to the sympathy of the administration of President Menem for the economicpolicies advocated by international credit agencies, the financial situation of the stateseriously affected the sustainability of the national economy. This background was main-tained until the shock of the 2001 crisis, during which growing economic problems ledto civil protests, with the government of Fernando de La Rua resigning on December 21.On 6 January 2002, the transitory government adopted an emergency reform (Law 25.561,Emergencia pública y reforma del régimen cambiario [Boletin Oficial 2002]) that putan end to Argentine peso convertibility and empowered the government to renegotiateall the privatized public utility contracts. A special commission was created (Comisiónde Renegociación de Contratos de Obras y Servicios Públicos, which became UNIREN[Unidad de Renegociación y Análisis de Contratos de Obras y Servicios Públicos] in2003) and all tariffs were frozen.

Due to the immediate and drastic devaluation of the local currency (the dollar-pesoratio rapidly increased and then fluctuated before reaching a 1-for-3 exchange rate), theeconomic and financial equilibriums of several contracts were jeopardized, and when thegovernment of Nestor Kirchner came into power in May 2003, many of the renegotiationswith private international consortia in different activities led to the rescission of contractsand ICSID (International Centre for Settlement of Investment Disputes) arbitrations. Suchtrends (the renegotiation processes and ICSID arbitrations) also occurred in some cases atprovincial levels with water utilities, as shown in Table 2.

Even though the Argentine economic crisis acted as a catalyst, the end of the privatizedmodel was more basically driven by a set of exogenous (changes in the macroeconomiccontext, poverty, political instability, media influence, priority changes in internationalgroups’ strategies, etc.) and endogenous factors (weaknesses of preliminary studies, lack ofprevious experience in bidding processes, weaknesses of regulatory bodies, etc.) (OrdoquiUrcelay 2007, de Gouvello et al. 2010, Lentini 2011). The combinations of these factorsdiffered from one province to another and led to different trajectories and situations, asshown in Table 2. During the last two decades, the water and sanitation services of themost densely populated urban areas (BAMR; the provinces of Buenos Aires, Santa Fe,and Mendoza; the town of Córdoba, etc.) generally experienced movements back and forthbetween public and private management, with the duration of private management periodsbeing highly variable. In other areas, by contrast, the administration of these services hasremained in public hands (at the municipal level in Mar del Plata, Paraná, Santa Rosa, andSan Luis; and at the provincial level in Chaco, San Juan, Neuquén, Santa Cruz, and Tierradel Fuego).

Trends of the emerging organization

As mentioned earlier, it is not yet possible to define a new model for water and sewageservices in Argentina because the current situation differs greatly from one province to

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Tabl

e2.

Evo

luti

onof

the

mai

nop

erat

ors

ofw

ater

and

sew

erag

ese

rvic

esw

ithi

nA

rgen

tina

.

Prov

ince

nam

e1

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Req

uest

of

ICSI

D

Arb

itrat

ion

C.F

. + B

ueno

s A

ires

(B

AM

R)

F-SO

CIC

F-SO

SCY

esB

ueno

s A

ires

(M

ar d

el P

lata

)m

-SO

C-

Bue

nos

Air

es (

othe

r ci

ties)

SOC

ICSO

SCY

esC

órdo

ba (

capi

tal)

SOC

ICR

en. C

ont.

Yes

*Sa

nta

FeSO

CIC

SOSC

Yes

Men

doza

SO

CIC

Int

SOSC

Yes

Tuc

umán

SO

CIC

SOSC

Yes

Salta

SO

CN

CSO

SC-

Mis

ione

s (P

osad

as)

SOC

ICN

oC

orri

ente

s N

CR

en. C

ont.

-Sa

ntia

go d

el E

ster

oSO

CN

C-

Juju

ySO

CSO

SC-

Río

Neg

roSO

CSO

SC-

Form

osa

SOC

NC

-C

atam

arca

SOC

ICSO

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oL

a R

ioja

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a Pa

mpa

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Ros

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re R

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(Par

aná)

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C-

San

Lui

s (c

apita

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Neu

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SOC

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Tie

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del F

uego

SO

C-

Chu

but (

mai

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ties)

coop

erat

ives

(at

mun

icip

al le

vel)

-

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: pro

vinc

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the next. Additionally, the situation does not yet seem to have stabilized in some provinces.Despite these limitations, four main general trends can already be identified in the emergingorganizations.

First, public concessions of water and sewage services are becoming predominantin Argentina. Starting in 2003, local macroeconomic conditions, in conjunction with afavourable international context for Argentina, facilitated the implementation of policieswith greater government involvement. This has allowed the financing of services throughgrants with distinct characteristics according to whether the services are administered bythe federal government or the provinces. Private concessions have been reduced to 30%(including cooperatives) and public concessions have reached 70% by 2010 (data collectedby the authors). The provincial privatized companies generally kept their private statutes,although most of them with only public assets (except for the 10% remaining in the handsof workers). A few of them became Argentinian private companies (e.g. Aguas Cordobesaswith Roggio Group).

A second trend is a shared diagnosis pointing to the need for service extensions andwastewater treatment that cannot be attained through the “full cost recovery” concept. Dueto the large amounts of financial resources required, it is assumed that investments in theseservice extensions and wastewater treatments cannot be reimbursed through long-termtariffs.

A third trend is the massive involvement of the federal government in invest-ment programs for services through the Ministry of Federal Planning (Ministerio dePlanificación Federal, Inversión Pública y Servicios, MPFIPyS) and the National Entityof Hydraulic Works (Ente Nacional de Obras Hídricas de Saneamiento, ENOHSA) thatmanage funds from the national budget as well as those from international loans (fromInter-American Development Bank [IABD], World Bank, Brazilian Development Bank[BNDES], Corporacion Andina de Fomento [CAF]).

Fourth, water and sewage regulatory organizations still exist, but are generally weakerthan they were during times of private management. Currently, with renationalization hav-ing been accomplished with the widespread approval of the community, the state hasassumed a principal role in furnishing these services and establishing institutional frame-works for regulation and control – which in practice has led to reductions in the powers ofregulatory bodies.

Are these trends building a new and sustainable water and sewage services model inArgentina? We will attempt to address this issue in terms of the Buenos Aires metropolitanarea.

Part 2: The sustainability of the new organization: the case of the Buenos AiresMetropolitan Region

On 21 March 2006 (by Decree 303/2006), the national executive rescinded the AguasArgentinas concession contract, claiming that there were breaches relating to investmentsin expansion of services and problems with water quality, especially nitrate and waterpressure levels. At the same time (Decree 304/2006), the national government decidedto institute a corporation named Agua y Saneamientos Argentinos Sociedad Anónima(AySA) to take provisional charge of these services, with 90% of its capital being ownedby the national government in non-transferable shares and the remaining 10% being heldby workers (Boletin Oficial 2006a, 2006b).

This can be considered a turning point in the evolution of this sector in Argentina, withthe emergence of a new organizational model. As the Aguas Argentinas concession had

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been considered a paradigmatic case of privatization of services in the 1990s (OrdoquiUrcelay 2007, Azpiazu 2010), the metropolitan area of Buenos Aires now became a modelfor state-controlled services.

This type of organization, which had already been implemented after the rescissionof private contracts in Tucumán and Buenos Aires provinces, has also been adopted inother provinces (Ducci 2007) and leads to questions regarding the sustainability of thisnew organization. In an effort to find responses to these questions, the following sectionswill assess institutional, legal, political, social, management and, especially, tariffs andeconomic aspects in the specific case of AySA.

Political, legal, and institutional sustainability

The political connotations of the rescission processes can be seen in Decree 303/2006.It indicated that the company had given priority to economic interests by providing ser-vices only in profitable areas of the concession, leaving the poorest sectors of the populationdeprived of drinking water, and thus disregarding the public-service nature of the servicesprovided. This decree also states that due to tariff increases and the rate of cumulative aver-age profitability exhibited by the dealership, it will remove prohibitive economic obstaclesto the execution of required and committed works.

Law 26.221 of February 2007 redefined the institutional framework of the BAMR con-cession (Boletin Oficial 2007). The main actors in this new institutional organization were:the Ministry of Federal Planning, Public Investment and Services, which dictates the rulesrelated to the regulatory framework; the Department of Water Resources, which is theimplementing authority, exercises police powers, and regulates and controls the concession;the Water and Sewage Regulatory Entity (Ente Regulador de Agua y Saneamiento, ERAS),which controls the fulfilment of the obligations of AySA as established in the regulatoryframework and the concession contract; and the Planning Agency (APla), which assesses,plans, and controls investments for the concession water and sewage services by AySA.

The regulatory aspects of Law 26.221 define requirements related to minimum stan-dards of water and wastewater quality, the conditions of the concession, environmentalimpacts, the tariff regime, and the bases for user regulations. As for the economic regula-tion of the contract, general guidelines were set out without specific procedures. The reviewand appraisal of investment plans every five years was maintained. This investment planhas to be drawn up by the concessionaire with the participation of the planning agency.Information mechanisms were adopted, such as regulatory accounting and competition byreference (“benchmarking”), but have still not been implemented. Sanction regimes werelimited to monetary compensation for users affected by any shortcomings of the conces-sions and sanctions for the directors of the company (through injunctions, suspension ofcharges, and removal).

Although the regulatory framework specifies that services are delegated in concessionto AySA, the concession contract was only adopted in February 2010, almost four yearsafter the creation of the company. This contract, called a “liaison instrument” (instru-mento de vinculación) between the national state and the company AySA (MinisterialDecree 170/2010 [Boletin Oficial 2010]), contains a very ambitious Improvement Plan forOperation, Expansion and Service Maintenance (Plan de Mejoras, Operación, Expansióny Mantenimiento de los Servicios, PMOEM) (see Article 2.4).

This new model seems to have political sustainability. The national governmentspresided over by Néstor Kirchner and Cristina Fernández de Kirchner have been in favourof recovering the role of the state in managing activities privatized during the 1990s –

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especially water and sanitation services – and the government has guaranteed operationalfinancing of AySA’s investment plans with funds from the National Administration budget.A return to private management seems unlikely in the short term because that model lostprestige among consumers, public opinion, most political parties, and the sector’s labourunions.

Concerning institutional sustainability, it is worth pointing out that a contractual andregulatory framework has persisted that explicitly defines the rights and liabilities of themain participants. The structure of the organization created in the 1990s to carry outsupervision functions independent of service provision is still functioning, and an officein charge of investment planning has also been included with the participation of users’representatives and municipal authorities. The restructuring process has been slow but pro-gressive: approval of the new regulatory framework took one year; institutional creation,one and a half years; the concession agreement, four years; and there are still some regula-tory mechanisms whose implementation is pending (such as regulatory accountability andbenchmarking). As such, there are still some aspects to be improved in order to develop afully effective regulatory framework.

Social and managerial sustainability

Two other variables that must be taken into account when analysing the sustainability ofthe new structures are social and management aspects.

At the beginning of the concession period, from March 2006 to December 2009, cov-erage indicators registered slight increases (water, 77.32% to 78.61%; sewage, 58.47%to 58.58%; treatment, 7.08% to 7.44%). However, AySA considers the numbers ofinhabitants that will profit by works in execution, and according to the number of con-nections scheduled it is calculated that drinking water availability will be extended to87% (8,450,000 inhabitants) and sewage service to 64% (6,200,000 inhabitants) of thepopulation (AySA 2010).

With regard to management, there has been a significant growth in staff, which hasincreased to 890 workers since the initiation of the concession. This represents an increaseof 24% since the beginning of AySA, while the number of users went up by only 7% duringthe same period. AySA has 2.8 employees for every thousand connections, a value belowthe average of 3.9 for other companies in Latin America (ADERASA 2010).

Considering other management indexes, we can see that as of the beginning of theAySA concession, the collectability rate at 90 days has remained near 90%, measuringlevel continues at 22%,3 drinking water production has increased 7%, and system networklosses are 44% (an increase of 9 percentage points since 2006).

Finally, the daily consumption per inhabitant for 2009 within the AySA provision areawas 346 litres, higher than the average of 144 litres per person per day among the groupof companies studied by ADERASA. Due to the loss level of the network, production is622 litres per person per day.

In short, technical and commercial management parameters have not significantlychanged compared to those of the privatization stage, although three indicators show atrend that could give rise to problems in the medium term: the number of employees, net-work loss levels, and above all the high level of consumption per inhabitant – together withthe lack of sub-metering and the unsuitable tariff system for efficient use of these services.

These three indicators are relevant in relation to the global efficiency of the conces-sion since they have impacts on operating costs as well as on the magnitude of the plants,networks, and facilities. In this regard, the historical trend of not trying to reduce demand

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through tariffs and sub-metering, which was also in force during the private managementstage, will persist, even though this implies higher operating and investment costs.

Financial-economic sustainability

Although the regulatory framework outlines mechanisms for economic balance basedon tariffs that cover the total costs of the concession, tariff values have not changedsince January 2002. To put this tariff lag into perspective, note that between 2002 and2010, the retail price index increased 162%,4 wholesale prices 325%, and building costs357% (according to the price indices calculated by the National Institute of Statistics andCensuses, INDEC). Therefore, the company requires higher subsidies every year fromthe National Administration budget to partially finance operating and total investmentcosts.

The new regulatory framework also established a new tariff system that was approved inNovember 2010 (Order 45/10 of the SRH-Undersecretary for Water Resources) but has notyet come into force (Government of Argentina 2010). These changes in the tariff system areactually merely formal, because they do not modify the basic tariff structure: pre-existingtariff parameters and values were kept (zoning and building coefficients, among others) andallow multiple cross-subsidies among users. It is also important to highlight that implemen-tation of this new system will not involve changes in tariff prices. Users will keep payingthe same amount, and AySA’s invoicing will not increase.

Figure 1 shows the evolution of AySA’s revenues and current expenditures during thefirst five years, in US dollars. It can be observed that operating revenues, which remained

0

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2006* 2007 2008 2009 20100%

20%

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100%

Current transfersOperating revenue Cost coverage

Figure 1. AySA’s revenue and current expenditures (in US$).Source: Own preparation based on information from ERAS (www.eras.gov.ar).Note: the 2006 values correspond to approximately 9 months, from the beginning of AySA’soperations 21 March.

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almost constant in pesos, decreased in dollars due to peso depreciation, while the currentexpenditures have increased by about 200%. As a result, AySA could only cover 45% of theexpenditures in 2010, and has received funds from the national government since 2008; asshown in Figure 1, during 2010, the transferred amount was even higher than the revenuefrom invoicing. Despite these contributions, AySA has run at a loss for the last two years.

This low degree of cost coverage is an alarming indicator in terms of the financial-economic sustainability of the concession in the long run. AySA has become highlydependent on the national government and therefore subject to fluctuations in the coun-try’s macroeconomic conditions and, consequently, on public finances. The volatility ofeconomic growth and inflation that has characterized the Argentine economy over the lastfive decades draws a picture of high risk and vulnerability for the long-term sustainabilityof the present financing plans for AySA’s operation.

Investment plan execution sustainability

Given the importance and magnitude of AySA’s investment plan, it is worth analysingits past performance sustainability. The PMOEM (Services Operation, Expansion andMaintenance Plan) presents investments planned for the next 12 years and provides for uni-versalization of services (incorporating 1.8 million people in water services and 3.7 millionin sewer services) with a total cost of US$ 6000 million for the building of purification andsewage treatment plants.

Significant and increasing investments have been made since 2008 (Figure 2). Duringthe three-year period from 2008–2010, investments amounted to US$1069 million, of

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CAPITAL EXPENDITURES Operating revenue

Figure 2. Evolution of AySA’s capital expenditure (investments) (in US$).Source: Own preparation based on information from ERAS (www.eras.gov.ar).Note: the 2006 values correspond to approximately 9 months, from the beginning of AySA’soperations 21 March

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which about 50% took place during the last year. All investments were funded by resourcesexternal to the company’s operation: subsidies from the national treasury as well asloans from domestic institutions and regional and multilateral banks. AySA has receivedloans from the National Social Security Administration (ANSES), the Inter-AmericanDevelopment Bank (BID), the World Bank, the Brazilian Development Bank (BNDES),and the Andean Development Corporation (CAF).

It is clear that substantial modifications to policies of long-term financing of invest-ments appear in this new phase. The main financing source is no longer tariff resources asin the times of Aguas Argentinas, with high debt ratios to finance the deficit from the con-cession’s first years. The main financing source at present consists of contributions fromthe National Administration budget, representing 75% of the total revenue in 2010.

It can be argued that AySA’s investment plan is an example of new policies and gov-ernment priorities focusing on public works and generalized subsidies, together with awidening spread of planned activities. The execution of the PMOEM therefore has strongpolitical support and, as a consequence, “guaranteed” public financing as long as themacro-economic conditions are favourable and the present national policies continue inrelation to the services provided by AySA.

Conclusion

After a period of less than 15 years, during which the management of the water and sani-tation services for the major urban centres of Argentina was mostly in private hands, therewas a return to public management starting about 5 years ago.

Does the end of this “private parenthesis” (de Gouvello et al. 2010) mean going backto the “OSN model” described in the first section here – an integrated and centralizedmodel covering almost all urban centres and structured by three main goals: public hygiene,income redistribution, and territorial equity?

First, while AySA is emblematic, this new form of public organization of urban waterservices is not yet widespread through the country. Even though many provinces havereorganized their services in comparable ways, others are still using an “adapted” pri-vate organization, with national capital rather than international capital. This latter modeof organization is decreasing, however, so it appears that a return to widespread publicorganizations is a medium-term trend.

Second, global organization of the water sector is not as centralized or integrated as itwas at the time of OSN. On the one hand the various provincial companies are independentfrom each other, but on the other hand these services are operated by public enterprisesunder the control of regulatory bodies and a much more participatory civil society. Akey issue here is how to strengthen the powers of the regulatory bodies so that they willbe able to carry out their assigned duties in the future. In this respect, the permanenceof regulations in other utilities such as electricity, gas and transport can have a positiveinfluence.

Third, the major issues of the sector today differ from those of OSN – for examplethe emphasis on achieving universalization of services and integrating new environmen-tal concerns, with a focus on sewage networks and treatment issues. Nevertheless, thissector is once again a national priority – as it was when OSN was created. Most of thenetwork extensions and plants were built by OSN and were funded by the national treasuryin response primarily to health and then to welfare policies.

Fourth, there are differences between the provinces with regard to tariff regimes. Somehave increased their rates while others have not. Nevertheless, we can see a general trend

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towards low rates – too low to cover operational costs – even if this trend is not as extremein the provinces as it is in Buenos Aires with AySA, because the provinces cannot benefitfrom direct subsidies from the national state, nor can they directly suscribe to interna-tional credits, because they always need previous authorization and guarantee from thefederal state (Iglesias et al. 2008). The trend towards low rates is a common feature in theOSN model and presents future risks in case of macro-economic changes, as shown by itshistory.

In conclusion, a new way of organizing the water and sanitation sector in Argentinecities seems to be gradually approaching the original OSN model. However, the “privateparenthesis” prompted a greater concern for the challenges that face water and sanitationservices (whatever their specific mode of management): the efficiency of their operations,regulation, and social control of services; the necessary distinction between the operationof services and investments in infrastructure; and the integration of new environmentalconcerns.

Notes1. Argentina is a nation constituted as a federation of 23 provinces and the autonomous city of

Buenos Aires.2. According to the “capture” theory, regulated industries capture their regulatory bodies to ensure

that their decisions conform to company necessities.3. Previous legal restrictions for globally micro-metering consumption in horizontal properties

have been overcome. Therefore, AySA has a plan for water meter installation in these premises,although implementation will not have a significant impact on the total consumption in the nearfuture.

4. This index has been subject to criticism in recent years for its lack of representativeness. In thissense, private entities and unions believe that retail price increases are significantly higher thanthe values published. On the other hand, wholesale prices and the building cost indices have notbeen questioned by these critics.

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Américas) – GRTB (Grupo Regional de Benchmarking), 2010. Informe anual 2010 –Datos 2009. Available from: http://www.aderasa.org/docs_bench/Informe_Anual_GRTB-ADERASA_2010.pdf [Accessed 3 April 2011].

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Schneier-Madanes, G., 2005. Conflicts and the rise of users’ participation in the Buenos Aires WaterSupply concession. In: O. Coutard, R.E. Hanley, and R. Zimmerman, eds. Sustaining urbannetworks: the social diffusion of large technical systems. London: Routledge.

Zorrilla, S., and Guaresti, M., 1986. Sector agua potable y saneamiento. Lineamientos parauna estrategia nacional. Proyecto P.N.U.D./ARG/85/020, Buenos Aires: SRH (Secretaría deRecursos Hídricos).

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The remunicipalization of Parisian water services: new challengesfor local authorities and policy implications

Joyce Valdovinos*

Université Sorbonne Nouvelle Paris 3, Paris, France

(Received 23 January 2011; final version received 22 February 2012)

In 2010, Parisian authorities remunicipalized water services. This paper addresses threemain questions: How did this reform come about? Why did public authorities return toa public management model for water services? What are the main policy implications?It identifies two critical factors: (1) the promotion of a “revisited” model of public-pri-vate partnerships by international institutions, and (2) the rise of a new political visionamongst local authorities concerning their own role as key actors in water servicesmanagement.

Keywords: water services; remunicipalization; public management; public-privatepartnership; Paris

Introduction

While it is more common that public authorities move from a public management modelto a private one, there have been a few examples of the opposite process. The return ofcertain cities to public management after having adopted a public-private partnership (PPP)raises interesting questions concerning the decision-making process, the identification ofthe actors involved, and the policy implications of such a decision. With these points inmind, this article examines the remunicipalization of water services in Paris in three mainsections. The first section explores the main characteristics of water services managementin France as well as the elements that favoured a long tradition of PPPs in the water sector.The second part analyzes the remunicipalization process, its actors, and the reasons thatled public authorities not to renew the contracts with private operators. Policy implicationsof this reform and its place within a broader international context are studied in the thirdand final part. An appendix reviews relevant theory.

Water services management in France

Looking at water PPPs in France from a historical perspective

France has a long tradition of PPPs in water services. In 2006, 4814 water distributioncontracts and 4068 water sanitation contracts were signed with the private sector(BIPE/FP2E 2008); for 2009, the private sector provided drinking water services to 79%of the French population and wastewater services to 53% (Bauby 2009). The development

*Email: [email protected]


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of this model was favoured by several factors, including strong fiscal centralization, therigid character of public accounting, the creation of private water companies, and theestablishment of a legal framework that protected the interests of the concessionaries.

Water services management is a responsibility of the commune, the smallest Frenchadministrative subdivision managed by a municipal council. In 1828, French collectivi-ties became legally responsible for supplying water within their territory; the 1884 FrenchMunicipal Law is particularly important in the creation of a single legal regime for allFrench communes. This law established the framework for the organization of the com-mune as well as for local elections for the municipal council. Six years later, with the 1890Syndicats de Communes, municipalities obtained the capacity of creating joint boards withother municipalities in order to manage an activity of common interest (Barraqué and LeBris 2007).

Pezon (2010) analyzes the organization and the management of French water servicesthrough three main periods that are characterized by institutional arrangements betweenthe public and private sectors: (1) municipal concession (1850–1910), (2) municipal regie(1910–1970), and (3) inter-municipal affermage or lease contract (1970 onward). In thefirst period, municipalities delegated water services operation and investments to privateentrepreneurs through long-term contracts. In the second period, private-sector involve-ment was reduced to the design and construction of water works, while municipalitiesreappropriated the operation of water services. Finally, the third period was characterizedby the growth of lease contracts in which a group of municipalities are put in charge ofinvestments while the operation of water services is delegated to the private sector througha 10-to-20-year contract.

At the same time that the delegation of water services management increased, thelargest French private water companies broadened their activities at the national and inter-national levels and became important actors in the provision of water services around theworld.

The development of French water companies

The first of these companies is Veolia Environnement, which was created as the CompagnieGénérale des Eaux (CGE) by Napoleonic decree in December of 1853 and whose share-holders were barons and bankers of the French Empire. The main development goals ofthe CGE were the irrigation of rural areas and the provision of water to towns and cities.The first contracts that it obtained were two concessions for supplying water – to Lyon in1853 and to Nantes in 1854 – as well as a number of contracts that the company boughtfrom smaller concessionaries, such as in the case of the Parisian suburbs in 1857 (Pezon2010). Three years later, the company also became responsible for providing water supplyservices in Paris under a 50-year concession contract. From then until 1881, the companydid not look to develop new services but rather to extend its activities in existing services,and to obtain at least 4% profit from each contract (Pezon 2010). The CGE was forced tochange its strategy in 1880, when the Société Lyonnaise des Eaux et de l’Eclairage (SLEE),known today as Suez Environnement, was created by Crédit Lyonnaise in Paris. The firmwas born in a context characterized by fast urban growth and important health concerns,such as the need to prevent epidemics and disease, especially through the rehabilitation ofhousing projects and the improvement of water supply and waste evacuation services.

The goal of the SLEE’s creation was to guarantee the purchase and the lease of allconcessions and enterprises related to water and electricity services in France and abroad(Lyonnaise des Eaux 2011). In light of the rapid growth of water consumption in France,

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this firm extended its activities to other areas of the country through the creation of acommon subsidiary with another company – Société des Eaux du Nord, in 1912 – andthrough the acquisition of other companies, such as Eaux de Dunkerque in 1924.

After the First World War, the activities of the SLEE gradually evolved from urbanlighting and gas distribution to energy investments. The firm’s activities significantlychanged following the nationalization of the gas and electricity sectors in 1946, whichpushed the firm to refocus its activities on the water sector. The SLEE became Lyonnaisedes Eaux (LDE) and strengthened its diversification strategy in terms of its sectors of activ-ity and geographical presence. The firm acquired several other companies, such as Eauxdes Calais (1954), Eaux de Douai (1959), Sita (created in 1919), Dégrémont (created in1939), and Pompes Funèbres Générales (1978). The firm also entered the communica-tions sector, with the creation of Lyonnaise Communication, which later became Noos.The LDE merged in 1990 with Dumez, a housing and public works company, as well aswith the financial company Suez, becoming Suez Lyonnaise des Eaux. The group changedits name to Suez and refocused its activity on two main sectors: energy and the environ-ment. In 2001, LDE became a subsidiary of the group Suez for the provision of water andwastewater services in France, and in 2003, all activities related to water and waste serviceswere regrouped in the branch Suez Environnement.

On 25 February 2005, Suez and Gaz de France (GDF) announced their merger andthree years later became GDF-SUEZ. The new organization of the group was structuredaround five energy business lines and one environmental business line, under the new firmSuez Environnement (Suez Environnement 2011).

As in the case of Suez Environnement, a large number of companies that providedservices in different sectors in the early nineteenth century eventually became part of theCGE a number of years later. The development of the energy sector within the firm startedwith the creation of Chauffage Service in 1935 as a company specializing in heating and aircondition systems. This company merged with the Compagnie Générale de Chauffe (todayDalkia) in 1960 and joined the CGE in 1967.

Waste services were incorporated into the group in 1980 and 1990, with the annex-ing of two pioneering companies in the sector: François Grandjouan, created in 1867 andwinner of a street-cleaning contract with the city of Nantes, and Soulier Brothers, foundedin 1870 and responsible for waste services in Rouen and Chauny. The sector was rein-forced with the acquisition in 1980 of the Compagnie Générale d’Entreprises Automobiles(CGEA, later becoming Connex and Onyx), which entered the waste collection market ofParis in 1919. In 1990, the group acquired Groupe Soulier and six years later the Onyxcleaning division was created. The third sector that was included in the group’s main activ-ities was the transportation sector, when the Compagnie Générale Française de Tramways(CGFT) merged with the CGE in 1980. The CGFT had been created in 1875 and had oper-ated the first tramways in three French cities: Le Havre, Nancy, and Marseille. All thesemergers allowed the group to strengthen its presence in the French territory in several sec-tors while operating through five main subsidiaries: (1) Veolia Eau–Compagnie Généraledes Eaux, (2) Veolia Water Solutions and Technologies France, (3) Veolia Transport,(4) Veolia Proprété, and (5) Veolia Energie (Veolia Environnement 2011).

Over time, Veolia Environnement has extended its activities to 77 countries andSuez Environnement operates today in over 35 countries, making them the two largestprivate water operators worldwide. The development of these companies would not havebeen possible without a correspondingly favourable legal framework. Two laws and onegovernment circular should be highlighted: the law of 2 March 1982 that establishedthe decentralization of the system by limiting the prefect’s executive powers (Legifrance

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2012a), as well as the 1992 Water Act (Legifrance 2012b) and the government circularM49, which “placed a requirement on local authorities to charge by volume of water used(rather than a flat rate), and to maintain a balanced budget for water services [which makesreference to the principle] ‘water pays for water’ (rather than being cross-subsidized)”(Szarka 2002, p. 174).

As the number of PPP contracts increased during the 1980s and 1990s, the difficultiesin ensuring effective regulation mechanisms became evident. The general conditions laidout within a number of contracts signed during this period were characterized by a lackof transparency, an informal style of contract negotiation, uncompetitive calls for tender,and an inefficient regulation framework (Bauby 2009). This situation led to an increas-ing number of disagreements between local authorities and their private concessionaries,mainly on the renegotiation and termination of contracts, which ended up in administrativecourts, and for the most serious cases, in the court of final appeals (the Conseil d’Etat)(Pezon 2010).

While in the nineteenth century the Conseil d’Etat protected the concessionaries’ rightsand interests, putting strict restrictions on contract termination practices and limiting thepower of public authorities to interfere in the commercial relationship between householdsand private operators, it was not until the 1990s that two regulatory laws were introduced.The first was the Sapin Law of 29 January 1993, which established that any delegationof public services must be submitted to a process of competition. The goal was to create atransparent and competitive framework for governing calls for tender, to prevent corruptionin economic activities and government procedures (Legifrance 2009).

The Barnier law, dating from 2 February 1995, specified that a contract in the sectorof water, sanitation, or waste management may not be longer than 20 years. This law alsoestablished the obligation of municipalities to write an annual report about the price andthe quality of the public service being provided (Legifrance 2012c). The Mazeaud lawsupplemented this by obliging the private operator to present a report including the qualityof the service and their operation accounts (Legifrance 2012d).

Finally, a ruling of the Conseil d’Etat passed on 8 April 2009 stipulates that both laws –Sapin and Barnier – are to be applied retroactively to all delegation contracts which hadbeen concluded before 1993 (Conseil d’Etat 2009). In other words, this means that allcontracts which were signed before 1993 for a period of either 30 or 40 years will have torespect the 20-year term stipulated by the Barnier law.

All these laws show an evolution of the French legal framework with regard to thedelegation of public services to the private sector. Although the percentage of renewed con-tracts with the private sector between 1998 and 2001 was close to 90% (Guérin-Schneideret al. 2003), collectivities have increasingly become more attentive to contract terms. Andin some cases, such as that of the city of Paris, they have decided to return to publicmanagement.

The remunicipalization of Parisian water services

Involvement of the private sector in Parisian water services

Most of the water supply for Paris (55%) comes from underground sources within a 150 kmradius around the city. These sources are located in the southern regions of Provins, Sens,and Fontainebleau, yielding 260 million litres per day, and in the western region of Dreux,where 80 million litres of water are extracted per day (Eau de Paris 2009). The collectedwater is treated in four plants, which are located in Longueville, Sorques, Saint Cloud,and L’Haÿ-les-Roses, and it is transported, after treatment, to reservoirs in Paris through a

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system of aqueducts. The other 45% is taken from two rivers, the Seine and the Marne, andtreated in the plants of Ivry, Orly, and Joinville. In total, Paris has five reservoirs with a stor-age capacity of 1120 million litres of drinking water, allowing the city to meet the variabledemands of the population’s daily consumption, calculated at an average 550,000 m3 ofwater (Eau de Paris 2009).

Since 1 January 2010, the Parisian water services have been managed by the municipalgovernment, through the new municipal undertaking Eau de Paris. This situation cameafter 25 years of private-sector operation. In 1984, water distribution and the maintenance,renewal, and extension of the water system were delegated to the Compagnie des Eaux deParis, a subsidiary of Veolia, which was in charge of the right bank of the Seine, and toEau et Force–Parisienne des Eaux, a subsidiary of Suez, which was responsible for the leftbank. Three years later, on 1 February 1987, the services of production, transportation, andquality of water were delegated to a mixed-capital company called Eau de Paris.

During a session of the Council of Paris held on 24 and 25 November 2008, the munic-ipal assembly decided not to renew water distribution contracts with the subsidiaries ofVeolia and Suez. The current reform included several stages. First, the mixed-capital com-pany Eau de Paris became a municipal undertaking with commercial status, and became atthe same time (1 May 2009) the sole operator of water services, including the production,treatment, and distribution of water. Following the transfer of activities and personnel fromthe old mixed-capital company to the new municipal undertaking, the Centre de Recherche,d’Expertise et de Contrôle des Eaux de Paris (CRECEP), in charge of research and wateranalysis in Paris, was incorporated into Eau de Paris as well. The last stage of the reformtook place on 1 January 2010, with the transfer of employees and activities of the twoprivate companies in charge of water distribution to Eau de Paris.

It is important to mention that this reform does not exclude the possibility of resort-ing to the private sector for carrying out specific activities. Indeed, the provision of waterservices in Paris has been characterized by the involvement of both the public and pri-vate sectors. The degree of private participation has varied through time: in 1860, certainservices, such as connecting private residences to the network, metering, and billingwere delegated to the Compagnie Générale des Eaux under a 50-year concession, whilewater services provision and management were the responsibility of local authorities. Thischanged in 1984 when Jacques Chirac, mayor of Paris at the time, decided to delegate themanagement of water services.

The delegation of water services distribution to private operators was possible in largepart thanks to the close relationship between Jacques Chirac and Jerôme Monod, personalsecretary of Chirac in 1974 and general secretary from 1976 to 1978 of the political partyRassemblement pour la République (RPR), of which Chirac was president. One year later,when Monod became project manager at Lyonnaise des Eaux, a subsidiary of Suez, hemet several water managers in France and abroad. His connections with politicians, andparticularly with the mayor of Paris at the time, represented key elements for obtaining anumber of concession and leasing contracts in different cities without any calls for tender,such as in the case of Paris.

Other than water services, during the time that Chirac was the mayor of Paris(1977–1995), many public services were privatized, including funeral services, the munic-ipal printing office, the cleaning of crèches, and the maintenance of school gardens(Stefanovitch 2005, p. 229). This wave of public service privatizations took place in aninternational environment characterized by the spread of neo-liberal ideas emphasizing thetransfer of public services management to the private sector.

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Understanding the reform

The intention to reform the Parisian water services, announced by the mayor of Paris,Bertrand Delanoë, on 5 November 2007, became reality when the municipal assemblybegan discussing the creation and status of a new municipal undertaking that would beentirely in charge of water services. This raises the question of why the municipal govern-ment decided to adopt a model based on public management following 25 years of PPPs.Four main factors can be identified: (1) favourable political conditions, (2) evidence ofirregularities in the performance of the contracts awarded by the Parisian local governmentto the two companies in charge of water distribution, (3) continuity within and reinforce-ment of the general strategies of the Delanoë administration, and (4) the active involvementof the local government staff in charge of water services management in retaking controlof the public service.

Favourable political conditions

After decades of right-wing government, a coalition of Socialists, Communists, andEcologists won the municipal elections and came to office at Paris city hall (Le Strat 2010).This victory brought Bertrand Delanoë to power as the new mayor of Paris in 2001 andestablished the topic of water services delegation as one of the priorities of the new munic-ipal government. The political conditions within which the reform took place were quitefavourable since the main actors involved in the process were part of a large left-wingpolitical alliance. When the reform started, Anne Le Strat, project leader in charge ofwater services remuncipalization, was an ecologist deputy in a plural majority and withthe support of a Socialist mayor.

Irregularities in contract performance

Following the end of Chirac’s mandate, no studies pertaining to water services were carriedout until the arrival of Jean Tiberi, mayor of Paris from 1995 to 2001. On 9 March 2000,Tiberi ordered an internal inquiry into the activities of Suez and Veolia in the Parisian waterservices, which resulted in a report presented by the Inspection Générale de la Ville de Parisin 2001 (Stefanovitch 2005). The conclusions of the inquiry emphasized the absence of anystatus reports on water distribution services and consequently the difficulty of identifyingand verifying the work that should have been completed since 1984 in order to improvethe piping system. The information provided by this report is complemented by two otherstudies: the “Report on the Management of the Protection and the Distribution of Drinkingand Non-Drinking Water” carried out by the Chambre Régionale des Comptes d’Ile deFrance on 7 September 2000, and the “Report on Commercial Service Management of theParisian Water Services” carried out by the Cabinet Service Public 2000 in 2002 (Le Strat2008).

These studies converged on two points. Firstly, they showed a lack of transparency withregard to the transfer of technical and financial data provided by the subsidiaries of Veoliaand Suez. Secondly, there was a discrepancy between the financial gains declared by thetwo private companies in charge of water distribution and their actual profits, which havebeen estimated at an amount two to three times higher (Le Strat 2008). This point was alsoraised by Touly and Lenglet (2006), who added that these reports also mention the existenceof billing inequalities on both banks of the Seine, and by Stefanovitch (2005), who pointedout that both companies made a higher profit by providing annual maintenance guaranteesthat overestimated the subsequent actual costs by a third.

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As a result of the reports’ findings, local authorities decided to “prioritize thereempowerment of the municipal bodies by endowing them with the expertise necessary toguarantee a minimum control over the provision of water services” (Le Strat 2010, p. 2).In order to accomplish this, three initiatives with the goal of recovering control of the ser-vice were undertaken. The first one was carried out on 21 December 2003 and consistedof adding amendments to the water distribution contracts, stipulating the replacement ofbranch pipes containing lead by the end of 2009. (This was based on European directive98/83/CE of 3 November 1998 [Europa 2012], which established 2013 as the deadline forchanging all branch pipes containing lead.)

While P. Grandjean, a project manager at Veolia Eau France, asserts (personal commu-nication, 9 April 2009) that the amendments of 2003 were concluded together with Parisianlocal authorities in 2001 and 2002 through an exchange of emails, the local governmentpresented another version. According to the project leader of the water services reform,Anne Le Strat, the contract amendments were concluded with both companies during alarger negotiation process that was more or less difficult depending on the issues that wereunder negotiation – such as maintenance projects, billing management, and the economicgains obtained by the two private companies (Le Strat 2010).

The second initiative carried out by the municipal government was the reconfigurationof Eau de Paris’s shareholders: 70% of capital stocks currently belong to the city of Paris,2% to small mixed-capital companies, and 28% to the Caisse des Dépots et Consignations(Le Strat 2008). The importance of this modification is that before 2007, Veolia and Suezwere also shareholders of Eau de Paris, which was in charge of the inspection of waterdistribution companies in Paris. In other words, they participated in the inspection of theirown activities. Finally, the third initiative involved the change in status of Eau de Parisfrom a mixed-capital company to a municipal undertaking, which today is the sole publicoperator of water services in the city.

The construction of a political project

The election of Delanoë as mayor of Paris in 2001 marked the arrival of the Left in theParisian city hall, “a bastion of conservatism since 1871” (Burke 2008). During the elevenyears that Delanoë has been at the head of the city of Paris, an array of projects have beenimplemented, permitting the strengthening of a public relations strategy stressing proximitywith the Parisian population. Original initiatives such as Paris Plage, Nuit Blanche, and thesystem of self-service bicycles called Vélib’ are all part of his political project. They havehad a noticeable impact on the international stage, as they have been adopted by other bigcities and have provoked interest on the part of many local decision makers worldwide.

With the remunicipalization of Parisian water services, the current local governmenthas put water issues at the centre of its priorities. The reform itself has developed into alarger environmental programme, which includes different projects such as the Action Planagainst Noise, the Waste Material Prevention Plan, and the Climate Plan.

Local authorities: from political vision to active involvement

The municipal team in charge of the remunicipalization process, under the leadership ofAnne Le Strat, showed an active involvement in the configuration of a new model ofwater services management under the responsibility of the public sector. According toLe Strat (personal communication, 19 March 2009), the strong commitment of Parisianpublic authorities to this reform was based on the advantages that returning to public

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management of water services might bring, such as a better functioning of water services;more transparency; the recovery of economic gains; greater democratic and public control;and the capacity to stabilize the price of water services.

Two of the main arguments for returning to public management expressed by the localgovernment were related to reasserting public control in this domain and the potential forfinancial gain. The first was based on considering that water is “the property and heritageof the collectivity” and that returning to public management is for “the benefit of publicinterest, with the goal of offering a sustainable public service” (Le Strat 2008, p. 116). Thesecond argument raised the importance of obtaining financial gains estimated at C30 mil-lion per year, an amount that will be invested in the maintenance of the water system andin the stabilization of the price of water services. This is important because water con-sumption in Paris has been dropping since 1985, and this tendency has become strongerin the last five years, reaching a decline of up to 2% per year (Barucq and Fel 2008). Thefall in water consumption entails a loss in profits, in the general turnover and therefore inthe operator’s investment capacity, elements that consequently lead to a possible increasein the price of those services. Although the price of water services in Paris is lower thanthe average price in many European cities (BIPE/FP2E 2008), its stabilization remains animportant element in maintaining the performance of the service.

Policy implications of returning to public water services management

Putting the Parisian case study into an international context

Returning to public management of water services after having delegated their partial ortotal operation to the private sector entails significant policy implications for local author-ities. It raises the question of what the main difficulties are that local governments facewhen returning to a public management model of water services.

Before exploring the main difficulties involved in the reappropriation of water servicesmanagement by local authorities, it is important to mention that remunicipalization can be aresult of different situations. In a recent report by the World Bank, Marin (2009) states thatonly 18 water PPPs out of the 228 contracts that have been signed in developing countriessince 1990 have returned to public management after the expiration of the contract, while22 were terminated early. Ducci (2007) and Marin (2009) identify a number of main rea-sons which account for the exit of private operators from water services: (1) national policychanges (as in some cases in Venezuela and Uruguay); (2) political and social conflicts (thecases of Cochabamba, Bolivia, and Tucuman, Argentina, are well known); (3) corruptionscandals (the cities of Atlanta, USA, and Grenoble, France, are two good examples); and(4) financial failure of the project (as in the cases of Santa Fe, Córdoba, and Buenos Aires,Argentina).

The remunicipalization of water services in Paris is not the sole example of sucha policy change. Several cities around the world have also decided to return to publicmanagement after the non-renewal of contracts (such as in the cases of Johannesburg,South Africa; Kampala, Uganda; Amman, Jordan; Tripoli, Libya; Monagas, Venezuela;and Kosovo) or following the early termination of contracts (such as in the cases of Dar esSalaam, Tanzania; Kelantan, Malaysia; Buenos Aires and Tucuman, Argentina; La Paz–ElAlto, Bolivia; Antalya, Turkey; and Borsodviz, Hungary).

When the local government of Paris announced that water services were to be pro-vided by the new municipal undertaking Eau de Paris, a debate began in France andabroad regarding the scope and limitations of the process, its feasibility, the administrative,economic, and legal difficulties that local authorities had to face, and the benefits and

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advantages of such a decision. This was particularly spurred on by the open public relationsstrategy of the Parisian local authorities concerning the promotion of public water servicesmanagement in a number of national and international events, such as the Colloquiumfor Water Services Regulation in France and the Istanbul Water Consensus for Local andRegional Authorities. The Parisian local government has also supported the creation ofAqua Publica Europea, the European Association for Public Water Management, launchedon 18 March 2008 as an initiative of seven public operators from Belgium, France, Italy,and Switzerland to promote “the performance of public management, by sharing andexchanging good practices in the fields of technical and management services of water”(Aqua Publica Europea 2009).

Elements to consider when remunicipalizing water services

Even though the remunicipalization process can vary according to local context, depend-ing on the conditions of the public service, the involvement of the local government, theduration of the contract, and the degree of private participation, local authorities shouldconsider a number of key elements when returning to public water services management.

Negotiation process

If local authorities decide to terminate the contract before the stipulated date, a negotia-tion process between the local government and private operators concerning cancellationconditions may turn difficult, particularly if PPP contracts do not establish mechanisms ofconflict resolution.

According to the journalist and consultant M. Laimé (personal communication,13 April 2009), for Parisian local authorities the most difficult aspects to negotiate withprivate operators after the expiration of a contract were the transfer of personnel, technicalinformation, and the adoption of new technologies used by private operators (such as thetélé-relève, which measures water consumption from a distance through the use of smallradios placed inside water meters).

While public authorities in Paris have tended to concentrate on technical issues con-cerning the remunicipalization of water services, the official position of Veolia and Suezremains that the reform has been a purely political decision of the mayor. According toD. Olivier, a project manager on the executive committee of Veolia Water, “this reformis a political decision announced by Mr. Delanoë that we respect and it is not linked toany dissatisfaction concerning our provision of the service. The primary person responsi-ble for contracts is the mayor [and] collectivities are free to choose their water [services]management model” (personal communication, 17 March 2009). A. Braïlowsky, a high-level director at Suez Environnement, comments that the reform “is a commendable andacceptable political project” (personal communication, 16 April 2009).

Contrary to these declarations from the private sector, local Parisian authorities main-tain that the negotiation process unfolded in a tense atmosphere. Le Strat, one of the mainactors involved in the process, states that “at the beginning of the reform, the compa-nies [in charge of water distribution] reacted badly. In my opinion, they did not thinkthat this reform would take place. Their official strategy consisted of playing the gamewith the municipal government, but without making the negotiation process easier, espe-cially concerning the transfer of information. However, we cannot say that there has beena breaking-off of relations” (personal communication, 19 March 2009).

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Users’ involvement

Considering that one of the most powerful arguments of local authorities when returningto public management is to guarantee a democratic and efficient public service, theinvolvement of users as key actors in the process is essential.

In the case of Paris, local authorities introduced a citizens’ control mechanism via agroup called the Municipal Water Observatory (Observatoire Municipal de l’Eau) that“enables users to evaluate the provision of services [and] also provides a space for discus-sion between all stakeholders and for putting forward ideas that concern issues on water atthe municipal level” (Le Strat 2010).

Evaluation of private operators’ performance and the advantages of returning to publicmanagement

It is fundamental that before making the decision to cancel (or not renew) a PPP contract,studies on the performance of private operators and the possible benefits and risks of reas-suming their provision by local authorities be carried out. This is particularly importantwhen considering the current situation of the public service in terms of investment needsand financial costs for guaranteeing an efficient performance. In the case of Paris, the stud-ies and inquiries carried out in 2001 allowed local authorities to measure the performanceof private operators in carrying out their established activities. Their decision to remunic-ipalize water services was made after a long planning process that included an evaluationof subsequent risks and benefits.

A long-term and multi-actor process

Remunicipalizing water services is not an easy process. Quite to the contrary, a process ofthis type ought to include larger reforms in the public sector with the goal of improvingthe performance of the service. Nickson and Franceys (2003) make reference to the notionof new public management (NPM), a group of reforms that seek to improve performanceon the “four E’s”: efficiency, effectiveness, equity, and enabling. These reforms cannot beimplemented without a long-term planning process and multi-actor involvement.

Conclusions

This paper has aimed to analyze the process of remunicipalization of Parisian water ser-vices, including the identification of the main actors involved in the reform and its policyimplications. Although 90% of water services are managed by public authorities (Frérot2009), a considerable number of cities around the world have established water PPPs withinternational private operators. A number of these contracts have been terminated early orsimply not renewed at the end of their duration because of reasons such as national pol-icy changes, social or political conflicts, corruption scandals, or financial failure of theprojects. Once local authorities have decided to cancel or not to renew the contract, theycan choose between changing the concessionary or returning to public management. Themajority of local governments that have chosen the latter option have had to face a numberof difficulties, including negotiating with private operators the transfer of personnel, infor-mation, and technology, as well as the configuration of an efficient public model of waterservices provision.

The case study of the city of Paris is an example of how it is possible to return to publicmanagement after years of having adopted water PPPs. Nevertheless, it is important to stay

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cautious when trying to evaluate the feasibility of such a reform, considering that the choiceof a water services management model depends on several factors, such as water sources,water system characteristics, available infrastructure, the needs of the population, pricesetting, and the costs of water services. The case of Paris is unique in that the efficiencyof the water system is estimated at 96.2%, a rate much higher than that obtained by otherFrench or European cities (Barucq and Fel 2008).

The traditional debate on the benefits and disadvantages of public versus private waterservices management has evolved during the past 20 years. Two main factors have con-tributed to this situation. On the one hand, after a number of failed experiences, the earlytermination of contracts, and a number of cases of remunicipalization of water services,the long-term delegation of urban services is no longer presented as the solution for solv-ing all problems related to water services management. Furthermore, the discourse used bysome international financial institutions, such as the World Bank, promotes a “revisited”model of PPPs that is characterized by the establishment of shorter-term contracts; newfields of activity, such as irrigation services and the management of rural water supplies insmall towns; the move towards a larger number of business actors, including internationaloperators and new regional and local private operators; and finally, the involvement of theprivate sector in infrastructure projects.

On the other hand, a new political vision has taken root amongst local authorities con-cerning their own role as key actors in water services management. The Parisian localgovernment is a good example of this, since it had established a number of partnershipswith other metropolises in the water sector and was one of the founders of the first Europeanassociation promoting public water management. These initiatives are not oriented solelytowards local actors: they are the result of the participation of multiple actors, and theirscope extends to local, regional, and international levels. Indeed, the internationalizationof water services reform in the French capital, through an array of open and active publicrelations strategies conducted by the municipal government, highlights a new configurationof “local” and “international” spaces and boundaries.

AcknowledgementsI would like to thank members of the municipal government of Paris, managers at Veolia and Suez,and the experts on the subject who kindly agreed to share their opinions and knowledge with me.

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www.aquapublica.eu/ [Accessed 23 November 2011].Barraqué, B., and Le Bris, C., 2007. Water sector regulation in France [online]. CESifo DICE Report

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économiques, sociales et environnementales [online]. Available from: http://www.documentation.eaufrance.fr/entrepotsOAI/OIEAU/44/224003/224003_doc.pdf [Accessed 20February 2012].

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Conseil d’État, 2009. Assemblée du contentieux sur le rapport de la 3ème sous-section. Séance du3 avril 2009. Lecture du 8 avril 2009. N◦271737, 27178 [online]. Available from: http://www.conseil-etat.fr/fr/selection-de-decisions-du-conseil-d-etat/assemblee-du-contentieux-seance-du-3-avril.html [Accessed 20 February 2012].

Ducci, J., 2007. Salida de operadores privados internacionales de agua en América Latina. NewYork: Banco Interamericano de Desarrollo.

Eau de Paris, 2009. Provenance de l’eau [online]. Available from: http://www.eaudeparis.fr/page/provenance-de-l-eau?page_id=151 [Accessed 20 February 2012].

Europa, 2012. Council Directive 98/83/EC of 3 November 1998 on the quality of waterintended for human consumption [online]. Available from: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:1998:330:0032:0054:EN:PDF [Accessed 20 February 2012].

Frérot, A., 2009. L’eau. Pour une culture de la responsabilité. Paris: Autrement.Guérin-Schneider, L., Bonnet, F., and Breuil, L., 2003. Dix ans de loi Sapin dans les services

d’eau et d’assainissement: évolutions et perspectives du modèle de délégation à la française.Responsabilité & Environnement Annales des Mines, 31, 44–57.

Hardin, G., 1968. The tragedy of the commons. Science, 162 (3859), 1243–1248.Héritier, A., 2001. Data protection comes under the umbrella of “common goods” too [online].

Max Planck Research. Available from: http://www.mpg.de/1047678/F002_Focus_030_035.pdf[Accessed 20 November 2011].

Héritier, A., 2002. Common goods: reinventing European and international governance. Lanham,MD: Rowman & Littlefield.

Holzinger, K., 2008. Transnational common goods: strategic constellations, collective actionproblems, and multi-level provision. New York, NY : Palgrave Macmillan.

Le Strat, A., 2008. Fluctuat nec mergitur: quand Paris se réapproprie de son eau. In: A. Le Strat,ed. Manifestes pour l’eau publique. Paris: Documentation de la Fondation Copernic, Syllepse,105–116.

Le Strat, A., 2010. Paris: an example of how local authorities can regain control ofwater management [online]. Available from: http://www.tni.org/sites/www.tni.org/files/Paris%20Chapter%20by%20Anne%20Le%20Strat%20En_final.pdf [Accessed 20 November 2011].

Legifrance, 2009. Loi n◦ 93-122 du 29 janvier 1993 relative à la prévention de la corruptionet à la transparence de la vie économique et des procédures publiques [online]. Availablefrom: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=LEGITEXT000006080988&dateTexte=20090618 [Accessed 4 January 2010].

Legifrance, 2012a. Loi n◦ 82-213 du 2 mars 1982 relative aux droits et libertés des com-munes, des départements et des regions [online]. Available from: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=LEGITEXT000006068736&dateTexte=vig [Accessed 20 February2012].

Legifrance, 2012b. Loi n◦ 92-3 du 3 janvier 1992 sur l’eau [online]. Available from: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000173995&dateTexte= [Accessed20 February 2012].

Legifrance 2012c. Loi n◦ 95-101 du 2 février 1995 relative au renforcement de la pro-tection de l’environnement [online]. Available from: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000551804 [Accessed 20 February 2012].

Legifrance, 2012d. Loi n◦ 95-127 du 8 février 1995 relative aux marchés publics et délégations deservice public [online]. Available from: http://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000000350927&dateTexte= [Accessed 20 February 2012].

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Malkin, J., and Wildavsky, A., 1991. Why the traditional distinction between public and private goodsshould be abandoned. Journal of Theoretical Politics, 3 (4), 355–378.

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Nickson, A., and Franceys, R., (2003). Tapping the market: the challenge of institutional reform inthe urban water sector. New York: Palgrave Macmillan.

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Pezon, C., 2010. How the Compagnie Générale des Eaux survived the end of concession contracts inFrance 100 years ago. Water Policy, 13 (2), 178–186.

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Stefanovitch, Y., 2005. L’empire de l’eau. Suez, Bouygues et Vivendi. Argent, politique et goût dusecret. Paris: Ramsay.

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Szarka, J., 2002. The shaping of environmental policy in France. New York: Berghahn Books.Touly, J.L., and Lenglet, R., 2006. L’eau des multinationales. Les vérités inavouables. Paris: Fayard.Veolia Environnement, 2011. Our history [online]. Available from: http://www.veolia.com/en/group/

history/[Accessed 22 November 2011].

Appendix: a review of termsWhen talking about private involvement in the provision of water services, it is fundamental to dis-tinguish between water resources and water services. Water is often portrayed as a common propertygood, characterized by not being exclusive (any individual can gain access to the resource in itsnatural state) and by its characteristic of rivalry (its consumption by one individual will have an effecton that of another). This perception can be questioned, considering that, while it is true that water is anopen-access resource, water services involve economic costs to cover investments in infrastructure,technology, and qualified personnel, making water a good of limited access. In this article, waterservices refer to all the necessary stages for delivering drinking water in urban areas: watercollection, purification, stocking, distribution, sanitation, treatment, and restitution to the naturalenvironment.

As Holzinger (2008) rightly points out, a resource should not be confused with the good(s) orthe service(s) that the resource provides. Indeed, from one single resource it is possible to obtaindifferent kinds of goods and services with diverse degrees of excludability and rivalry.

These conditions of excludability and rivalry are the two main characteristics used for differen-tiating a public good from a private one in the field of economics. Samuelson (1954) distinguishesbetween ordinary private consumption goods, defined as those “which can be parceled out amongdifferent individuals”, and collective consumption goods, characterized by the fact that “each indi-vidual’s consumption of such a good leads to no subtraction from any other individual’s consumptionof that good”. His theory on determining the optimal allocation of resources in the presence of bothprivate goods and public goods is based on the idea that each individual has “ordinal preferenceswith respect to his consumption of all goods”, but in the presence of public goods, individuals do notreveal their real preferences and seek instead the highest consumption of the good without assumingthe good’s production and provision costs.

This theory is applied by Hardin (1968) to open access resources or common property resources.His main thesis is known as the “tragedy of the commons”, which occurs because individuals, asrational beings, increase the use of common goods, defined as “those goods to which there is generalaccess, and which, when utilized by one person, do not lose their use for others” (Heritier 2001), inorder to maximize the benefits while neglecting the negative costs. This situation leads to a constantdegradation of the resources, which are generally scarce.

Both authors show the importance of creating efficient mechanisms for producing and providingthese goods, as well as the inherent difficulties therein. Contrary to pure private goods, the manage-ment of common goods should be based on different forms of collective action (Holzinger 2008).Héritier (2002), taking up the work of Ostrom (1990), proposes a classification of common goodsdepending on their level of excludability (degree of access to a good) and rivalry conditions, whichrefer to the effect of one individual’s consumption on that of another: (1) public goods, characterizedby non-excludability and non-rivalry conditions; (2) common pool resources, defined as those whichare accessible to everyone, though one individual’s consumption results in the reduction of another’sconsumption; and (3) club goods or tool goods, whose characteristics are limited accessibility andrival consumption.

It is important to mention that this classification is based on an economic perspective and dif-fers from what Héritier (2002) calls the “institutional-political approach”, according to which agood should not be defined by its inherent qualities, such as the criteria of non-rivalry and non-excludability, but by a social decision. Malkin and Wildavsky (1991) state that “the distinctions

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between public and private goods are not found in nature, but are chosen by us. Thus, what is a pub-lic good in one community might be a private good in another. It is this moveable boundary betweenpublic and private that makes it essential to analyse public policy.”

Holzinger (2008) proposes three economic models to provide these goods: (1) privatization of agood’s provision, (2) intervention of the state as an “external power” capable of preventing free-riderbehaviour, and (3) a governance model, defined by Ostrom (1990) as a model built by users withoutthe intervention of an external authority.

The provision of water services is considered a public service, which means that their provisionis of public interest, or in other words, it is an activity that goes beyond private interests. Thereis no universal consensus about what a public service is, considering that its definition can greatlyvary according to the historical, cultural, economic, and political evolutions of each local context.Nevertheless, the general understanding of a public service is that certain social activities should notbe subject to the logic of the free market and to the quest for economic gains; instead, the state shouldwork to guarantee collective public access to certain specific goods (Bauby 1995). Deciding that aspecific activity constitutes a public service is a competence of public authorities, who can decidebetween public, private, community, or mixed management models.

Indeed, public authorities can deliver the public service directly or delegate its provision to apublic or a private operator. In the case of water services, public management means that the state,through local authorities, is responsible for the provision of the service. There are some cases inwhich the state decides to delegate a part or the totality of its responsibility to the community orto user associations, which is known as community or social management. Finally, water servicesoperation and provision can also be delegated to the private sector. There are different degrees ofprivate participation, going from a large diversity of PPPs to the privatization of the services.

A PPP consists of establishing contractual agreements between a public agency (national,regional, or local) and one or more private companies for the delivery of a service or the construc-tion of infrastructure. PPPs can be divided into different categories, which can involve more or lessprivate participation: divestitures, concessions, lease and management contracts, mixed-ownershipcompanies, contract services, technical assistance contracts, and a large number of contracts involv-ing the construction, financing, operation, and transfer of water facilities. In the case of privatizingservices, their ownership and operation are fully transferred to the private sector.

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A pragmatic approach to multiple water use coordination in Chile

Matías Guiloff*

Programme in Law and Environmental Policy, Faculty of Law, Diego Portales University, Santiago,Chile

(Received 16 September 2011; accepted 27 January 2012)

Critical evaluations of Chilean water regulation have stressed that it systematicallyomits any coordination of multiple uses. These assessments are valid if one looks onlyat the regulations embodied in the Water Code. Focusing on the interplay of the WaterCode and the Chilean Environmental Law, this paper argues that the EnvironmentalImpact Assessment System is a workable regulatory framework that can addresssignificant multiple-use questions.

Keywords: multiple-use coordination; institutional framework for water use; environ-mental impact assessment system; mitigation, reparation and compensation measures;minimum stream flows

Introduction

One of the dilemmas of water administration is dealing with competition resulting frommultiple water uses (Bakker 2010). Water is an important economic resource that is scarcein relation to its possible multiple uses (Perry et al. 1997), which gives rise to managementproblems that require integrated approaches (ECLAC 2003). Relevant water managementinstitutions, however, tend to be based on individual or sectoral approaches rather thanintegrated ones, which tends to generate conflicts.

Multiple uses of water are inherently conflicting because they involve the distributionof water rights within a given society (Boelens et al. 2005), and the strengths of theserights depend on the institutions that back them up – and a crucial issue is therefore whatkinds of water uses can claim what kinds of rights (Meinzen-Dick and Bakker 2000). Thisquestion cannot be answered by referring only to water rights; it will also be necessary toconsider sectoral rules that regulate them. To add further complexity to the issue, in addi-tion to sectoral rules, water uses not protected by established rights may also interact withand eventually enter into conflict with those that are already protected. Integrated waterresource management (IWRM) highlights the intimate connections between aspects thatare usually treated separately and considers the hydrographic basin the most appropriateunit for water resource management considerations (Dourojeanni et al. 2002).

Latin America has not escaped the global tendency towards integrated approachesto water management. Traditionally, the management of multiple uses of water withinLatin America has been centralized in the hands of the state (Dourojeanni 2000) and



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water resource management has been considered solely from sectoral perspectives. Morerecently, however, there has been a shift towards integrated resource management. Thistransition coexists, however, with a governance crisis, wherein the state has largely lost itsability to deal with water resource conflicts (Dourojeanni and Jouravlev 2001). Chile is agood example of this situation because of its institutional setting and the lack of instrumentsthat can effectively deal with multiple water uses.

According to various sources, such as Bauer (2004) and Dourojeanni and Jouravlev(1999), Chilean water governance has neglected a number of important issues, such as theimpact of water markets on social equity and environmental sustainability; the managementof hydrographic basins; and the coordination of multiple uses and conflict resolution. Someof these weaknesses were partially addressed in amendments to the Water Code in 2005,although neither the coordination of multiple uses nor IWRM gathered sufficient politicalsupport to appear in the Code. There are, however, other laws that provide mechanismsfor coordinating multiple water uses in Chile – especially the General Environmental Law(Ley de Bases Generales del Medio Ambiente, hereafter Environmental Law).

The present paper proposes that given the concept of environment adopted in thislaw, the Environmental Impact Assessment System provides alternatives to addressmultiple-use coordination through mitigation and compensation measures. To support thatcontention, the first section of the paper describes the context in which both the WaterCode and the Environmental Law act. The second section deals with two aspects of theEnvironmental Law: the concept of environment and the regulation of mitigation, com-pensation, and reparation measures. The third section demonstrates how mitigation andcompensation measures can address multiple water use coordination using two examples:minimum stream flow requirements and a recent judicial ruling regarding compensationmeasures. The article finishes with some concluding thoughts.

The economic constitution and the institutional framework of water use

The legal framework of Chilean water resources has fascinated scholars. As Carl Bauerobserved, it is a textbook example of the application of the Chicago approach to institu-tional design and economic regulation (Bauer 2002). Such a framework cannot, however,be completely understood without first looking at Chile’s political and institutional archi-tecture as set forth in the Constitution of 1980, which was established only one year beforethe Water Code (Chilean Constitution 1980). In brief, the Chilean Constitution is uniquein its establishment of an economic constitution – a more or less detailed regulation of theeconomy, including the design of the institutions and political processes related to it, withdescriptions of fundamental rights enforceable in courts. Water has its place within the fun-damental rights chapter in terms of water rights that are acquired or recognized by the lawand protected through the right to property. All of the rights of the economic constitutionare backed by both procedural and substantive protections.

In terms of procedural protections, some of the rights contained in the fundamentalrights catalogue (including all of those embodied in the economic constitution) can only beregulated through statutes, and the administration is not allowed to issue regulations regard-ing the rights of the economic constitution unless it has received statutory authorization todo so. As such, the Constitution of 1980 not only guarantees economic liberty by entrench-ing a series of fundamental rights, but also constrains the possibility that their regulationcould be altered through administrative discretion without statutory authorization.

And how does this framework affect water regulation? First of all, as was already indi-cated, water rights are included within the realm of constitutional right to property, and

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therefore protected both procedurally and substantively. Additionally, and congruent withthe fundamentals of institutional design and economic regulation of the Chicago School,the agency that directly deals with water regulation and management – the General WaterDirectorate (hereafter, GWD) – has very little authority (Vergara 1998). Moreover, con-sidering all of the aforementioned constraints, the agency has few incentives to approach,let alone extend, the boundaries of its legal authority.

As such, the agency can do relatively little regarding situations that have not beendirectly addressed by the Water Code, namely social equity, sustainability, coordination ofmultiple uses, and conflict resolution (Donoso et al. 2004). Multiple water use coordinationand conflict resolution therefore depend on private-party bargaining – a practical applica-tion of Coase’s theorem (Bauer 2004). Should bargaining not resolve the problem, theconflict is presented to the GWD, which, being careful not to blur the limits of its author-ity, issues a formal regulation that does not address the substantive problem and directs itsresolution to the judiciary. The courts, in turn, by issuing very general and formal rulings,avoid intervening in the matter, thus leaving the substantive issue undecided. In such asystem, conflict resolution is left in a vacuum that is ultimately filled by those with moreresources and greater political push (Bauer 2002).

Naturally, an adequate response to this situation would be to address it throughlegislation. Such an institutional device is not available, however. The 2005 amendmentsto the Water Code did not address multiple water use coordination and conflict resolution,notwithstanding that the bill was considered by Congress for 13 years. This issue was, infact, part of the original bill presented by the Executive, but due to opposition from vari-ous stakeholders it was rapidly eliminated from the bill. In the presidential election contestof January 2010, the outgoing administration presented a bill purporting to amend waterrights regulations in the Constitution. The bill’s purpose was to balance the relationshipbetween the regulatory competencies of the government and private water rights. Not sur-prisingly, when the new governmental coalition entered into office a few months later, itquickly declared that the bill would not be endorsed.

Although not much has changed in terms of the framework of water use administra-tion in Chile, after the amendments of 2005, environmental concerns slowly began to gainconsideration, especially with the approval of minimum stream flows, granting authorityto the GWD to protect natural river beds and to require the establishment of a networkof standardized quality controls. However, issues concerning social equity, sustainability,multiple water use coordination, and conflict resolution are still unresolved. Within thiscontext, it is valid to inquire whether there are other institutional arrangements that mightsomehow address, at least in part, some of these concerns. The next section will try todemonstrate how the Environmental Impact Assessment System (which is concerned withwater rights when they are involved in investment projects that may have adverse effectson the environment) might fill this vacuum.

The environmental framework

The (broad) concept of environment in the Environmental Law, and its implications

In 1994, the Environmental Law established the first systematic environmental regulationsin Chile (General Environmental Law 1994). These statutes presented a set of relevant defi-nitions on the subject, as well as certain environmental management instruments, includingthe Environmental Impact Assessment System and Quality and Emission standards. Oneof the most important definitions was of what was to be understood as “the environ-ment” in the Chilean legal system: “the global system constituted by natural, artificial and

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socio-cultural elements of physical, chemical, or biological nature and their interactions,that rules and conditions life’s existence and development in its multiple conditions, inpermanent modification by human or natural action” (Article 2, Letter 11).

It is easy to see that this definition is quite broad; it encompasses not only naturaland artificial elements of diverse natures, but also socio-cultural ones. Such broadnesscan be reasonably narrowed, however, by giving weight to the last part of the definition:it is only that complex of natural, artificial and socio-cultural elements which rules andconditions life’s existence and development in its multiple conditions that is relevant withinthe Chilean framework (Bermúdez 2007). Therefore, while it is true that the elements ofthe definition are quite broad, they are relevant for the purposes of the definition only ifthey have the virtue of ruling and conditioning life’s existence and development in itsmultiple conditions. Natural, artificial and sociocultural elements that do not have thatvirtue, consequently, are outside of the scope of the definition.

Regardless of the mentioned distinctions, the definition has been criticized for itsbroadness with the claim that everything turns out to be environment. In practical terms,according to the supporters of this definition, environmental assessments of investmentprojects must consider, in addition to strictly environmental consequences, those affectingcommercial, work, occupational health, socio-cultural, and archaeological aspects (Lavín2006). The presentation of draft amendments to the environmental institutional frameworkin 2008 provided Congress with a unique chance to get its hands on such a definition.This issue, however, notwithstanding pleas by some critical voices (Sierra 2008), was notaddressed by the legislature before the law bill was approved.

Why is such a definition relevant to the subject of water rights? Because it concernsthe interaction of elements and it is related to other definitions set forth in the law thatare crucial to exercising water rights, such as “environmental impact” and “environmentalimpact assessment”. The first is defined as any environmental alteration caused directly orindirectly by a project or activity in a determined area. The second definition, in terms of theaspects relevant to this article, states that it is the procedure that, based on an environmentalimpact study or declaration, determines whether or not a project’s impact is within therange of the existing legal standards.

Accordingly, the exercise of water rights within an investment project that affectsthe environment must be authorized by an environmental license issued through theEnvironmental Impact Assessment System, and the Environmental Law maintains two listsfor this purpose: one concerning activities that can only be developed with an environmen-tal impact statement, and another that enumerates certain situations that would trigger therequirement of an environmental impact study. Among the situations on the second list, theone most relevant for the purposes of this paper concerns adverse effects on the quantityand quality of renewable natural resources such as soil, water, and air.

The assessment of any such adverse effects would be with reference to the broadconcept of “the environment” established in the Chilean Environmental Law. In addi-tion to presenting an environmental impact study, any project that could affect thequantity or quality of water must consider establishing adequate mitigation, reparation,and compensation measures. Thus, in order to comply with the requirements of theEnvironmental Impact Assessment System, an investment project that uses previouslyacquired water rights must demonstrate that it has established mitigation, compensa-tion, or reparation measures adequate for dealing with the effects it will produce on theenvironment.

An important qualification must be made at this point: Only new activities that are listedin the law are required to obtain environmental licenses. Therefore, and this is important for

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the thesis of this paper, the Environmental Impact Assessment System does not considerall of the possible uses of water. Since most of the water in Chile is used for agriculturalpurposes, which are not listed in the law, a huge part of water use does not even enter intothe Environmental Impact Assessment System. Other activities, however, such as mining,hydroelectric dams, and wastewater plants are listed and require environmental licensing.Because these activities use water intensively, they have strong impacts on alternative uses.

In sum, the Chilean Environmental Law establishes a broad definition of the environ-ment, encompassing not only natural and artificial elements, but socio-cultural componentsas well. Although the statute was quite recently modified in several respects, the defini-tion of “the environment” was not amended, which makes it possible to assume that itwill remain as it is for some time yet. This definition has implications for others set forthin the same statute – especially environmental impact and environmental impact assess-ment. These definitions will, in turn, condition the exercise of water rights in investmentprojects that could significantly affect the environment by obliging them to demonstratethat they have established adequate environmental mitigation, compensation, or reparationmeasures.

Mitigation, reparation, and compensation measures

The Environmental Law does not define what is to be understood by measures of mit-igation, reparation, and compensation. Their definitions are, instead, outlined by theadministrative regulations of the Environmental Impact Assessment System (Governmentof Chile, 2001). These measures are, nonetheless, mentioned in the Environmental Lawregarding the approval or rejection of environmental impact studies. The rule at issueestablishes that environmental impact statements shall be approved if they comply withthe environmental regulations and also if they propose adequate mitigation, compensation,or reparation measures for purposes of internalizing the effects, characteristics, or circum-stances that the project or activity will produce on the environment (General EnvironmentalLaw 1994).

The administrative regulations regarding the Environmental Impact AssessmentSystem provide, in turn, that mitigation measures are those that seek to avoid or dimin-ish any adverse effects of a project or activity, regardless of its execution phase. Thesekinds of measures must be expressed in a mitigation measures plan. The purpose of repara-tions or restoration measures is to restore one or more environmental elements to previousquality levels; or, in case that is not possible, to at least re-establish their basic properties.Such measures are to be laid out in a reparation or restoration plan. Lastly, compensationmeasures are designed to produce or generate an alternative positive effect that is equiva-lent to a previously identified adverse effect, and they must be detailed in a compensationplan. The regulations contain indications (albeit only in generic form) of measures thatshould be contained in the respective compensation plans for all but reparation measures(Environmental Impact Assessment Regulations 2001/95).

As can be inferred from the above description, there is an order of precedence amongthose measures, and should a project or activity produce adverse effects on the environ-ment, it must first try to mitigate those effects. If that is not possible, it must repair orrestore – provided the alterations are reparable or restorable. Should those two alternativesnot be possible, compensation is demanded (Leyton and Vergara 2003). The administra-tive regulation of the Environmental Impact Assessment System provides that, in order tobe acceptable, compensation must be equal to the harm and must be applied in the sameregion where the adverse or significant effects will be produced.

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That is all that the Environmental Law and the complementary administrative regu-lations of the Environmental Impact Assessment System stipulate concerning mitigation,reparation, and compensation measures – the rest is left to the discretion of the environmen-tal authority in charge of managing the Environmental Impact Assessment System. As willbe demonstrated in the next section, this discretion is a powerful tool for the purpose ofcoordinating multiple uses in the exercise of water rights.

Multiple water use coordination devices within the Environmental ImpactAssessment System

Mitigation measures: minimum stream flow requirements

Minimum stream flow requirements derive from two sources in Chile. The first is the WaterCode, which, since the 2005 amendments, orders the GWD to establish minimum streamflows each time it establishes a new water right (Water Code 1981). For the purposes ofthe Water Code, this has been defined as the minimum flow that rivers must have in orderto maintain the existing ecosystems and preserve ecological quality (Government of Chile2007). For the water authority, then, minimum stream flows serve the purpose of protectingexisting ecosystems.

But there is another source that demands the establishment of minimum stream flows:the requirement of mitigation measures within the Environmental Impact AssessmentSystem. While there are no express legal provisions or administrative regulations withinthis system that demand the establishment of minimum stream flows, in practice, minimumflows are considered adequate mitigation measures for internalizing the adverse effects thata project will produce on the environment, specifically on the quantity and quality of water(Díaz 2009).

Water Code and Environmental Impact Assessment System requirements for streamflow apply at different moments, because, as a general rule, water rights are granted with-out reference to a specific and mandatory use. While water rights petitions must indicatethe purported use in order to justify the required quantity, once the right is granted, suchdeclarations are not obligatory for the owners (Jaeger 2010). Therefore, it is reasonable todemand minimum stream flow requirements once the specific nature of the use is deter-mined. Consider the following hypothetical situation. A private party is granted waterrights and a few years later sells them to a mining company. It is (hypothetically) obvi-ous that the minimum stream flow required from a mining project should be quite differentfrom that required for a different use. Minimum stream flows within the EnvironmentalImpact Assessment System are established with reference to the precise use that will begiven to the water rights. This makes a great deal of difference to both sources of min-imum stream flow requirements for multiple water use coordination purposes: only byknowing the precise use that will be given to a water right is it possible to coordinate it withothers.

Additionally, to reinforce the case for minimum stream flow requirements as a multiple-use coordination device, its definition for the purposes of the Environmental ImpactAssessment System must be considered. The definition of minimum stream flow not onlyconsiders the preservation of ecological quality but also has the objective of prevent-ing alterations in the dynamics and functioning of the ecosystem (Handbook of rulesand procedures of the Conservation and Water Resources Protection Department of theGeneral Water Directorate). The inclusion of this protection as a criterion in determin-ing the establishment of minimum stream flows enables this instrument to indirectly serveother purposes that will protect the ecological quality of water.

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From the perspective of an environmental framework, the mandate for the preservationof the dynamics and functions of an ecosystem allows this instrument to be used to pro-tect against significant adverse environmental effects beyond those that refer only to water,such as tourism or the landscape itself (Diaz 2009). For example, tourism is one of the mul-tiple uses that can be assigned to water resources. Hence minimum stream flow within theEnvironmental Impact Assessment System can be used to protect water uses for tourism.

Compensation measures: the case of Aguas Andinas versus the Santiago RegionalEnvironment Commission

A recent case illustrates the way in which compensation measures in the EnvironmentalImpact Assessment System can address multiple-use coordination of water resources.On 1 April 2009, the Santiago Regional Environment Commission (hereinafter REC) –the organization which was granted, by the Environmental Law, authority to approve orreject Environmental Impact Assessments – approved the study of the “100% Treatment ofthe Santiago Basin” project proposed by Aguas Andinas. The project consisted of buildinga wastewater treatment plant to clean all the waters of the Mapocho River basin in Santiago.The agency’s decision imposed compensation measures on the company, requiring AguasAndinas to deliver the water treated by the new plant to downstream farmers without costand to build at the company’s expense the necessary irrigation facilities.

The compensation measures at stake were determined by the agency to deal withadverse effects on the water. Its objective, as expressly declared by the agency in the deci-sion that approved the project, was to maintain the situation that existed before the plant’sapproval. The project was therefore approved on the condition that it avoid affecting thewater flow captured by seven downstream canals that were used for irrigation purposes.However, in order to fulfil that obligation, it would be necessary to build an irrigationnetwork. Remarkably, the agency ordered that the cost of that project was to be assumedby Aguas Andinas. Thus, through the compensation measure at issue, the environmentalauthority addressed multiple water use coordination to the extent of imposing burdens onupstream users in order to protect downstream needs.

Naturally, these conditions were resisted by the company, which argued that because itheld consumptive rights it could dispose of the water at will. Aguas Andinas therefore chal-lenged the REC decision and presented a protection writ to the Santiago Appeals Court.The plaintiffs argued that the decision adopted by the agency was an abuse of its legalauthority. Such action, Aguas Andinas contended, forced them to deliver without compen-sation water that was their property, infringing their fundamental right to hold propertyand to develop a lawful economic activity. Consequently, Aguas Andinas asked the Courtto repeal this compensation measure.

In its brief, the agency defended the legal character of this decision by arguing that itwas adopted within the bounds of its authority. The agency also argued that its decisionwas not arbitrary, for it regarded the exercise of a discretionary attribute, the technicaladequacy of which was completely supported by the record. Lastly, as to the allegedlyaffected fundamental rights, REC argued that they were not affected, for the EnvironmentalImpact Assessment System was approved precisely as a specific restriction of those rightsfor the sake of protecting the right to live in an unpolluted environment.

In its ruling, the court began by stating that the environmental authority has a duty toprotect the environment. Next, it argued that the agency, for the purposes of fulfilling thisobligation, had the authority to establish mitigation, reparation, and compensation mea-sures. The court then declared that the exercise of the agency’s discretionary attribution

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was completely supported by the record. The Court consequently ruled against the plain-tiffs, affirming the legality and constitutionality of the agency’s compensation measures(Appeals Court of Santiago 2009/6312).

As in most countries with a Continental law tradition, court rulings in Chile are notbinding and have only persuasive force. Nevertheless, the court’s reasoning in this casehighlighted some important policy points. First of all, it showed that, in spite of its project-by-project nature, the Environmental Impact Assessment System can address multiplewater use coordination questions. Secondly, and most importantly, it revealed that thecourts were willing to give deference to the administration when, in exercise of its dis-cretionary attributions, it addresses conflicts between private and public interests. It mightbe argued that the alleged public interests were those of farmers and that what was reallyat stake, on both sides, was the question of private interests. Though the point has somemerit, it can be disputed, because the alignment of private and public interests in this casedoes not change the nature of the problem, which is ultimately to address coordination ofthe multiple uses of a public resource.

Concluding thoughts

The Chilean regulatory framework will have to deal with the coordination of multipleuses, which will only become more troublesome with increasing demands for water. Twoapproaches are possible: leaving the issue to market forces, or finding a way to protectaffected public interests. Considering that the second option is the most reasonable, thisarticle shows that the means of enabling it exist in the establishment of mitigation andcompensation measures within the Environmental Impact Assessment System.

This would represent a framework specifically tailored for taking into account the inter-actions of diverse elements. It might be criticized for its case-by-case logic and because itis not applicable to all situations involving multiple water use coordination. But this criti-cism just highlights the problem, for a general regulation simply does not exist within theWater Code framework. Additionally, the proposed device applies to those water resourcesuses that have significant effects on alternative uses.

As the cases of minimum stream flow within the Environmental Impact AssessmentSystem and that of the wastewater treatment plant show, the Environmental Law grantsdiscretionary authority to the agency for determining measures to deal with the effectsof any project or activity. The Environmental Impact Assessment System, as the respon-dent’s brief argued, was conceived precisely as a legitimate restriction of the fundamentalright to property and of the right to develop an economic activity. This reasoningis crucial within a country such as Chile in which economic rights are broadly pro-tected. Consequently, the court, notwithstanding claims of infringements of economicrights, had good reasons to affirm the measures determined by the environmentalauthority.

Moreover, the approval of the Environmental Impact Assessment System as a specificrestriction on economic rights has important consequences for the exercise of water rights.As a general rule, the owner of consumptive rights can use the entire amount of the waterresources in question, thus impeding other uses. From a Continental law perspective, thisis the exclusiveness attribute that normally is recognized with regard to property rights.Compensation, mitigation, and reparation measures determined within the environmentalimpact assessment can, as in the case of Aguas Andinas, constitute an exception to thisexclusiveness. This exception can be used to force efficient use of water resources by theowner of the consumptive rights, to ensure that they will be available for alternative uses,

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and to oblige the owner of consumptive rights to respect previously existing downstreamuses. Compensation measures can therefore be used by the environmental authority as apowerful tool for conflict resolution of multiple uses of water resources. This is a remark-able development in a country where the water authority has not explicitly been grantedsuch powers.

These arguments, of course, do not mean that the institutional framework of waterresources should not be amended. The best way to address multiple water use coordinationand other shortcomings of this framework is precisely through general regulations andinstruments. However, it is improbable that amendments with this objective will be ratifiedin Chile in the near future. Therefore, the challenge for both policy makers and scholars isto activate mechanisms within the existing framework to address these important issues.

ReferencesAppeals Court of Santiago, 2009. Appeals Court of Santiago ruling 2009/6312.Bakker, C., 2010. Privatizing water: governance failure and the world’s urban water crisis.

New York: Cornell University Press.Bauer, C., 2002. Contra la corriente. Privatización, mercados de aguas y el Estado en Chile.

Santiago: LOM Ediciones/Fundación Terram.Bauer, C., 2004. Canto de Sirenas. El derecho de aguas chileno como modelo para reformas

internacionales. Bilbao: Fundación nueva cultura del agua/Bakeaz.Boelens, R., Dourojeanni, A., and Hoogendam, P., 2005. Improving water allocation for user

communities and platforms in the Andes. In: B.R. Bruns, C. Ringler, and R. Meinzen-Dick,eds. Water rights reform: lessons for institutional design. Washington, DC: International FoodPolicy Research Institute. Available from: http://www.bvsde.paho.org/bvsacd/cd47/wreform.pdf[Accessed 6 December 2011].

Bermúdez, J., 2007. Fundamentos de Derecho Ambiental. Valparaíso: Ediciones Universitarias deValparaíso.

Chilean Constitution, 1980. Available from: http://www.leychile.cl/Navegar?idNorma=242302[Accessed 26 January 2011].

Díaz S. I., 2009. Algunos comentarios relativos al régimen jurídico ambiental de proyec-tos hidroeléctricos [online]. Available from: http://www.achidam.cl/documentos/Articulo%20Proyecto%20Fondecyt%20Ignacio%20Diaz%20Sahr.pdf [Accessed 6 December 2011]

Donoso G., et al., 2004. Mercados de (derechos) de agua: experiencias y propuestas en Américadel Sur [online]. Natural Resources and Infrastructure Series No. 80. Santiago: ECLAC.Available from: http://www.eclac.org/publicaciones/xml/8/20578/lcl2224s.pdf [Accessed26 January 2011].

Dourojeanni, A., 2000. Water allocation among competing uses with a basin perspective. In:Second World Water Forum, March 2000, The Hague. Available from: http://www.iwmi.cgiar.org/Assessment/files/Synthesis/River%20Basins/water_alllocation%20competitive%20use%20Axel.pdf [Accessed 6 December 2011].

Dourojeanni, A., and Jouravlev, A., 1999. El Código de Aguas de Chile: entre la ideología y la real-idad [online]. Natural Resources and Infrastructure Series No. 3. Santiago: ECLAC. Availablefrom: http://www.eclac.org/publicaciones/xml/5/4465/lcl1263.pdf [Accessed 26 January 2011].

Dourojeanni, A., and Jouravlev, A., 2001. Crisis de gobernabilidad en la gestión del agua (Desafíosque enfrenta la implementación de las recomendaciones contenidas en el capítulo 18 delPrograma 21). Natural Resources and Infrastructure Series No. 35. Santiago: ECLAC. Availablefrom: http://www.eclac.cl/publicaciones/xml/3/9183/lcl1660PE.pdf [Accessed 6 December2011].

Dourojeanni A., Jouravlev, A., and Chávez, G. 2002. Gestión del agua a nivel de cuencas: teoríay práctica [online]. Natural Resources and Infrastructure Series No. 47. Santiago: ECLAC.Available from: http://www.eclac.cl/drni/publicaciones/xml/5/11195/lcl1777-P-E.pdf [AccessedDecember 6 2011].

Economic Commission for Latin America and the Caribbean [ECLAC], 2003. Latin America andthe Caribbean preparatory process for the twelfth session of the Commission on sustainabledevelopment effective water governance in the Americas: a key issue [online]. LC/IN.138.

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Santiago: ECLAC. Available from: http://www.eclac.org/publicaciones/xml/8/13898/lci0138e.pdf [Accessed 6 December 2011].

General Environmental Law, 1994. Ley de Bases Generales del Medio Ambiente 1994 (c. 1).Available from: http://www.leychile.cl/Navegar?idNorma=30667 [Accessed 26 January 2011].

Government of Chile, 2001. Environmental Impact Assessment System Regulations 2001/95(Reglamento del Sistema de Evaluación de Impacto Ambiental). Available from: http://www.sinia.cl/1292/articles-37936_pdf_reglamento_seia.pdf [Accessed 26 January 2011].

Government of Chile, 2007. General Water Directorate. Handbook of rules and procedures.Conservation and Hydric Resources Protection Department of the General Water Directorate.

Jaeger, P., 2010. Caudales ecológicos mínimos y proyectos hidroeléctricos. In: V. Durán et al., eds.Derecho Ambiental en tiempos de reforma. Santiago: Abeledo Perrot Legal, 219–230.

Lavín, J., 2007. El SEIA: Visión crítica a 10 años de su vigencia [online]. Serie enfoco No. 95. Expansiva. Available from: http://www.expansiva.cl/media/en_foco/documentos/11102006103117.pdf [Accessed 26 January 2011].

Leyton, P., and Vergara, J., 2003. Compensación de recursos naturales en el ordenamiento jurídicoChileno. Revista de Derecho Ambiental, 1, 97–117.

Meinzen-Dick, R., and Bakker, M., 2000. Water rights and multiple water uses: framework and appli-cation to Kirindi Oya irrigation system, Sri Lanka. Environment and Production TechnologyDivision Discussion Paper No. 59. Washington, DC: International Food Policy ResearchInstitute.

Perry, C.J., Rock, M., and Seckler, D., 1997. Water as an economic good: a solution, or a problem?[online]. Colombo, Sri Lanka: International Irrigation Management Institute. Available from:http://irre.eng.kps.ku.ac.th/IIMI%20Papers/report14.pdf [Accessed 6 December 2011].

Sierra, L., 2008. Reforma a la institucionalidad ambiental: desafíos y oportunidades [online].Estudios Públicos, 111 (Winter), 57–102. Available from: http://www.cepchile.cl/dms/lang_1/doc_4238.html [Accessed 26 January 2011].

Vergara, A., 1998. Estatuto jurídico, tipología y problemas actuales de los derechos deaprovechamiento de aguas en especial, de su regularización y catastro [online]. EstudiosPúblicos, 69 (Summer), 155–205. Available from: http://www.cepchile.cl/dms/lang_1/doc_1656.html [Accessed 26 January 2011].

Water Code, 1981. Available from: http://www.leychile.cl/Navegar?idNorma=5605 [Accessed 26January 2011].

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Hydroelectric power generation in Chile: an institutional critique ofthe neutrality of market mechanisms

Manuel Prietoa,b* and Carl Bauera

aSchool of Geography and Development, University of Arizona, Tucson, USA; bEscuela de Derecho,Universidad Diego Portales, Santiago, Chile

(Received 31 January 2011; final version received 29 September 2011)

This paper presents an institutional analysis of hydropower development in Chile,focusing on the main legal institutions involved and relevant jurisprudence.Hydropower expansion took place within a neoliberal institutional framework imposedby the military government (1973–1990) that included reforms in both the water andelectricity sectors. One of the stated purposes of these reforms was to remove ideologyfrom both water management and electricity generation and ensure the neutrality ofthe state. The paper argues that the security of property rights for hydropower activi-ties is not value-neutral but sustained only through marginalizing other water rights andinterests, such as in-stream uses.

Keywords: Chile; water rights; water conflicts; hydropower; neoliberal reforms

Introduction

Like other sectors of the Chilean economy, hydropower has been managed under thefree-market neoliberal model imposed by the military government (1973–1990) throughwater reform (1981) and electricity reform (1982). One of the main arguments behindthe neoliberal reforms was the need to remove the ideological content from both watermanagement and electric generation so that markets can act naturally, neutrally, and there-fore apolitically in pursuit of an efficient allocation of resources. The paradox is that thisargument is itself highly ideologized, and ignores the institutional frameworks of markets.

In this context, two points emerge that require a review of the major aspects of theChilean hydropower model. First, in spite of the rich literature on institutional economicsof water (Bromley 1985, 1989, Aguilera 1999), the political, legal, and judicial contexts areoften ignored by the orthodox analyses of the Chilean case (with some exceptions such asBauer 1998a, 2004, 2009, Budds 2004). As a consequence, these views present the Chileanmodel as a neutral or apolitical system with respect to the allocation of water resources andthe generation of electric power (e.g. Bernstein 1991, Blanlot 1992, Büchi 1993, Hearneand Easter 1995, Jadresic 1997, Vergara 1997, Briscoe et al. 1998, del Sol 2002, Donoso2003).

Second, privileging hydropower over other water users flies in the face of theinternational mantra of “integrated water resources management.” Privileging it over other



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132 M. Prieto and C. Bauer

sources of power also gives it an artificial dominance within the power grid (Bauer 1998a,2009).

The main purpose of this paper is to present a general perspective on the Chilean insti-tutional framework for hydropower, questioning the supposed neutrality of the orthodoxperspectives on Chilean water and power reforms, and emphasizing the institutional linksbetween the two sectors, which orthodox perspectives do not consider. The next two sec-tions describe the broader context, first by reflecting on the role of an institutional approachon private property and its allocation. This perspective shows how the institutional contextsdefine the features of property rights and the efficiency of their distribution, rather thanthose rights having a natural definition (Bromley 1985, 1989), with their allocation deter-mined by self-regulating markets. We then look at how the Chilean model for managingwater and power generation is deeply rooted in a specific ideology about economics anddistributive justice. The third section gives an overview of the Chilean water model andexplains how it conceives of the appropriation of fresh water and river basins in order tofacilitate their transformation into hydropower. Special attention is given to the relevantaspects of the water code of 1981 (Chile 1981) and the General Law of Electricity Services(Ley General de Servicios Eléctricos, LGSE) of 1982 (Chile 1982). The final section dis-cusses three other examples of institutional preferences for hydropower: conflict resolutionand the juntas de vigilancia; the national environmental impact assessment system; andjudicial decisions and performance.

The analysis leads to the conclusion that in Chile, fresh water is not allocated naturallyby apolitical markets; rather, the institutional framework determines that water should flowtoward specific extractive uses and privileges hydropower generation. Consequently, thesecurity of private property for specific water uses, and for developing specific industrialactivities, exists only at the cost of other private property rights and other interests that arenot recognized as having such rights.

The institutional approach to property and markets

Neoliberal justification of private property basically supposes, first, that private propertyallows an efficient internalization of externalities, which is difficult under a model ofcommunal ownership because it involves large transaction costs (Demsetz 2002). Second,state planning models are inefficient because the state lacks information for the efficientallocation of resources, in contrast to a system of market prices, which gives the correctinformation to individuals for efficient resource allocation (von Mises 1951). The ideais that efficiency theoretically appears as an automatic effect caused by the valorization ofgoods through price signals. These prices, emerging from the individual decisions involvedin transactions of private property within unplanned markets, provide the right economicincentive to encourage the movement of resources from lower- to higher-value uses (Coase1960). In addition, the market is naturalized as a spontaneous order that does not requireany central decision for its existence (Hayek 1966).

In light of this perspective, there emerges an orthodox approach to markets whichsees them as spontaneous platforms on which goods are traded following the law ofsupply and demand. Through this phenomenon, the value of the goods is fixed apo-litically by a price system, which provides the right information for neutral allocation.However, from an institutional perspective, this theoretical idea falls from its abstractdimension and acquires an institutional body through social arrangements that determinethe role of markets and private property in efficient allocation (Bromley 1985, 1989).Those arrangements decide the specific nature of market institutions and private property.

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Thus, individual decisions that fix value through prices in markets are limited by the val-ues embedded within institutional definitions of property and the “rules of the game”that regulate its interchange. Consequently, “efficiency” will depend on those institu-tional arrangements, rather than on the supposedly natural rules of markets, property, orspontaneous order.

Private property can be understood as an institution for allocating scarce resources, andit involves rules for governing access and control of those resources under the suppositionthat resources can be divided as discrete entities and individually assigned to some partic-ular person, who can exclude another person with respect to the object (Waldron 1988).But this general concept of private property will emerge within particular legal systems, asparticular bundles of rights, liberties, powers, and duties. Therefore, those specific institu-tional arrangements determine the efficiency of the distribution and also who is benefitedand who suffers the cost (Bromley 1985, 1989).

These ideas are extremely important to understanding the Chilean hydropower model.In this model, both water and power institutions have been seen as based on a neutraland apolitical system for the efficient distribution of water and power generation. From aninstitutional approach, however, we can see how the political-ideological, legal, and judicialarrangements of the water and power institutions shape particular conceptions of propertyrights with regard to water and river basins. These particular conceptions will allow abroader comprehension of how water and river basins are appropriated for transformationinto electricity, who is benefited, and who suffers the cost.

Ideological background of the Chilean model1

On 11 September 1973, the Chilean military forces staged a coup d’état against thesocialist government (1970–1973) of Salvador Allende. As a response to the egalitarianpolicies of Allende, the military and their civilian advisors and supporters developeda revolutionary economic project. For decades before the coup, the Chilean state wasthe main engine for economic development (including electricity and water) and alsothe regulator of social inequities. This state centralism was radicalized by Allende’sgovernment. The highly egalitarian and inclusive policies strengthened the dominant roleof the state in the economy and weakened private property rights, which generated areaction in centrist and right-wing political sectors, where it was claimed that Allende’sgovernment had ideologically influenced national institutions to the point where militaryintervention was necessary and justified.

The first aim of the military government was to exterminate, by a military logic, theMarxist doctrine (Brunner 1981). The new government considered that the economicand institutional situation was in crisis. That perception was based on neoliberal ideasof freedom, efficiency, and state failure: (1) the state had exerted a high discretionarypower in both production and distribution; (2) this discretionary power had been influ-enced by interest groups, and consequently (3) the economy had been ideologically altered,(4) efficiency had been not maximized, and (5) freedom had been threatened. Accordingto this perception, the military government developed a foundational project that led toa total renovation of political and social institutions (Vergara 1985). In brief, this pro-cess aimed to erase the egalitarian/statist model by articulating an overarching neoliberaleconomic model.

This model was institutionally realized through the following elements: (1) privatiza-tion of economic activities, (2) limitation of state economic regulation, (3) strengthening ofprivate property rights, (4) openness to the international economy, (5) freedom in pricing,

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and (6) free functioning of markets (Vergara 1985, Foxley 1995). All these elements wereraised to the level of legal axioms in the Chilean Constitution of 1980, which explicitlylimited the state’s role in economics and reinforced the right to private property and thefreedom to pursue economic activities. Thus, neoliberalism had been constitutionalized(Bauer 1998a, 1998b, Ferrada Bórquez 2000), and consequently sectoral reforms (e.g. inwater and power) and the role of court decisions were reorganized by these revolutionaryfeatures.

The institutional framework of hydroelectric generation

Comprehensive neoliberal reform required a series of sectoral modifications in orderto modify the entire previous statist economic model. In the words of Hernán Büchi(Pinochet’s minister of finance, 1985–1989), “In Chile there had to be . . . a completesweep within all the sectors of the economy to remove the statist weed. That was what gavethe Chilean economic revolution so much significance, range and depth” (Büchi 1993,p. 64).

Because hydropower generation is an economic activity managed under legal frame-works for both water and power, its management experienced major changes within the neweconomic model. On the one hand, the new water code of 1981 would manage water as afull commodity, susceptible to being traded in the market among different users for powergeneration. On the other hand, this activity would be regulated by the new electric law(LGSE), to generate free competition among generators. Both sectors were reformed intoa highly private, market-based system to ensure political freedom and maximize efficiencyin water allocation and electricity production.

The water code of 1981

The new water code of 1981 created a model based on a radical expression of the neoliberalidea for managing natural resources. Because of its highly dogmatic approach, the newcode is considered a “textbook example” of a market-based system for managing water(Bauer 2004). The simplistic description of this model led many economists and waterexperts from the World Bank and the Inter-American Development Bank to present it asa successful model for international water reforms (Bauer 2004); it was also presented asa successful case of “free market environmentalism” (Anderson 1991, Anderson and Leal2001).

To guarantee the idea of political freedom, the underlying concept was based on theneed for an efficient allocation of water resources that would be ideologically neutral andnot controlled by the state. The main argument behind the promotion of this model was theassumption that under a free-market system, the resource would be used efficiently as longas its market value promoted investment, productivity, and a flow toward its highest-valueuse.

To put this logic into action, a system was installed which created private propertyrights and the exclusive right to use water, with explicit constitutional protection. In addi-tion, these rights can be freely traded separately from land, which constitutes water as afully marketable commodity. In this context, the Water Directorate (Dirección General deAguas, DGA) plays the reduced role of granting the original allocation of water rightswhenever there is enough water available in the basin and other minimal requirementsdemanded by law are fulfilled. The agency does not have authority to plan or to resolveconflicts.

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Two kinds of water rights

In an ideal free-market water system, there could be no state planning. Instead, water wouldbe allocated according to its highest value, through individual decisions adopted withinself-regulating markets. This is exactly what the Water code tries to do, without imposingspecial legal rules to determine preferences among different water uses (Bauer 1998a).However, the water code does make a crucial distinction between two kinds of water rights,an institutional definition that determines the destiny of water markets and water allocation:consumptive water rights and non-consumptive water rights. While the former authorizesthe extraction of water for activities that imply its consumption (e.g. mining, irrigation,and urban uses), the latter allows water’s use with the obligation to return it to the stream.This is a way to encourage multiple uses of water (Bauer 1998a, 2004, Dourojeanni andJouravlev 1999).

Although the water code does not make explicit the use of non-consumptive waterrights for hydroelectricity (Bauer 1998a), it can be concluded that the objective of creatingnon-consumptive water rights was to encourage hydropower without violating the existingdownstream consumptive water rights. This idea is confirmed by statistics that show thatnearly all non-consumptive water rights are used for the generation of electricity (Peña1994, DGA 1999, Matus 1999, Orrego 2002, National Congress of Chile 2005).

The creation of non-consumptive water rights constitutes an institutional preferencefor hydroelectricity. This hypothesis is strengthened by the way that other possible uses fornon-consumptive water rights that correspond to in-stream uses (e.g. conservation, navi-gation, recreation, cultural uses) are discriminated against by explicit legal recognition, asobjects of property rights. This idea is confirmed by two institutional arrangements. First,the water code only recognizes, as objects of the original acquisition of water rights, thosewater uses that involve the extraction or capture of water at some point in the stream. Thatis because, in order to apply for the free original acquisition of water rights, it is neces-sary to specify the water’s point of extraction or capture in the basin, and, in the case ofnon-consumptive water rights, the point of return or release of water as well. In addition,because of the modifications made to the water code in 2005, taxes have been applied tothose non-consumptive water rights which have not been used.

Second, within the administrative realm, the DGA has refused to grant applicationsfor non-consumptive water rights for non-extractive water uses. The agency argued thatbecause there is no extraction, it is not necessary to obtain water rights.2 Based on thisadministrative practice, non-extractive uses have been marginalized as objects of waterrights.

Water flows for in-stream uses do not require extraction or capture, unlike consumptiveuses and hydropower. As a result, in both the legislative and administrative contexts, in-stream uses are marginalized as objects of the original acquisition of water rights. The onlyalternative way to obtain those rights is by paying for them in the market, but with an extracost since it will be necessary to pay a tax for non-use.

In addition, the difference between consumptive water rights and non-consumptivewater rights also determines the water market’s behaviour regarding extractive uses and,consequently, what is understood as efficient allocation. Because of the establishment of alegal difference between consumptive and non-consumptive water rights, two distinct mar-kets emerged. At first look, there is supposedly no problem in creating two separate watermarkets since the non-consumptive water rights presuppose the obligation to return thewater to the stream, and therefore do not impose externalities on other water rights holdersdownstream. But that assumes that the water is released immediately after it is captured,without affecting the flow’s timing.

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In practice, however, hydropower companies have used their non-consumptive waterrights to control water flows according to the power demand within the national electricitygrid (Bauer 1998a, 2004, 2009). This action causes externalities downstream, and manyconflicts have arisen between the hydropower sector and other users, especially irrigators.Although the water code does not mention any explicit authorization for hydropower com-panies to control flows using their non-consumptive water rights, this practice has beenrecognized as a right by court decisions (since the Supreme Court decided the Pangue casein 1993).3

The right to store and control water, and the fact that non-consumptive water rightsare traded within a separate market from consumptive water rights, means that it is dif-ficult for the externalities related to the storage and control of water to be the object ofmarket negotiation among different sectors (e.g. hydropower and irrigation). As long asnon-consumptive water rights suppose the legal obligation to return the water to the stream,and irrigation activities demand the consumption of the water, irrigators will not be ableto use the water rights they buy for irrigation activities to absorb hydropower externali-ties through market transactions. On the other hand, it is easily possible for a hydropowercompany to buy consumptive water rights in order to use them in power generation. Whilethe free market was designed to absorb externalities neutrally, the institutional constraintsmake it very difficult for consumptive water users to solve their conflicts with hydropowerin the market. Although consumptive water users can bargain for the acquisition of non-consumptive water rights in order to protect their consumptive water rights, they wouldnot be able to use those non-consumptive rights in irrigation practices. Moreover, sincethe water reforms of 2005 (discussed below), they are forced to pay a tax for the non-use ofthe rights. On the other hand, if hydropower companies buy consumptive water rights in themarket, they actually can use them in power generation. In sum, the incentives to bargainover externalities in the market are institutionally regulated in favour of hydropower uses.

These institutional arrangements show that the creation of non-consumptive waterrights and the separation of the two water rights markets do not grant the complete free-dom that the supposedly neutral law of supply and demand would have in assigning waterresources. On the contrary, these arrangements reveal an institutional decision that is polit-ically oriented toward encouraging the development of hydroelectric energy. This situationshields the water-use rights for hydroelectric purposes from their reallocation to other uses.

Original allocation and cost-free status of rights

The original allocation of new water rights is determined by the DGA as long as there isenough unclaimed water available. If there is not enough water, the interested user has togo to the water market. Originally, the water code did not require the applicant for newwater rights to justify the use of the volumes of water requested, nor to make effective useof the water (beneficial use doctrine), nor to construct the infrastructure for extraction, norto make any payment for the rights’ acquisition or use. This determined the original cost-free status of water rights and the perpetuation of this status over time. These particularitieshave meant that the great majority of non-consumptive water rights are now owned by themain electricity companies, without payment for the acquisition of those rights.

This phenomenon created a high concentration of non-consumptive water rights thathave produced monopolies, the non-use of a significant percentage of the rights, and barri-ers for new competitors. In effect, the principal power company in the country (ENDESA)controls 55% of all the non-consumptive water rights granted in Chile and 10% of therights pending allocation. Within Region XI alone (the region with the highest hydropower

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potential), ENDESA owns 98% of the current rights and 16% of the pending rights.4

This situation implies a monopolistic control over the non-consumptive water rights, withthe possibility of unilaterally controlling the installation of new projects and hence theelectricity supply and therefore the price of electricity. For example, ENDESA gener-ates about 68% (4688.8 MW) of the total potential for hydroelectricity installed in theSistema Interconectado Central (SIC), followed by Colbún with 17.9%, and then by othercompanies (Figure 1).

Water code reform in 2005

In 1992, as a result of this situation, reforms to the water code were proposed, to discour-age both applications for new rights for speculative ends and the non-use of existing waterrights. After 13 years of discussion, the reforms were approved in 2005 (National Congressof Chile).5 Law 20.017 establishes a progressive and annual tax for the non-use of waterrights, the objective of which is to promote hydroelectric generation by removing the bar-riers to entry for new companies. This is because the tax would induce the owners of waterrights to make a cost-benefit analysis among three alternatives: paying the tax, using therights, or putting them on the market for others to acquire and use. The tax demonstrates aninstitutional decision to intensify the usage of water, emphasizing its condition as a factorof production with special relevance for the generation of electricity and denying its otherin-stream roles.

The reform is biased against those non-extractive water uses, insofar as it taxes themfor not being “used” and consequently discourages their existence. For example, anyonewho bought non-consumptive water rights for environmental conservation, cultural uses,or recreational purposes would have to pay the corresponding tax because they lack thefacilities to extract or capture water. A hydroelectric company, in contrast, would not haveto pay those taxes if it were using the water through the required facilities. Consequently,if an electricity company renounces or sells its unused rights to avoid paying the tax, theserights could not be easily redistributed for non-extractive uses of water. In the case of

AES

OthersIbener Puyehue

5%

18%

5%3% 1%

68%ENDESA

Colbún

Figure 1. Percent of generating companies’ participation, out of the total hydroelectric powergenerated in the SIC. Elaborated by the authors based on CDEC-SIC (2006).

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renunciation, the non-extractive user cannot apply for the original acquisition, and in thecase of selling the rights, the buyer would be bound to pay the tax for non-use.

It is important to point out that a temporary provision of the reform exempts own-ers from having to pay the taxes for non-use of non-consumptive water rights in areas ofhigh hydroelectric interest until the year 2012. This deferment “represents the transactionformula that allowed for the acceptance of the reform by those sectors that consideredthemselves harmed by it” (Segura 2006, p.210).6

Almost none of the non-consumptive water rights that are in use for electric generationwere acquired within markets; instead, they were acquired either from the DGA through thesystem of original acquisition, or through the process of privatization of the state compa-nies, which involved the privatization of the water rights that belonged to those companies.Once the non-consumptive water rights are acquired, the rights holders pay nothing for theiruse. This fact implies a decrease in the average costs of hydroelectric generation, makingit more competitive in comparison to other available technologies. This is not due to con-ditions fixed by a free market, but rather because the water code prescribes the cost-freestatus of the resource.

Table 1 shows that water is a free resource, unlike the competing energy sources (i.e.liquid natural gas, diesel fuel, coal), all of which have costs for fuel. This determines thelower average cost of generating hydroelectricity. Since the electric law requires powerplants to feed their energy into the grid according to their economic performance (as dis-cussed in the next section), the low cost of hydropower, thanks to water’s cost-free status,privileges it above other sources.

The Chilean electricity sector model

In order to harmonize the power sector with the new economic ideology, the military gov-ernment radically overhauled the previous statist model and “created one of the world’sfirst competitive markets in electricity” (del Sol 2002, p. 438).

Table 1. Generation cost by type of energy source and power station. Hydropower has no costsassociated with water as a factor of production.

Type of energyPower station

Investmentper unit Fuel cost

Operation cost(US$/MWh)

Average total cost(US$/MWh)

Hydroelectric (US$/MW)Dam (400 MW) 1000 none none 17Run-of-the-river

(400 MW)1300 none none 24

Thermoelectric (US$/Mbtu)Natural gas (370 MW) 630 4.23 33.1 46.3LNG (370 MW) 630 6.50 43.9 53.0Natural gas/diesel,

500 hours (370 MW)670 5.78 45.3 62.4

(US$/ton)Coal (250 MW) 1000 80 33.1 49.3Coal/petcoke

(250 MW)1250 60 22.6 42.8

Coal/fluid petcoke(250 MW)

1600 80 28.9 54.8

Diesel (120 MW) 450 600 192 212

Source: Table adapted from CNE (2006).

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As in the case of water, through the new electric law of 1982, the military made changesin the power sector to create a system that is led by market forces and favours privateinvestment and free competition. According to its proponents, the new model was designedto eliminate subjective political judgments and to favour the application of wholly neutraland objective criteria (Wisecarver 1986), thus guaranteeing maximization of profits andautonomy for economic agents (Espejo 2005). Prior to this new institutional framework forelectricity, privatization was initiated in 1978 through the reorganization and restructuringof state-owned companies, which were then fully transferred to the private sector in themid-to-late 1980s, including their water rights (Blanlot 1992, del Sol 2002).

In this new scenario, the generation of electricity was totally opened to competition andconsequently could be freely driven by private initiative. Thus, power generation was nolonger considered a public service, so the power companies were not obligated to obtainconcessions from the government (Evans 2003, Vergara 1995, 2004). This freedom wasalso sustained by the fact that state planning of new electricity projects is non-binding andis based on projects presented by private companies, which are not obligated to carry themout in fact.

The idea of private freedom to generate power is strengthened by the fact that theinfrastructure for electricity is not considered a use of land that is susceptible to regu-lation by different land-use planning instruments (Fernandez 2004). The owners of theelectricity infrastructure are currently not obligated by these instruments when it comesto deciding on the location, construction conditions, maintenance, or operation of theirinfrastructure.

Considering that under the new model the main goal was to diminish the level ofstate influence in order to reach economic efficiency, one of the key elements of the newlegal framework was the introduction of free competition within the generation sector,which meant that there should be no institutional preferences for particular power sources.To develop such competition, the electric law created regulations that would allow theexistence of a market for electric power.

According to the electric law, generation companies are allowed to trade their energy atfree market prices to buyers with a connected capacity of over 2 MW (i.e. large industriesand mining companies). On the other hand, for small consumers, the electric law createda regulated price system which sets prices as close as possible to marginal costs, ensuringcompetitive prices (del Sol 2002, Evans 2003, Vergara 2004, Bauer 2009).

Considering the prohibitive cost of large-scale storage of electricity, the electric lawcreated a sophisticated system to match power supply with power demand. The heart ofthis system is a quasi-private organization known as the Economic Load Dispatch Center(Centro de Despacho Económico de Carga, CDEC). The CDEC coordinates power gener-ation with power demand, deciding which power plants must enter into operation in orderto instantaneously match the demand at that precise moment. The criterion used for thatpurpose is based on an order of merit associated with the operating cost of each powerplant, completely independent of the commercial contracts that each power company has.This means that the first generator whose electricity is loaded into the grid will be the onethat has the lowest operating cost at that moment. Afterwards, the power generated by theother power plants will be loaded in a successive manner until the total electricity loadedallows satisfaction of the demand. The companies also transfer energy among themselveson the spot market to fulfil their contracts with third parties. These transfers are determinedby the CDEC and are valued hourly at the marginal cost (spot market price). According tothis idea, the competition will lead to lower power prices, since the different companiescompete to feed their megawatts into the power grid.

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This model was designed to eliminate subjective political judgments that can createpreferences for specific power plants, companies, or technologies and thus artificially alterthe market equilibrium in a sector which is difficult to manage under a competitive frame-work. However, in spite of orthodox analyses that consider this model to be technologicallyneutral, from an institutional point of view, both the water code and the electric law embodyinstitutional preferences that make hydropower cheaper than other power sources.

Above we discussed the fact that water is treated as free. In addition to this preference,the institutional differences between consumptive and non-consumptive water rights alsoaffect the performance of power companies and the decisions of the CDEC. Because thesetwo kinds of rights hypothetically are not in conflict, the CDEC does not consider thedownstream externalities created by hydropower generation. Those costs are not consideredby the CDEC in calculating the costs of hydropower generation.

The electric law and its preferences for hydropower

We saw above that the electric law allows the installation of any power station whenever theinterested party wishes and without the requirement for any special previous administrativeauthorization. Furthermore, the electric law explicitly says that hydropower stations canbe freely installed when the private sector desires and without special public approval(Article 4). However, hydropower developers can voluntarily request a special concession,through which they will be able to access privileges related to the use of public and privateland for purposes of hydropower generation. These privileges include the rights to enterprivate or public land in order to study the viability of a hydropower project, and toflood other people’s land for the construction of reservoirs, even against the will of theproprietors. Among different power sources, hydropower generators are the only ones thatcan access a concessional title that grants them benefits to carry out their activities, givingthem a comparative advantage of an institutional nature, which is far from constituting a“neutral market decision.”

As an institutional assurance for the previous situation, the economic rights enshrinedin the Constitution of 1980 guarantee the right to “free access to hydropower conces-sions” (Evans 2003, Vergara 2004). According to the constitutional right to acquire allkinds of goods as private property (Article 19, No. 23), private individuals have the free-dom to acquire property over the rights stemming from the hydropower concession. Thiswould imply the power of the private companies to always obtain hydropower conces-sions so long as they fulfil the minimal requirements expressly ordered by the law. Thismeans that the decision to grant the concession is not left to criteria established by theadministration.

Benefits from the development of hydroelectric power stations are realized through theimposition of concessions for hydroelectricity on riverside property owners. Thus, in thecase of a riverside property on which the construction of a reservoir is planned by who-ever enjoys the privilege of a concession for hydroelectricity, the rights of the owner ofthe project could not be disputed once the concession is signed. This implies a restrictionon the free use of the riverside proprietor’s authority, who would not be able to exercisethe freedom to exclude his or her property from market negotiations, but instead obligedto encumber his property in favour of the interests of hydroelectricity. If the riverside pro-prietor does not agree to a price, the amount would be fixed by a special commissionwhich does not consider the land’s value based on its hydropower potential. Thus, it isthe institutional framework itself that values the river basins, in the way that it elevates theinterests of hydropower over those of the riverside proprietor. This action can be understood

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as favouring hydropower by lowering the transaction costs involved in acquiring land forhydropower uses (Prieto, 2007).

Other institutional preferences for hydropower

This final section briefly describes three additional ways in which the Chilean institutionalframework favours hydropower over other resource uses. These are: (1) the process forresolving inter-sectoral water conflicts within the largest private associations of water users,the vigilance committees; (2) the national system for environmental impact assessment, asestablished in the Environmental Framework Law of 1994; and (3) judicial decisions andbehaviour.

Conflict resolution and vigilance committees

In Chile, the main conflicts that have been identified over the construction or operation ofhydropower projects are related to control over water rights, attributions of water rights,and the distribution of socio-ecological costs associated with the use of these powers.

With respect to these conflicts, the Chilean model of hydroelectric managementpresents the absence of state agency functions able to settle the conflicts, and the apparentabsence of explicit legal privileges in favour of any particular use. Both ideas imply that itshould be individuals who resolve their conflicts by private negotiations. In addition, thewater code establishes user organizations whose principal role is to distribute the water andassure its correct use among water rights holders. Among these organizations, the juntas devigilancia (vigilance committees) are especially important for coordinating inter-sectoraluses between consumptive and non-consumptive water rights.

When water resources are managed by a market-based system, it is supposed that theconflicts provoked will be resolved by means of private negotiations (Thobani 1995).According to Coase’s theorem, if transactions costs are low and if property rights aredefined clearly as private and tradable, the existing transactions within the market willcarry the resource to the most highly valued uses, which would absorb the opportunity costsand the negative externalities. In order to participate in the market, the interested partiesmust meet as free agents within the same space of negotiation. Although that is the spiritof the water code, from the institutional perspective this does not occur because the dif-ferentiation between consumptive and non-consumptive rights generates separate markets,and because the switch from non-consumptive to consumptive uses is not legally permissi-ble. Consequently, as mentioned above, the externalities generated when non-consumptivewater rights are used to control water flows cannot be negotiated within the market. Eventhough this is never specified in the dominant literature, it is the result of an institutionaldefinition of the object of the water rights.

For their part, the in-stream users of the resource, and especially those interested in theecological value of water, lack the power to negotiate within the market, because they areoriginally excluded from ownership of the rights for water use and their right to acquirethem in markets is limited. This is simply because the in-stream uses are not recognized bythe institutional framework as eligible for property rights.

The vigilance committees are constituted by water rights owners in the same river basin.Their main objective is to administer and distribute the waters to which their members havethe rights in the natural rivers (Article 266). The water code stipulates that all the owners ofwater rights in the river basin (both consumptive and non-consumptive) are to be includedwithin these organizations. In practice, however, the rules for decision making within the

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vigilance committees are biased in favour of the owners of non-consumptive water rights(Bauer 1998a). This is because the decisions are adopted according to the desires of major-ity shareholders, which are proportional to the number of rights. The water code does notdistinguish between the holders of consumptive and non-consumptive water rights in thiscontext. Since rights for non-consumptive uses can be granted for the same water at dif-ferent points along the river basin, the non-consumptive water rights will often be morenumerous and have more votes than consumptive rights (Bauer 1998a, Ríos and Quiroz1995). As a result, the consumptive rights holders often do not include the hydroelectricrepresentatives in the vigilance committees’ meetings or decisions (Bauer 1998a).

Because the regulation of water emphasizes its productive uses rather than in-streamuses, the scope of the vigilance committees is restricted. People interested in in-streamuses are excluded from participating in decision making about how to manage resources inriver basins, since they lack water rights. As a result, when conflicts arise between differentusers of water, the institutional structure marginalizes in-stream and non-extractive uses.To understand this, it is necessary to distinguish between conflicts between holders andnon-holders of water rights, and conflicts between consumptive users and non-consumptiveusers.

People interested in in-stream water uses are restricted when it comes to access to waterrights. Thus, they cannot be full agents within the market. In this sense, their abilities tonegotiate for their interests within the market are restricted by the institutional framework.

In relation to conflicts between consumptive users and non-consumptive users, the twosides hold rights that are traded in different markets. They do not interact on the sameplatform of negotiation. As a consequence, if a consumptive user wants to negotiate theacquisition of non-consumptive water rights to absorb the externalities caused by their use,as mentioned above, he or she is severely restricted from doing so based on institutionalarrangements.

Environmental Framework Law and system for environmental impact assessment

Since Chile has no obligatory land, energy, or water use planning, we might expect that thenational system for environmental impact assessment (EIA) would play an important rolein conflicts and externalities related to new hydropower projects. However, those hydro-electric projects that enter into the system of EIA, as required by the 1994 EnvironmentalFramework Law, are presented in their final design. This implies that any analysis of possi-ble alternatives, whether in terms of location, size, or technologies to be utilized, will not beperformed. The discussion focuses on whether the projects satisfy the legal standards andhow projects can mitigate their impacts. Experience has shown, however, that hydroelectricprojects are almost never rejected. The EIA system operates to facilitate their legitimacyand realization (Tecklin et al. 2011), since it is designed to decrease transaction costs.

The role of the courts

Judicial decisions in water conflicts are a third example of institutional preferences forhydropower. Our discussion is very brief due to limits of space, but we have written aboutthese issues in detail elsewhere (see Bauer 1998a, Prieto 2007).

According to Bauer (1998a), since the market is the main arena for solving water con-flicts and the public water agency lacks the power to resolve them, courts will play a keyrole in solving water conflicts. This idea is reinforced by the new role that the Constitutionof 1980 established for the courts.

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Recent research by Prieto has updated and confirmed Bauer’s argument in the timeperiod up to 2007. According to Prieto (2007), the role of the courts is even greater inrelation to hydropower, insofar as (1) there is no binding land-use planning or electricityplanning; (2) the EIA facilitates the legal approval of the projects rather than mediatingconflicts; (3) there is an imbalance of representation in the vigilance committees in favourof non-consumptive users and a lack of consideration towards in-stream users; (4) thereare two markets (one for consumptive water rights and another for non-consumptive waterrights), although the two uses conflict when a dam accumulates water; and (5) in-streamuses are marginalized as objects of water rights.

Conclusions

Free-market-based models for allocating water and managing power generation, inasmuchas they apparently emerge from a-priori rules, are often seen as neutral, natural, and partof an apolitical discourse. Following this idea, rooted in neoliberal concepts of freedom,the Chilean hydropower model and its orthodox analyses are presented as shielded againstpolitical influence in order to guarantee political freedom and economic efficiency in bothwater allocation and power generation.

In spite of this view, from an institutional perspective it is possible to see that thisneutrality is an erroneous assumption. Following this idea, this paper has shown how theChilean water institutional framework – the political, ideological, legal, and judicial frame-work – has shaped a specific conception of private property with regard to water rightsuses and electricity generation, making them less pure than it would appear from the dog-matic neoliberal perspective. The institutional arrangements for water rights determine thatthe original allocation of water pertains exclusively to productive uses, and within them,with special preference to hydropower. Once water rights have been originally assignedto hydropower uses, it is very difficult for the market to operate as an instrument for thereallocation of those rights toward uses different than hydropower. That is because first, thetax for non-use makes the reallocation of non-consumptive water rights toward in-streamuses more difficult than the reallocation toward non-consumptive uses that require the cap-ture of water. Second, the institutional difference between consumptive water rights andnon-consumptive water rights creates two separate markets in which the externalities thathydropower imposes on other uses (e.g. irrigation) can rarely be the object of bargaining.

In addition, the electricity legislation establishes the right for hydroelectric investorsto acquire, in privileged terms, riverside land in order to facilitate hydropower generation.The model for coordinating the operation of the different power plants does not take intoaccount the opportunity costs generated by the control of the stream by the hydropowerdams. Both previous elements, plus the free cost of water, determine in part the efficiencyof water as a power source, making hydropower more competitive within the power grid.

The failure of the market and other institutional forums to resolve these conflicts, andthe special constitutional recognition enjoyed by the right to private property, give thecourts a special role within the hydropower institutions. The courts are zealous protectorsof the institutional construction of private property, and are inclined to favour hydroelec-tric interests, especially when they are confronted with in-stream uses of water. Judicialrulings in the environmental legal conflicts studied show the economic disparity betweenthe parties in conflict (Smith 1995).

Finally, based on the previous ideas, this institutional framework determines that (1) thevaluation of water in streams is institutionally imposed in such a way that they are reducedto factors of production, leaving out the value of in-stream uses, and (2) it is established

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institutionally that hydroelectricity is a cheap form of energy generation, to be devel-oped freely and predominantly by economic groups with a high concentration of waterrights. These findings show how the security of the property rights to non-consumptivewater rights, and their uses in hydropower activities, is sustained only through institutionaldecisions that impose costs on other (consumptive) water rights, riparian property rights,and different interests that institutionally are marginalized as objects of property (such asenvironmental, cultural, recreational, and aesthetic uses).

AcknowledgmentsWe thank Jonathan Barton for his comments on earlier drafts.

Notes1. For a thorough review of the ideological background of the Chilean economic model, and its

influence in the Chilean water and energy reforms, see Bauer (1998a, 1998b) and Prieto (2007).2. Based on Bórquez (1986) and personal communications (2007) from two anonymous DGA

officials.3. See Orrego v. Empresa Eléctrica Pangue (Corte Suprema, May 8, 1993).4. According to the report of the DGA to the Court for Defense of Free Competition (see DGA

2006).5. For more details about the history of this discussion, see Bauer (2004).6. See details in Prieto (2007).

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The global commodification of wastewater

Christopher A. Scotta* and Liqa Raschid-Sallyb

aUdall Center for Studies in Public Policy and School of Geography and Development, Universityof Arizona, Tucson, USA; bInternational Water Management Institute, Accra, Ghana

(Received 4 September 2011; final version received 27 January 2012)

With growing scarcity and competition for water, urban wastewater is increasingly mar-ketable because of its water and nutrient values. Commodification has implicationsfor the current “residual” uses of wastewater (particularly by poor farmers in devel-oping countries), for the risk of disease transmission, and for wastewater-dependentagro-ecosystems. Using examples from Pakistan, India, Ethiopia, Ghana, Mexico, andthe United States, this paper contrasts commodification as it occurs in the developedand developing worlds and demonstrates the need for public information and coherentinstitutional frameworks, including private- and public-sector participation.

Keywords: urban wastewater; value of wastewater; commodification; management

Introduction

Over the past decade, wastewater has emerged to present two principal challenges forpublic and private managers of water supply and sanitation systems, particularly under con-ditions of rapid urban growth and water scarcity (Scott et al. 2004, Drechsel et al. 2010).First, wastewater as the subject of management has evolved from hazard to resource inthe perspectives of municipalities, farmers, and environmental advocates. Second, the useof wastewater is increasingly changing from haphazard to regulated. This paper reviewsthese challenges, and considers a third that is of particular relevance to the present spe-cial issue of Water International: Wastewater is subject to infrastructural operations andcommercialization, leading to a subtle shift in control and regulation from private to publicinterests, but with use practices that paradoxically are the reverse, that is wastewater usethat was once public is increasingly privatized. These processes, in various combinations,occur worldwide in myriad forms and for diverse reasons; together they constitute whatthis paper calls the global commodification of wastewater.

There exist multiple definitions for wastewater, and typologies for its use and man-agement. The water quality differences between raw sewage and treated effluent certainlyhave implications for the management of both these types of wastewater. However, giventhat both untreated and treated types of wastewater are subject to competition (Wichelnsand Drechsel 2011), capture, transfer, and trade, we make little of the distinction betweenthem. Unless otherwise specified, we refer in this paper to wastewater as both untreatedand treated forms.



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148 C.A. Scott and L. Raschid-Sally

From hazard to resource: contrasting the developed- and developing-country contexts

Reuse of wastewater is part of the history of sanitation, but the reasons for reuse weresuited to the times. As far back as 1700 BC, in Crete, wastewater transported in brick-lined conduits irrigated and fertilized crops and fruit orchards. There is evidence thatcommodification started as early as around 600 BC, when the Romans were selling theurine from public urinals to dyers, tanners and other merchants. The nutrient value beingrecognized, cesspits were emptied daily and the contents were used as fertilizer. Still inearly times, sewage farms were used in Bunzlau, Germany, in the fifteenth century and inEdinburgh, Scotland, in the seventeenth century, as a means of disposing of the increasingvolumes of wastewater from the growing towns and cities. Even as late as the nineteenthcentury, the city of Berlin disposed of its waste through sewage farming. In other parts ofthe globe, such as Vietnam and China, the tradition of using night soil in agriculture is evenmore established. Although waste recycling generally and reuse of drainage water carryinghuman and other wastes, in particular, have been practised historically in most societies,the nineteenth century saw the rise of concern for effective sanitation to combat the spreadof infectious disease in expanding human settlements. Technologies were developed, stillwith an overt emphasis on disposal but evolving from individual and communal on-site dis-posal through septic tanks, to treatment in bulk via simple stabilization ponds and lagoons,and later, to more complex plants involving mechanical, chemical, enhanced biological andother processes. As countries developed and the gross domestic product (GDP) increased,financial and technological resources were deployed, with disposal of a nuisance becomingthe prime concern. What began in private (indeed, “private” as behind closed doors in thewater closet, the “privy”, or individual disposal) became a public issue. Municipal author-ities were charged with addressing the disease, nuisance (odour), and downstream effects(pollution of water bodies) that wastewater presented. In the developed world, at this time,there was an interruption in public management of private waste, which was only resumedwhen large volumes of sludge generated from treatment plants themselves became a nui-sance for disposal. Agricultural systems were seen as the potential users – often buyers –of this resource for improving soils, albeit with caveats on heavy metals contained in thesludge.

As sustainability concerns emerged globally, countries started reviewing the commod-ity value of water and nutrients. Examples abound from the higher-GDP countries (Israel,Singapore, Australia, the US, some Mediterranean countries, and the Middle East), where,as a response to water stress, wastewater was seen as a commodity in various use sectors(agriculture, water supply, landscaping, groundwater recharge).

In developing countries, urban and peri-urban agriculture in and around cities becamethe sink for the abundant volumes of wastewater that were being discharged into naturewithout accompanying treatment measures. As has been demonstrated by Raschid-Sallyand Jayakody (2008), Jiménez and Asano (2008), and others, the resource value ofwastewater became increasingly apparent in a range of geographical and institutional con-texts, not just the presumed conditions of aridity and water scarcity in which large citiesgenerated sufficient volumes of wastewater to make resource recovery attractive and viable.Different forms of commodification occurred and will be explored further in this paper.Wastewater use has come full circle – back to the future – but with a twist: as a resource,it is increasingly regulated. Additionally, as we aim to demonstrate in this paper, it isincreasingly subject to competition, capture, and trade. This has implications for bothprivate and public economic interests, and in terms of social welfare and environmentalimpacts.

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From haphazard to regulated

Urban and peri-urban agriculture is practised both formally and informally; however, whenthe source of irrigation is wastewater, urban farmers rarely have clear rules of access, muchless security of water rights. As cities grow, planning areas or at least urban land interests(where no formal planning agencies exist) encompass rural and peri-urban land. This pro-cess converts wastewater irrigation into an urban practice. The authors have observed firsthand and researched these processes in specific cases in Asia, Africa, and Latin America.The brief cases outlined below demonstrate that urban authorities (in planning, publicworks, and public health departments as well as water supply and sewerage utility compa-nies or boards) increasingly account for wastewater flows, use, and “disposal” or release toreceiving waters. Regulation, where this exists, generally is based on frameworks that wererelevant to past approaches and practices. For example, discharge and disposal regulationsfor wastewater in many developing countries are replicas of those developed, and oftenrejected, in developed countries. There is growing interest in treatment not for disposal butfor end-use specific reuse. Access to water for reuse is regulated through land-use permits,taxes, or revenues collected on urban agricultural production and on the sale, auction, orlease of wastewater from expanding urban sewerage networks (and associated treatmentinfrastructure, if this exists).

From private use to public commercialization

Driven in large measure by the expansion of water supply and sanitation coverage globally,wastewater is ubiquitous. Its origin as urban domestic, commercial, and industrial watermay actually be accompanied by a “dewatering” of cities’ local sources of supply, whichare usually located in the rural areas beyond the city boundary – extending further andfurther as local water resources get exhausted. In other words, under conditions of regionalwater scarcity, locally available water in rivers, reservoirs, and groundwater, captured bycities, may end up as wastewater released back to or in proximity to these local sources(Scott and Pineda Pablos, 2011). This can set up rural–urban water competition and insome cases substitution of wastewater for source water. Successive cycles of water userequire heightened control, directly via physical infrastructure but ultimately financiallyand institutionally as a consequence of the capital investment needed for infrastructure andthe rapidly rising costs of securing and developing new water sources. Private interestsexist and will continue to make end-use of wastewater for field crop irrigation, aquacul-ture, and other purposes. However, such uses are increasingly regulated through publicinterests, largely in the form of municipal authorities currently controlling the allocationof wastewater and stepping up its commercialization. This public–private link is a centralconcern of the present special issue.

The paper is organized as follows. The factors leading to the current widespread gen-eration of wastewater are reviewed; wastewater as a resource is assessed. Through briefconsideration of cases of wastewater use and trading, its increasing commodity value isdemonstrated. This is followed by a discussion of the modalities of commodification forboth treated and untreated wastewater, the specific challenges raised in each case (withoptions for addressing these, particularly the need for public information and participa-tion), and management and policy required for beneficial use to safeguard the public good.The paper concludes with a prognosis for public management that accounts for privatedemand for commodified wastewater resources, and allows for re-injecting some of thebenefits back into the recurrent costs of the system.

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Too much waste, too little treatment: the urban boom

Urbanization as a global phenomenon poses multiple challenges for water resourcesmanagement. Despite the non-achievement of the water and sanitation targets in theMillennium Development Goals (UN-Water 2010), if the present service levels are main-tained, as urban populations expand, supplying even a minimum per capita requirementof 50 litres per capita per day, in itself constitutes a great deal of water that has tobe supplied. Additionally, the improving economic conditions in cities with rising GDPper capita are leading to higher expectations and demand and therefore higher waterconsumption. Improving the water supply network and providing water on tap at thehousehold level also contribute to increasing levels of water use. Many cities are unableto provide these at optimal levels, but additional water supply to cities is introducedin a stepwise increase. As soon as the water supply per capita drops below a cer-tain level, more investment is put into expanding treatment works or tapping into newsources.

As one consequence of supplying significant additional water to growing cities,expanded sewer coverage has generated increased volumes of wastewater. In Addis Ababa,Ethiopia, the wastewater management master plan of June 2002 proposes that 26% of theurban population will be sewered by 2020. Because of rising land prices, in various partsof the city high-rise condominiums are the norm – constructed by the state and sold to thepopulation through a national lottery process. All these habitations come under the seweredcategory, where an average water consumption of 110 litres per capita per day is expectedto be supplied for flush systems to operate properly.

In many cities, sewage collection is combined with storm-water disposal, increasingthe potential for capture and reuse, but simultaneously posing difficulties for treatmentbecause of excessive volumes during storm events. In Indian cities today, where the opensewers carry both types of water, some city sanitation plans propose diverting all this waterto treatment plants. During storm events, some of this diluted wastewater is diverted to theenvironment without treatment, to protect the facility.

Wastewater treatment systems and technologies exist for a range of settings; however,financing, constructing, and crucially, operating wastewater treatment plants have receivedlower priority than water supply, resulting in many plants being dysfunctional. One reasonfor this is that recurrent costs for operation and maintenance of systems comprise, in largepart, staff salaries. The non-salary expenditure is in most cases much lower (see the sur-vey, “Global Analysis and Assessment of Sanitation and Drinking-Water”, in UN-Water2010). Understanding how funding is allocated between recurrent and capital costs, andthe proportion going to non-salary expenditure, has implications for the functioning ofthe treatment system. This in turn influences risk management under growing capture andcommodification.

Where untreated wastewater was once “disposed of” in natural bodies (or treatedeffluent was simply released back to the environment), now, around the world, captureand commodification of wastewater are growing, which carry with them the need forrisk management measures. Institutional and regulatory frameworks have not kept pace,although end users such as private individuals, farmers’ organizations, and occasionallycommercial interests have filled the breach. When wastewater is viewed as a resource,there is potential for control, capture, and commodification, but exploiting this potentialrequires well-functioning treatment systems producing the quality of water requisite forirrigation. The right sanitation policies that support reuse are also needed to provide thepush for private investments.

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Wastewater resource value and implications for regulated commodification

Wastewater, when recycled for agricultural purposes, can be valued in two ways. The firstis as a commodity, for example the nutrient and water values for which farmers are will-ing to pay (even when the water is untreated), through purchase of wastewater or throughpayment of higher land prices or rentals. This value is easy to quantify and can be viewedas a direct benefit. The second is by way of the environmental benefit that accrues fromuptake of nutrients by crops, thereby reducing pollution of water bodies via the nutrientscontained even in treated wastewater discharges. The total economic valuation concepthas to be applied, where both use and non-use values related to ecosystems benefits areincluded in the calculation. Crucial life-support ecological services will however still beundervalued. Such evaluations have to be conducted with different target groups to cap-ture the differences in value attributed. The latter “value” should in reality be paid outto the farmers using wastewater who are providing this service, but this is seldom done.Converted to economic value, how can some of this be returned, in developing countriesin particular, back into the system to operate and maintain the treatment processes, thussafeguarding the long-term positive outcomes?

Wastewater commodification: insights from evolving examples

In this section various facets of commodification are described, using examples drawn fromongoing and completed research, highlighting only the salient features.

Haroonabad and Faisalabad in Pakistan (Ensink et al. 2004, Ensink et al. 2008,Weckenbrock et al. 2011) and Addis Ababa in Ethiopia (Spence 2011) represent rele-vant examples of the local-scale commodification of untreated sewage. In the three cases,access to wastewater provides farmers with significant increases in agricultural produc-tivity per unit of land (with land being the limiting resource in urbanizing contexts) andshowing significantly higher gross margins of US$150/hectare (Ul-Hassan and Ali 2002)from wastewater because of residual nutrients. Its reliability also allows for multiple cropsthroughout the year, increasing benefits. In Faisalabad, the rental value of land with assuredwastewater supply is 66% higher than for land that is irrigated conventionally by surface-water canals. Farmers resist attempts by urban authorities to treat wastewater, given that thisreduces nutrients and increases salinity (as a result of holding water in treatment lagoons).A survey of 50 farmers using wastewater showed that they were unanimously unwillingto change to treated wastewater or clean water. These farmers paid a combined fee ofUS$7500 annually to the water and sanitation authority to use the wastewater, which wasthen exchanged locally among farmers through water-market arrangements. Furthermore,wastewater-irrigated produce is sold locally, and farmers report excellent profits, upto US$600/year more than for regular farmers. By contrast, in Addis Ababa, farmersencounter produce marketing obstacles because direct buyers recognize that wastewater-irrigated produce may present food-quality and food-safety risks. Farmers here may resortto marketing their own produce and, for obvious reasons, choose not to disclose the sourceof water used for irrigation.

Evidence from Hyderabad, India (Buechler and Mekala 2005) and Monterrey, Mexico(Scott et al. 2007) are clear examples of regional wastewater trading. In Hyderabad, thewater and wastewater utility has been exploring opportunities to exchange wastewaterfor fresh water through a swap-and-exchange mechanism with farmers in the Naka Vaguregion. Farmers would cede their access to canal-irrigation water in exchange for year-round supply of treated effluent. The arrangement has not evolved to the satisfaction ofeither party (farmers or the city), in part because other farmers upstream along the Naka

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Vagu stream were poised to intercept the effluent on its course of flow from the city’srelease point to the intended recipients downstream, that is those who would swap theirirrigation water to the city.

In Monterrey, the city’s construction of an urban water supply reservoir was to reduceirrigation access in the water-scarce Rio San Juan basin; however, through negotiation andpolitical intervention, a solution was devised whereby the city would provide treated efflu-ent to farmers whose water was being diverted upstream by the city. This swap arrangementis similar to, but different, from Hyderabad’s. Nevertheless, both are interesting cases ofregional and inter-sectoral (urban-agricultural) wastewater transfers.

The final example considered here is Prescott Valley, Arizona, USA (Scott et al. 2011,Browning-Aiken et al. 2011). State law and regulations seek to limit groundwater overdraftby requiring that private real estate developers demonstrate “assured water supply” beforethey are permitted to expand new urban development. Conventionally, this has involvedhydrological studies or in some cases water transferred in physically from distant sourcesto meet local water demand, both present and future (i.e. that which would result from realestate development). However, the town of Prescott Valley was authorized by the state’swater resources department to use treated effluent to meet future water demand. As a result,the town auctioned effluent to would-be developers. The buyer was, in fact, a holding com-pany that understood the speculation value of buying rights to effluent today with the intentof selling them later for even higher prices.

The cases presented indicate that at least three categories of wastewatercommodification exist: a) spatial variation from local to regional, b) variation among cate-gories of users (i.e. farmer-to-farmer and between cities and farmers), and c) commercialarrangements including rental, auction, and sale. It is evident that further experimenta-tion and innovation with such transactions continues to take place globally. Additionally,the private and public players involved in such transactions exhibit considerable diversity.Water and wastewater utilities, regulators, and irrigation and agricultural departments arethe chief public actors involved. On the private side, farmers, their associations, devel-opers, and in the US case a private investor/speculator, all play roles in wastewatercommodification. This complexity requires further attention and research.

Wastewater commodification: additional considerations

The risk of transmission of pollutants and disease agents to wastewater-irrigatedfood is a primary concern in wastewater use and transfers resulting from expandingcommodification of this resource. This is particularly true for untreated sewage (Drechselet al. 2010). Serious questions remain regarding how to address the risk through flexibleand equitable governance arrangements. The World Health Organization has made someprogress with flexible guidelines, a multiple-barrier approach, and improved inter-agencycoordination. Much remains to be done, especially as the wastewater footprint of boomingurban areas expands rapidly.

Second, there is growing public awareness, and in most cases resistance, to wastewateruse, both in treated and untreated forms. Participatory measures have been proposed inorder to address, if not fully overcome, public concerns with this expanding practice.Multi-stakeholder platforms, internalization of waste into cities’ own food provisioning,and transparency in public consultation processes are all important. However, the riskconcerns posed above suggest that full disclosure and public access to information forinformed decision making may not bring wastewater planning out of obscurity into fulltransparency. But research such as we present and synthesize here should help in improving

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understanding of the possibilities and limitations of wastewater use and management thatwill lead to more equitable decisions around commodification from social, economic, andenvironmental perspectives.

An important objective in wastewater management is to recirculate benefits and risksback into the use and production chain through designing wastewater systems for end-useservice (Murray and Buckley 2010). The value-chain approach for capturing the valueof different waste streams can be leveraged to improve long-term efficacy of a treat-ment system by contributing to the recurrent costs or simply providing the incentive.Reuse-oriented sanitation systems must offer choices about reuse that inform the designof infrastructure. For example, less than 10% of the existing wastewater treatment plants(WWTPs) in Ghana operate as designed, according to the findings of a survey (IWMI2009). The 55 existing WWTPs and 7 municipal faecal sludge treatment plants (FSTPs)in the country have a total design capacity to serve about 25% of the urban population,but most discharge into the environment without providing any effective treatment. Thus,to tackle the current inadequate operation and maintenance of treatment, an innovativeapproach being tested in Ghana is to design treatment plants for productive and profitablereuse and to use revenues from reuse to help cover the operating costs of the treatmentplant.

The design-for-reuse approach is an effort to establish the sanitation sector as an activecontributor to local economies. Design for reuse is a market-oriented approach that putsend users (i.e. people who exert demand for wastewater, effluent, or faecal sludge for pro-ductive use in irrigation, aquaculture, fertilizer, or as fuel) at the centre of the planningprocess, to simultaneously achieve urban sanitation objectives and capture and allocate thelocal economic and social value of “waste” and treatment by-products. End users will beformally incorporated into the financial operation and maintenance model of each targettreatment facility, and the specific demands of end users for the outputs of sanitation sys-tems will be met in exchange for direct payment and/or in-kind labour (maintenance) atthe treatment plant. This additional source of revenue and/or labour will ease the financingburden on households, institutions, and governments. It will also improve the incentivesand financial capacity for continuous operation.

Treatment plants are capable of providing numerous services, including treatedwastewater for agriculture and/or aquaculture, faecal sludge for land application as asoil enhancer and fertilizer, as well as the generation and recovery of biogas for cook-ing, heating, or lighting. Case studies from around the world have demonstrated significanteconomic returns associated with reuse; for example, crops irrigated with wastewater haveyields 20–50% higher than the same crops grown with freshwater (in the absence of fer-tilizer additions). The reliability and frequency of wastewater flow can also dramaticallyimprove farmers’ livelihoods by providing a year-round source of irrigation water and thusthe opportunity to increase the number of annual crop cycles. While each of the afore-mentioned reuses is practised in various places around the globe, it is seldom the casethat treatment plants are explicitly designed or optimized for reuse, and whilst facilitiessometimes do recover the value of the services through irrigation fee payment (as is thecase in countries where recycling of treated wastewater for its water value is commonpractice), it is rare that they put some of this income back into the recurrent costs of main-tenance. There are many examples of farmers around treatment facilities freely exploitingthe resource value of effluent (adequately treated or not) with no formal obligation or pay-ment to the treatment facilities; this represents a consumer surplus that could be moreequitably allocated among farmers and the facilities if a market were established. Thisapproach thus takes the difficult market-oriented step of constructing and implementing

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value chains between treatment plants and end users to harness the economic value of theservice a plant provides and to invest this value directly into the operation of the treatmentplant (Murray et al. 2011).

Conclusions

The generation of wastewater and its use in agriculture, urban landscaping, environmen-tal conservation, and other reuse practices are expanding globally as a result of rampanturbanization combined with increased water supply and sanitation coverage, particularlysewerage. At the same time, conventional water-resource scarcity has led to competition,including for wastewater. Case examples from diverse regions around the world have beenbriefly presented; the reader is encouraged to examine the references provided for fur-ther detail. Suffice it here to summarize the evidence assembled as follows. Three mainprocesses by which wastewater commodification occurs were identified. First, local andregional demand for resources is an important driver of the shift in emphasis on wastewaterfrom disposal to resource recovery. Second, a range of wastewater trades are evident, mostnotably farmer-to-farmer trades (e.g. the Pakistan case presented) within the agriculturalsector and transactions between cities and farmers (e.g. the India, Ethiopia, and Mexicocases). The third type is most readily characterized as “true” commodification, that is therental, auction, and sale of wastewater (for its water value in the US case, and for water andnutrients in the Ghana case).

The growing attention paid to wastewater presents a paradox of sorts. That is, enduse is increasingly privatized, although municipal governments still make use of treatedand untreated wastewater. However, the scrutiny paid to this expanding practice and theregulatory imperatives to ensure public health and environmental quality have simulta-neously increased public-sector participation in reuse. Several challenges remain. Publicmanagement must account for private demand and end-use of this commodified resource.At the same time, mechanisms are required to recirculate not simply resources, but benefitsand costs, back into the cycle of wastewater generation, use, recovery, and impacts. Theevidence presented here suggests such mechanisms are beginning to emerge.

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Buechler, S., and Mekala, G.D., 2005. Local responses to water resource degradation in India:groundwater farmer innovations and the reversal of knowledge flows. Journal of Environmentand Development, 14 (4), 410–438.

Drechsel, P., et al., eds., 2010. Wastewater irrigation and health: assessing and mitigating risks inlow-income countries. London: Earthscan.

Ensink, J.H.J., van der Hoek, W., and Simmons, R., 2008. Livelihoods from wastewater: water re-usein Faisalabad, Pakistan. In: B. Jiménez and T. Asano, eds. Water reuse: an international surveyof current practice, issues and needs. London: IWA, 387–400.

Ensink, J.H.J., et al., 2004. A nationwide assessment of wastewater use in Pakistan: an obscureactivity or a vitally important one? Water Policy, 6, 197–206.

International Water Management Institute (IWMI), 2009. Wastewater irrigation and public health:from research to impact. A roadmap for Ghana. Report for Google.org. Accra, Ghana: IWMI.

Jiménez, B., and Asano, T., 2008. Water reclamation and reuse around the world. In: B. Jiménez andT. Asano, eds. Water reuse: an international survey of current practice, issues and needs.London: IWA, 3–26.

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Murray, A., Cofie, O., and Drechsel, P., 2011. Efficiency indicators for waste-based business mod-els: fostering private-sector participation in wastewater and faecal-sludge management. WaterInternational, 36 (4): 505–521.

Raschid-Sally, L., and Jayakody, P., 2008. Drivers and characteristics of wastewater agriculturein developing countries—results from a global assessment. Research Report 127. Colombo,Sri Lanka: IWMI.

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Scott, C.A., Faruqui, N.I., and Raschid-Sally, L., eds., 2004. Wastewater use in irrigated agriculture:confronting the livelihood and environmental realities. Wallingford, UK: CAB International.

Scott, C.A., Flores-López, F., and Gastélum, J.R., 2007. Appropriation of Río San Juan water byMonterrey City, Mexico: implications for agriculture and basin water sharing. Paddy and WaterEnvironment, 5 (4): 253–262.

Scott, C.A., and Pineda Pablos, N., 2011. Innovating resource regimes: water, wastewater, andthe institutional dynamics of urban hydraulic reach in northwest Mexico. Geoforum, 42 (4),439–450.

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UN-Water, 2010. Global Analysis and Assessment of Sanitation and Drinking-Water (GLAAS).Geneva: World Health Organization.

Weckenbrock, P., et al., 2011. Fighting for the right to use wastewater: what drives the use of untreatedwastewater in a peri-urban village of Faisalabad, Pakistan? Water International, 36 (4), 522–534.

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The role of the public and private sectors in water provisionin Arizona, USA

Sharon B. Megdal*

Water Resources Research Center, University of Arizona, Tucson, USA

(Received 24 January 2011; final version received 27 January 2012)

Sustainable water management is a critical concern in the semi-arid portions of theAmerican Southwest. This paper explains the decentralized approach to water supplymanagement in this region, including the traditional roles of the public and privatesectors. With Arizona as a focus, it explores how the water supply challenges of thetwenty-first century require new approaches and partnerships for funding infrastructure,obtaining new water supplies, water banking, and water treatment.

Keywords: private water companies; public sector; decentralization; pricing; regula-tion; Arizona

Introduction

Competition for scarce water supplies and meeting the water and sanitation needs of anever-growing population are recognized concerns worldwide. Within the developed world,the American Southwest is facing some of the most critical challenges, with the stateof Arizona as a prime example. Growing population, water scarcity, long-term drought,and predictions of warming temperatures require sound water planning and management.Water management in the US is highly decentralized, with the federal government playinga limited role. Except for federally established drinking water and discharge standards,endangered species regulations related to federal action, and waters that cross state ornational boundaries, water management and regulation are the responsibilities of sub-national jurisdictions. Variation in legal and institutional settings across the US is reflectedin variation in state and local water management and policy.

Arizona is also a good example for the study of the roles of the private and pub-lic sectors in water provision. This highly urbanized state is part of the Colorado Riverwatershed (see Figure 1), and depends on water from the Colorado River for approx-imately 40 to 41% of its annual water diversions and extractions. Other surface watersupplies are also an important water source, making up about 15% of the supply (ADWR2010a). Groundwater is also a significant water source in Arizona, with some communitiesdepending on groundwater for 100% of their water supply. Depending on the time frameof measurement, state-wide, it is used to meet 40 to 43% of water demand. Recycled orreclaimed water makes up the remaining 3%. While the role of state and federal regulationsis important, many of the decisions most critical for communities throughout Arizona



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Figure 1. Colorado River watershed in the US.

Source: Decision Center for a Desert City, Arizona State University.

are those of the water companies serving the state. In Arizona, two large surface watersuppliers act as water wholesalers to many communities and agricultural users. The localwater companies have the ultimate responsibility for delivering safe drinking water to theircustomers.

This paper examines the roles of the public and private sectors in water provision tocommunities in Arizona. It explains the differences in the regulation of public versus pri-vately owned water systems and considers many of the challenges faced by water providers,regardless of the type of ownership. It concludes by suggesting that, even though the publicsector will continue to dominate water provision in Arizona, the importance of the pri-vate sector, especially in times of increasingly limited availability of public-sector capital,will continue and possibly increase, because of the reality that many growing regions

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throughout the world are facing not only water scarcity but also scarcity of the financialcapital to address water supply challenges.

The provision of water in Arizona

In 1900, when the US population was over 76 million, Arizona’s population was 122,931.By 2010, the US resident population had grown to over 308 million, with Arizona’s pop-ulation growing to almost 6.4 million. Well over half of Arizona’s population resides inMaricopa County, home to Phoenix and several other large cities. In many ways, Arizona’slandscape has been shaped by US Bureau of Reclamation water importation projects. Theseprojects have provided water to people, agriculture, and commerce well beyond those thatcould be sustained by on-site supplies.

In the early 1900s, the Salt River Project (SRP) was established as the first majormulti-purpose reclamation project authorized by the National Reclamation Act to collectand store water from a large watershed for the benefit of Phoenix-area water users (seeFigure 2). An interesting combination of a public district to provide electricity and a privateassociation, the SRP delivers untreated water to the Phoenix metropolitan area, includingmost of the area’s largest cities and towns. Though it was originally formed to convey waterto agricultural water users, over 90% of its current deliveries are for municipal purposes.The SRP is governed by residents of the SRP service area (the small shaded area below thelarger watershed in Figure 2), who are elected from among district landowners.

The Central Arizona Project (CAP), one of the most recent major projects of the USBureau of Reclamation, is operated as a three-county water conservation district and gov-erned by a 15-person board elected by residents of the three counties. Like the SRP, theCAP delivers untreated water. The water is delivered to agricultural, Indian, municipal, andindustrial users in the three central counties of Arizona, home to over 80% of the state’spopulation. Built at a cost of $3.6 billion, the open, lined canal system was completed in1993. The water travels from the Colorado River on the western edge of Arizona, 450 kmuphill through central Arizona to an altitude of approximately 730 m. It is designed todeliver more than 1900 million cubic meters annually. Water is delivered through the CAPsystem to community water systems that serve about four million people in the central partof Arizona. In addition, Colorado River water is used along or near the main stem of theriver, which forms the western boundary of Arizona.

The SRP and CAP are large wholesalers, whose systems provide water supplies that arecritical to the livelihood of Arizona. They were created by the US federal government butare operated by local districts or boards, who were assigned the responsibility of payingback the local share of the construction costs. Because repayment of CAP costs did notstart until completion of the canal, which occurred in the early 1990s, repayment willcontinue for several years. As an elected body, the board of directors has the authorityto levy property taxes. User charges for water form the basis for meeting operating andrepayment obligations. In addition, the CAP derives revenue from selling power availableto it in surplus of that needed to transmit water.

Most residents of Arizona rely on community-level water utilities for safe and reli-able water delivery to their homes and businesses. Although Arizona is highly urbanized,communities are spread throughout the state’s large land area, resulting in many waterdelivery systems. According to survey information from the Arizona Water InfrastructureFinance Authority (WIFA 2008), there are well over 400 systems operating in the state.The majority of them are privately owned and operated. Private ownership in this contextmeans ownership of the infrastructure necessary to treat and deliver water to customers, as

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Figure 2. Salt River Project watershed and service in Arizona.

Source: Salt River Project.

well as the legal right to deliver the water. The water molecules are “owned” by the public;although water systems have the right to withdraw or divert water, they do not own thewater molecules themselves.

In 2008, 307 of the 424 water utilities participating in the WIFA survey were privatelyowned, but these 307 utilities delivered only 10.5% of the water sold. Seventy-two per centof the utilities accounted for only 16% of water connections. Only 10 privately ownedwater systems had more than 10,000 connections and none had more than 100,000 con-nections. On the public side, 26 of the 117 publicly owned systems served more than10,000 connections, with 5 of these 26 serving more than 100,000 (Megdal and Laraforthcoming).

Private water systems are small, but they are and will remain important to Arizona.A key reason for this relates to the development patterns in Arizona. As in many areas inthe West and Southwest, a considerable portion of Arizona’s development occurs outside ofincorporated cities and towns. Community development outside of or far from a city oftenrequires private-sector involvement in water provision because there is no public utility toprovide water. Development often precedes formation of a city by many years; sometimes

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incorporation does not occur at all or incorporation happens later but a publicly ownedwater utility is not formed. Formation of a public utility itself is not a simple exercise. If aprivate utility already exists, its assets must be acquired and compensation must be paid forthe value of the assets and business operations. For these reasons and others, water is servedto many communities by utilities that are privately owned and operated. These privatelyowned systems may be free-standing or parts of larger state-wide, national or internationalwater companies. They serve small isolated communities as well as communities in themiddle of large metropolitan areas. For example, Paradise Valley, a wealthy community inthe central part of the Phoenix area, is served by a private water company, as are the largePhoenix-area retirement communities of Sun City and Sun City West.

In other cases, municipal acquisition of private utilities occurs as cities expand theirincorporated boundaries and purchase the assets of private systems (Kupel 2003). Theboundaries of publicly owned water systems do not necessarily follow those of the publicjurisdiction owning and operating the system. Tucson Water is a large water utility ownedand operated by the City of Tucson. Approximately 40% of Tucson Water customers liveoutside Tucson city limits, and there are small pockets of customers within the city lim-its who are not served by Tucson Water. Although Tucson Water serves about 80% of thecustomers in the Tucson metropolitan region, there are several other sizable water sys-tems, some private, some public. In the early 1990s, the Metropolitan Domestic WaterImprovement District was formed to provide water to several thousand customers who liveoutside Tucson city limits. A private water company had been providing water to customerswho resided outside the incorporated boundaries of the City of Tucson. Through a volun-tary sale, the water company’s assets were first sold to Tucson Water. Tucson Water latersold the assets to the newly formed district, which desired more local control of water deci-sions. The district is governed by a small board elected from within the district boundaries.Had the service area remained part of Tucson Water, the residents would have had no voicein electing the governing body (Tucson’s mayor and council) and no vote on revenue bondsfor the water utility. Therefore we see a mix of utility type and a sometimes complex lay-ering of responsibilities, with private water systems being more numerous and smaller onaverage than public systems. Within each type of system – private or public – there aremany different sizes and configurations, which reflect local conditions, preferences, andhistory of water system development.

The implications of public versus private ownership of water systems

An obvious implication of differences in ownership relates to the manner in which utili-ties access capital. Privately owned systems typically access capital through private-sectordebt and/or equity markets. Public systems utilize municipal debt instruments, which usu-ally involve lower costs of capital. Historically, public-private partnerships have not been asource of funding for capital projects, although some examples exist. As economic condi-tions have changed, however, different options are being examined and utilized. Althoughthis is not a potable water system example, Pima County, home to Tucson, Arizona, is rely-ing on a private-sector consortium to assume a considerable amount of the responsibilityfor rebuilding a large regional wastewater treatment plant.

Of course, monies collected through rates charged to water customers and other con-nection fees are the key source of water system operating revenues. How rates and tariffsare set usually differs significantly by type of ownership, not only because private rates willusually include a rate of return (or profit) on investment, but also because the rate setting isdone by different entities. In the United States, setting the policies, water rates, and return

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on investment for privately owned water systems usually comes under the responsibilityof state commissions that are established for the purpose of regulating private companiesthat provide services to communities under monopoly (single seller) conditions. Membersof the state commissions are appointed by the governor in over three-quarters of the states;they are popularly elected in about 12 states, including Arizona. The Arizona CorporationCommission (ACC) is responsible for regulating privately owned water systems (Mayes2007). Publicly owned systems have their rates set by local bodies, frequently the electedmayor and council of the city operating the system. The practices of the state commissionsversus local bodies can have significant implications for water utility practices regardinginvestments, water conservation programmes, and other policies.

In Arizona, privately owned utilities must show that their investments are used anduseful before recovery of related costs through rates is allowed, and they must base theirrate cases on historical information, not projections. Rate setting for publicly operatedwater systems, on the other hand, follows practices set by the local governing body andmay allow for recovery of costs prior to utilization of the asset as well as consideration offorward-looking costs. An example of this difference is the recovery of the costs of hold-ing a contract for the use of water delivered through the Central Arizona Project canal.Utilities had to make decisions in the 1980s, prior to actual delivery of CAP water, regard-ing whether to sign a 50-year contract to purchase CAP water. Those who signed thesecontracts pay capital charges annually based on the size of the contact, regardless of theiractual use of the water. Because of the “used and useful” requirement, many private util-ities have been restricted in their recovery of the costs of holding this water asset. Publicutilities, on the other hand, have been able to include the holding costs of the contracts intheir rates, whether or not the water is being delivered. Reasons why a utility may holda contract to CAP water but not yet incorporate it in their water supply portfolio includethe need to build transmission and/or treatment infrastructure necessary for utilization ofthe supply. Another may be the size of the contract relative to the community demand forwater. Contracts for CAP water are expected to be renewable beyond their 50-year term;some communities expected to take some years to grow into their allocations.

Rate structures differ across utilities as well. Some utilities charge a flat monthly fee forwater service, regardless of the amount of water used. Others charge a fixed monthly chargeand a constant fee per unit of water purchased. Some utilities vary the unit cost of water byseason. Many increase the unit cost of water as more water is purchased (Megdal and Laraforthcoming). This latter structure is considered the most effective for encouraging waterconservation (Agthe and Billings 1987, Billings 1987, Nieswiadomy and Molina 1989).Different water pricing structures can produce a given amount of revenue with the price perunit of water increasing as more water is purchased. For a time, the Arizona CorporationCommission (ACC) did not favour the use of increasing block pricing structures. In recentyears, however, that policy has been reversed and increasing block pricing has been imple-mented routinely as private water companies file for rate adjustments (Mayes 2007, 2010).While less than one-third of privately owned systems had this type of tiered rate structurein 2003, half had increasing block pricing structures in 2008. The comparable percentagesfor publicly owned systems were 61% and 64% in 2003 and 2008, respectively (Megdaland Lara forthcoming). The privately owned utilities are not experiencing a higher rate ofreturn on their investment. Rather, the rate structure used to produce an established revenuerequirement is now designed to encourage water conservation.

Another important difference between the policies of water utilities based on ownershiprelates to how state regulatory requirements for demonstrating a 100-year assured watersupply are met. Arizona’s Groundwater Management Act requires new development in

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regions designated as active management areas (AMAs) to demonstrate a 100-year assuredwater supply (Arizona Revised Statutes 1980, Colby and Jacobs 2007). Figure 3 showsthe location of the AMAs. The AMAs were established in 1980 for areas experiencingsevere groundwater overdraft. The assured water supply programme, a cornerstone of theGroundwater Management Act, was included to ensure that growing communities wouldnot continue their historical patterns of groundwater overdraft. There are two ways in whichan assured water supply is approved by the Arizona Department of Water Resources. Thefirst involves issuance of a Designation for the entire service area of a water provider ashaving an assured water supply; the second involves issuance of a Certificate that a spe-cific land area being developed has an assured water supply. In either case, there must beapproval that for 100 years, water (1) will be physically, legally and continuously available;(2) will meet water quality standards; (3) will be delivered by a water supplier of financial

Figure 3. Location of the active management areas.

Source: Salt River Project.

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means; (4) will be consistent with the statutory management goal of the AMA; and (5) willmeet the AMA conservation regulations (Arizona’s Water Future 2004, Colby and Jacobs2007, Eden et al. 2007).

Private water companies largely rely on developers to obtain a Certificate of 100-yearassured water supply for individual new development rather than obtaining a Designationfor their entire service areas. For water companies that had existing service areas prior tothe 1995 effective date of the assured water supply rules and were relying on groundwaterto serve that pre-1995 customer base, utilizing renewable water supplies for the entireservice area, rather than for new development only, is a higher-cost option. If available,groundwater is usually the lowest-cost water supply. The ACC, which approves their rates,historically has questioned the selection of options that lead to higher utility costs. Publiclyoperated water systems, on the other hand, are much more likely to meet the assuredwater supply requirements, for their existing (pre-1995) customers as well as new develop-ments, through a Designation of assured water supply. For example, in the Tucson ActiveManagement Area (TAMA), all five publicly operated water utilities were designated ashaving an assured water supply, while only three of the 40 privately owned utilities listedin the TAMA Third Management Plan were so designated (ADWR 2000, 2011). The dif-ference is important in that there will be less reliance on groundwater extractions when thefull service area falls under the 100-year assured water supply demonstration. Less relianceon groundwater is a key objective of the active management areas. While a full examina-tion and documentation of all proceedings and discussions before the Arizona CorporationCommission is beyond the scope of this paper, it is apparent that publicly owned watercompanies are more likely to meet this goal than are privately owned water utilities.

The Groundwater Management Act also requires conservation programmes for watercompanies above a certain size serving communities located in the AMAs. These pro-grammes are subject to modification at least once every 10 years. In this arena as well,regulatory practices differ between privately owned and publicly owned water companies.A large private water company that serves several Arizona communities challenged thestate’s authority to place regulations regarding meeting conservation standards directly onthe water companies themselves, arguing that the conservation regulations should applyinstead to the end users – the customers of the companies. Although the private com-pany prevailed at one level during the court proceedings (Arizona Court of Appeals 2003,Megdal 2003), the state’s approach to conservation regulations was ultimately upheld bythe Arizona Supreme Court (2004). Private companies were concerned that they did nothave the authority their public system counterparts did to implement conservation pro-grammes through ordinances and other city programmes. They were also concerned aboutprogramme cost recovery at the ACC. What is relevant about this complex issue for thepresent discussion is that, once again, differences in policies of those regulating privatelyowned water companies versus publicly owned water companies led to perceived and/oractual differences in the ability to implement conservation programmes and thereby meetthe requirements of state law regarding water conservation. Although the state prevailedin this legal challenge, it did revamp its basic conservation programme for water compa-nies and moved from a gallons-per-capita-per-day standard to a best management practices(BMP) standard for large community water systems (ADWR 2010b).

The 53 BMPs are divided into seven categories: (1) public awareness; (2) education andtraining; (3) outreach services; (4) physical system evaluation and improvements; (5) ordi-nances, conditions of service, and tariffs; (6) rebates and incentives; and (7) research andinnovation. Participation in the BMP programme is required for large water companies,whether municipally or privately owned, in the active management areas that have not

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been designated as having an assured water supply. Those that are designated may opt forcontinuing under the gallons-per-capita-per-day conservation programme that has been ineffect since the 1980s (ADWR 2000). Importantly, in rate case proceedings the ACC hasrequired conservation BMPs of privately owned water companies, even for those outsideof the AMAs, where the state itself requires no conservation programme (Mayes 2010).Because of (1) the less-than-proportional participation of privately owned water compa-nies in the assured water supply designation programme and (2) the power of the ACCto require programmes of companies outside the AMAs, we will see continuing differ-ences in the nature of conservation programme participation by water system ownershipand location (Mayes 2007, ADWR 2010b).

These examples show how differences in regulation and rate setting can have impli-cations for a region’s ability to achieve water policy objectives such as reducing relianceon stressed aquifers, increasing use of renewable water supplies, and increasing water con-servation. As Arizona looks to address additional water management objectives, policymakers must recognize that, for the same reasons they have existed historically, both pri-vately and publicly owned water systems will continue to be part of Arizona’s waterscape.Their capacity to modify their practices to respond to changing circumstances, however,may differ. As new policies are developed, policy makers may have to anticipate differentialresponses to laws and regulations based on water system ownership.

Collaboration and communication between the ACC and other water regulators haveoccurred more in recent times than in the past and are expected to continue (Mayes 2007,Blue Ribbon Panel 2010). Given the significance of the water challenges ahead, collab-oration on policy making is essential. However, the magnitude and uncertainties of thechallenges ahead provide even greater opportunity for innovation and collaboration, includ-ing new dimensions to public and private sector interrelationships. While privately andpublicly owned water systems may continue to operate next door to each other, there maybe opportunities for public-private collaborations and partnerships so that future challengescan be addressed more effectively.

The challenges and opportunities ahead

In a water-scarce and growing region, Arizona decision makers and water managers havetaken many steps to ensure that reliable and safe water supplies continue to be available forArizona residents and businesses. For many reasons, including cost, water availability, andenvironmental considerations, additional water storage and delivery projects on the scale ofthe Salt River Project and the Central Arizona Project are not going to be part of Arizona’sfuture waterscape. Yet, demand for water will probably continue to grow, whether the com-munities are in urban, peri-urban, or rural areas. Alongside the many uncertainties is thecertainty that obtaining the water supplies to meet future water demands will be more costlyand possibly more contentious. The scope and scale of the challenges before us requireinnovative solutions. Both the private and public sectors will have important roles to play.

Certainly, water supply portfolios have to accommodate the potential for reduced sur-face water supplies associated with climate variability and change. Utilization of renewablewater supplies through constructed systems like the SRP and CAP has enabled growth tooccur. Colorado River allocations exceed what are now understood to be average annualflow conditions, and the region has experienced unusually dry conditions over the pastdecade. The Colorado River watershed and most of the Southwest are experiencing a long-term drought. Arizona is particularly vulnerable to low Colorado River flow conditionsbecause water delivered through the CAP has the lowest priority in times of shortage –

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meaning that all water is cut to the CAP before any of California’s Colorado River waterallocation is cut. Arizona and the six other US Colorado River states proposed to theUS Secretary of the Interior a system for declaring shortage on the river that wouldinvolve more-frequent but less-sizable cutbacks of water deliveries to central Arizona.The Secretary of the Interior adopted this proposal in December 2007 (US Bureau ofReclamation 2007). These criteria for shortage, however, do not cover all possible sce-narios, nor do they extend indefinitely. While the shortage regulations and the storage ofwater underground in Arizona in anticipation of drought provide some limits to the vul-nerability caused by CAP’s junior priority, they do not address the projected imbalance ofwater demands and supplies due to growth and expansion of economic activity.

Addressing the long-term water needs of the state requires careful planning and planimplementation. A combination of actions is required, including water conservation, waterstorage and recovery, matching water quality with type of water use, water reuse, anddesalination of brackish water and perhaps seawater (in partnership with California and/orMexico). Water conservation offers the opportunity to reduce demand, thereby decreas-ing the need for other, more costly water supply options. Although increases in water useefficiency can have unintended consequences, such as smaller agricultural return flowsto support riparian areas, conservation is considered a must-do option. In the municipalcontext, rather than the industrial or agricultural, the costs are not of the scale of otheroptions. Also, options like household-level rainwater harvesting can, among other things,enable households to substitute harvested rainwater for potable water in outdoor water-ing. Reducing the utilization of potable water for uses that do not require such high-qualitywater is recognized as a sound strategy – so long as surface water laws allow for the captureof rainwater (Gaston 2010). Where allowed, installation of grey water systems is becomingmore popular. Not without its own set of consequences, such as reduced liquid flows towastewater treatment plants, which can affect the flow of solids and treatment conditions,grey water systems allow for on-site water reuse and potential reductions in the use ofpotable quality groundwater (Megdal 2009). The implications of reduced sewer flows perhousehold, as well as increased community use of recycled treated wastewater, are resultingin careful consideration of wastewater collection, treatment, and distribution systems.

Some strategies require significant investments in infrastructure, particularly thoserequiring transmission facilities, deep wells, or treatment plants (Arizona InvestmentCouncil 2008). High-level treatment of wastewater beyond the standards required for oper-ation of sanitation plants – to reclaimed water standards – is costly. Reuse of treatedwastewater indirectly through storage and recovery, known as indirect potable reuse, iscurrently practised by Orange County Water District in Southern California. Direct potablereuse is under investigation in many parts of the world. Industry is already directly usingtreated wastewater. An Arizona example is the use of reclaimed water by the Palo VerdeNuclear Generating Station, a large nuclear power plant in the US and the only one inthe world relying on reclaimed water for cooling (Lotts 2011). Whatever the application,reusing more water more times is an important (but expensive) strategy going forward.Likewise, the treatment of mineral-heavy groundwater and the desalination of brackishgroundwater are costly and involve many challenging issues, particularly disposal of theassociated brine or waste products. Brine disposal can involve transport of the waste streamover many miles, as is the practice of the El Paso Water Utility. Desalination of brackishwater and seawater are both costly options, but increasingly selected by regions copingwith water scarcity. Although Arizona is not located along an ocean or sea, its neighboursto the south and west are. Strategic partnerships have been discussed and could involveArizona investing in seawater desalination facilities in exchange for the opportunity to

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take more water from the Colorado River. An alternative is a partnership with Mexicothat would involve piping desalinated seawater from Mexico into the US. While makingpartnerships involving seawater desalination feasible will take long-term negotiations andcommitments, some reuse options will likewise require significant investments of timeand money. In addition, most options require significant investment in public engagementand education.

In Arizona, the public sector has the advantage of size when it comes to operatingcommunity water systems. Yet it faces significant constraints when considering capitalimprovement projects. Locally elected officials are just as concerned as the ACC with theaffordability of water rates. They face bonding and other financial constraints. As reported,private water systems in Arizona tend to be small. While some are owned by larger com-panies, there are limits to the economic risk that can be assumed. As more expensive wateracquisition, treatment, and delivery options are explored, realizing economies of scope andscale may require partnering across utilities, regardless of the type of ownership. In addi-tion, different approaches to securing the capital necessary for funding such projects maybe necessary. Across the world, innovative approaches to partnerships are being devel-oped so that water policy objectives of a region, state, or nation can be pursued and largefinancial investments undertaken. In the US and in Arizona, it will take new types of col-laboration between the private and public sectors to provide the technical and financialresources to shape the waterscape and landscape of Arizona. Whereas this paper discussedthe private versus public-sector ownership of water systems, future discussions are likelyto mention how the sectors came together to address the water management challenges ofthe twenty-first century.

Concluding remarks

Water supply conditions vary within and across states and countries, but it can be arguedthat Arizona is a microcosm of the world when it comes to water supply challenges. Theclimate is semi-arid. Agriculture diverts or extracts approximately 70% of the water used inthe state. The population is highly urbanized and expected to grow. Groundwater in partsof the state has been over-extracted relative to natural recharge. Surface water suppliesare fully allocated, some would argue over-allocated. Climate models predict more severewater supply constraints in the future. The public sector tends to dominate water supplyprovision and decision making. Yet the private sector plays an important role and accessto private-sector capital may become a more important consideration going forward. Forthese reasons, Arizona can be viewed as a laboratory in which to examine the implicationsof and possible solutions to water challenges like those that will be experienced in manyparts of the world.

Arizona faces many water supply issues. Water managers, public officials, and otherexperts throughout the state will continue to spend countless hours working on developingsolutions. These solutions will have to reflect uncertainties that are different from those ofthe past, particularly those associated with water scarcity relative to demand and the impli-cations of climate change. While Arizona’s decentralized approach to water managementgenerally, and groundwater management specifically, is unlikely to change significantly,and there will remain differences in regulation and policies of publicly owned and privatelyowned water systems, there is a confluence of purpose across the sectors. Like Arizona,regions throughout the world are exploring options for governance of their provision andconservation of groundwater and surface water supplies, as well as for deployment of pri-vate and public capital. The solutions are likely to require the interaction of private-sector

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capital and public-sector oversight in new and different ways. We are entering a new era ofwater planning and investment, one with significant challenges and new opportunities forthe public and private sectors.

AcknowledgementsThe author thanks graduate research assistants Valerie Kristine Herman and Jorge Lara Alvarez foreditorial review and the University of Arizona Technology and Research Initiative Fund’s WaterSustainability Program for funding. The author is fully responsible for the material presented; allviews expressed are the author’s alone and do not represent those of the University of Arizona or anyorganization mentioned in the paper.

ReferencesAgthe, D.E., and Billings, R.B., 1987. Equity, price elasticity, and household income under increasing

block rates for water. American Journal of Economics and Sociology, 46 (3), 273–286.ADWR (Arizona Department of Water Resources), 2000. Tucson active management area

third management plan, Chapter 5 [online]. Available from: http://www.azwater.gov/AzDWR/Watermanagement/AMAs/documents/ch5-tuc.pdf [Accessed October 2011].

ADWR (Arizona Department of Water Resources), 2010a. Statewide water demand in 2001–2005and 2006 [online]. Available from: http://www.adwr.state.az.us/azdwr/StatewidePlanning/WaterAtlas/documents/July2010_statewidedemand.pdf [Accessed January 2011].

ADWR (Arizona Department of Water Resources), 2010b. Modified Non-Per Capita ConservationProgram: June 30, 2010 midyear report [online]. Available from: http://www.azwater.gov/AzDWR/WaterManagement/AMAs/documents/MNPCCPJUNE2010REPORTFINAL.pdf[Accessed August 2011].

ADWR (Arizona Department of Water Resources), 2011. List of Municipal Water ProvidersDesignated as Having and Assured or Adequate Water Supply [online]. Available from: http://www.azwater.gov/azdwr/WaterManagement/AAWS/documents/documents/List_of_Designated_Providers_5-25-11.pdf [Accessed October 2011].

Arizona Court of Appeals 2003. Arizona Court of Appeals case: Arizona Water Co. v. ArizonaDepartment of Water Resources, 205 Ariz. 532, 73 P.3d 1267.

Arizona Revised Statutes 1980, Arizona Groundwater Code, Chapter 2 of Title 45.Arizona Supreme Court 2004. Arizona Supreme Court case: Arizona Water Co. v. Arizona

Department of Water Resources, 208 Ariz.147, 91 P.3d 990.Arizona’s Water Future: Challenges and Opportunities, 2004 [online]. Background Report.

University of Arizona. Available from: http://ag.arizona.edu/azwater/publications.php?rcd_id=54.

Arizona Investment Council. Infrastructure needs and funding alternatives for Arizona, 2008–2032:water, energy, communications and transportation [online]. Available from: http://www.arizonaic.org/images/stories/pdf/AIC_FINAL_report.pdf [Accessed 17 January 2011].

Billings, B.R., 1987. Alternative demand model estimators for block rate pricing. Water ResourcesBulletin, 23 (2), 341–345.

Blue Ribbon Panel for Water Sustainability, Final Report [online], 2010. Arizona Departmentof Environmental Quality, Arizona Department of Water Resources, Arizona CorporationCommission. Available from: http://www.azwater.gov/AzDWR/waterManagement/documents/BRP_Final_Report-12-1-10.pdf.

Colby, B., and K. Jacobs, eds., 2007. Arizona Water Policy: Management Innovations in anUrbanizing, Arid Region. Washington, DC: RFF Press.

Eden, S., Pitzer, G., and Gelt, J., 2007. Layperson’s guide to Arizona water [online]. Sacramento,CA: Water Education Foundation. Available from: http://ag.arizona.edu/azwater/publications.php?rcd_id=50.

Gaston, T., 2010. Rainwater harvesting in the southwestern United States [online].University of Arizona. Available from: http://www.cap-az.com/Portals/1/PublicInformation/AwardForResearch/Gaston–Rainwater-Harvesting–May-2010–CAP.pdf [Accessed January2011].

Kupel, K.E., 2003. Fuel for growth: water and Arizona’s urban environment. Tucson: University ofArizona Press.

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Lotts, R., water resources manager, Arizona Public Service. Personal communication, 24 January2011.

Mayes, K., 2007. Encouraging conservation by Arizona’s private water companies: a newera of regulation by the Arizona Corporation Commission. Arizona Law Review, 49 (2),297–320.

Mayes, K., commissioner, Arizona Corporation Commission. Personal communication, March 2010.Megdal, S., 2003. Court tells ADWR to set water-use standards for end users: time may be at hand

to explore options for gallons per capita per day [online]. Arizona Water Resources, 15 (2).Available from: http://cals.arizona.edu/azwater/awr/septoct03/policy.html.

Megdal, S., 2009. Payoffs from water-saving practices may have down-the-line costs [online].Arizona Water Resource. Available from: http://cals.arizona.edu/AZWATER/publications/AWRColumn/Payoffs.Water.Saving.Practices_Spring09.pdf [Accessed October 2011].

Megdal, S., and Lara, J.A., forthcoming. Achieving water policy objectives through water pricing: acase study of Arizona’s decentralized approach to water provision. In: S. Megdal, R. Varaday,and S. Eden, eds. Shared borders, shared waters: Israeli-Palestinian and Colorado River basinwater challenges. Paris/Abingdon: UNESCO-IHE/Taylor & Francis.

Nieswiadomy, M.L., and Molina, D.J., 1989. Comparing residential water demand estimates underdecreasing and increasing block rates using household data. Land Economics, 65 (3), 280–289.

US Bureau of Reclamation, 2007. Record of decision: Colorado River interim guidelines forlower basin shortages and the coordinated operations for Lake Powell and Lake Mead[online]. Available from: http://www.usbr.gov/lc/region/programs/strategies/RecordofDecision.pdf [Accessed January 2011].

WIFA (Water Infrastructure Finance Authority of Arizona), 2008. Water and wastewater residentialrate survey for the State of Arizona [online]. Available from: http://www.azwifa.gov/publications/2008RateStudy.pdf.

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Virtual water hegemony: the role of agribusiness in globalwater governance

Suvi Sojamoa*, Martin Keulertzb†, Jeroen Warnerc* and John Anthony Alland

aWater and Development Research Group, Aalto University, Finland; bDepartment of Geography,London Water Research Group, King’s College London, UK; cDepartment of Social Sciences,University of Wageningen, the Netherlands; dDepartment of Geography, King’s College London,and School of Oriental and African Studies, University of London, UK

(Received 18 March 2011; final version received 27 January 2012)

The recent global food crises have highlighted how the agro-food system tends tobe subject to powerful agribusiness players, with thus far unidentified consequencesfor global water security. By connecting hydro-hegemony and virtual water concepts,this study illustrates the Western dominance over the virtual water embedded in inter-national agro-food commodity trade flows. Accordingly, foreign direct investment inland by emerging Asian and Arab economies and their increased competition overthe sources of global food supply chains appear as strategies to challenge the Westernagribusiness “virtual water hegemony”.

Keywords: global water governance; water security; virtual water; hydro-hegemony;corporate power; foreign direct investment in land

Introduction

We are living in a time of crucial transitions in the global political economy of food. Theyears 2010 and 2011 have witnessed another round of food price spikes: wheat pricesroughly doubled from June 2010 to January 2011. Food prices have been described as onetrigger for the recent social unrest in the Middle East and North Africa (MENA) region(Lagi et al. 2011). While food prices are projected to remain volatile, food security and theavailability of cheap food have once again been firmly put on national policy agendas aswell as on those of bilateral and multilateral agencies. International prices of the main foodstaples have been falling for at least 200 years as a consequence of technological advancesin agronomy and the non-internalization of environmental impacts. However, continuingpopulation growth in East and South Asia, the MENA region, and Sub-Saharan Africain the coming decades and the tendency to adopt protein-rich diets will exert increasingpressure on the global food supply.

Even though demand for food commodities is rising, especially in the global southand east, a long-standing Western dominance that was reinforced during the Cold War eraprevails in the global food market. The current global political economy of the trade in

*Corresponding author. Email: [email protected]†Second corresponding author. Email. [email protected]


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170 S. Sojamo et al.

the staple agro-food commodities – wheat, corn, soya, sugar, and cotton – is largely inthe hands of a few Western agribusiness conglomerates such as Archer Daniels Midland,Bunge, Cargill, and Louis Dreyfus (UNCTAD 2009, Blas and Meyer 2010, Lawrence2011). Great power disparities in the global agro-food supply chain have created an“hourglass” market, with millions of producers at the top and millions of consumers atthe bottom. The flow through the neck of the hourglass is dominated by a select groupof agribusiness conglomerates and a few supermarket chains (Friedmann 1993, Murphy2008). This dominance is constantly reinforced by their very effective global informationsystems and intimate and effective relationships with political and economic elites acrossthe world. These capacities enable them to adapt to the risks of these low-margin trad-ing activities as well as to the complex agricultural subsidies determined by the EU inBrussels and the US agencies in Washington, D.C. These alliances of private market andpublic elected power have evolved into a Western hegemonic system, its powerful actorsbecoming “the deans of world politics, the administrators, regulators and geographersof international affairs” (O’Tuathail et al. 2006, p. 82). However, the rising demand foragro-food commodities, growing natural resource scarcities, and the anticipated impactsof climatic change have created circumstances in which East Asian investors and Arabsovereign wealth funds, as well as other investors thus far not interested in agro-foodcommodities, are challenging the normal Western hegemony over food production andthe political economy of the global trade in strategic agro-food staples. A crucial andmuch-misunderstood resource constraint in these trading and inward-investing activitiesis water.

Food production requires several inputs, including soil, sunshine, and water, as wellas labour, seeds, energy, fertilizers, and pesticides. However, this paper will focus onone input, water, which is already very scarce in Middle Eastern and East Asian coun-tries. By twinning the “virtual water concept” (Allan 1993), created to provide a betterunderstanding of the water used for food production, with the hydro-hegemony framework(Zeitoun and Warner 2006), used to analyse the unevenly distributed power in the politicsof transboundary waters, this paper aims to provide a new framework for the analysis of thefood-system element of the global political economy of water governance. The core ques-tions it aims to answer in doing so are: Who “manages” virtual water, and subsequently,who impacts water security in the global political economy?

We argue that what we call an aspiration to achieve “virtual water control” and pos-sibly challenge Western “hegemony” is a key driver in the current phase of foreign directinvestment in land in Africa, Latin America, and South-East Asia. Since water and foodsecurity are so intimately related, a decreased dependency on Western agribusiness con-glomerates with regard to virtual water also challenges the economic power relations inglobal agro-food trade.

The paper first provides a review of the existing literature on water security, watergovernance, virtual water, and hydropolitics, constructing the framework for “virtual waterhegemony” in global water governance. The analysis is exemplified by a case study onthe power of Western agribusiness conglomerates and their influence over the global agro-food supply chains and associated political economy networks. The recent phenomenon offoreign direct investment in land and water as a result of challenging Western agro-foodpower, bypassing global agricultural trade, is also reviewed. The final section discusses thechanging global political economy, the relevance of the global food trade to global watergovernance, and the possible roles of the actors in the world food system in bringing aboutnew forms of global water use and governance.

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Introducing a “virtual water hegemony” framework

Water and food security challenges reveal the role of agribusiness in global watergovernance

The need for water governance at the global scale results from growing concerns over,first, water security in many parts of the world, and secondly, whether the existing com-modity market system can deliver security as well as the necessary stewardship of waterresources (Allan 2001, Hoekstra and Chapagain 2008). However, the role of the powerfulagribusiness actors of the commodity market system in water security has thus far beenneglected in the literature and practice of global water governance.

The concept of water security has become increasingly popular during the past decadeamong water scientists, professionals, and policy makers (see e.g. Grey and Sadoff 2007,Waughray 2011). While a popular definition defines water security as the capacity of apopulation to ensure that they continue to have access to potable water, it is notable thatdomestic water use constitutes a very small proportion of human water needs, especiallycompared with the water used in agriculture. Furthermore, agricultural production is by farthe largest consumptive water use, as opposed to hydropower production and domestic andindustrial uses, which are considered largely non-consumptive (World Water AssessmentProgramme 2009). Water security is thus bound up above all with food security in a water-food-energy-climate-trade nexus. Despite uneven geographical distribution of the world’swater resources, global water security has been shown to be possible as a consequence ofthe global virtual water “flows” embedded in traded agro-food commodities (Allan 1993,2001, 2003). However, understanding of the role of the powerful actors in the global agro-food trade system – that is, of who the “virtual water managers” are – has thus far beenlacking in the water security literature.

In the modern state system, meeting basic security needs is the remit of governments.Governments derive their legitimacy from protecting society against basic insecurities.Accordingly, security studies in the field of political science emphasize the geopoliti-cal nature of water security, focusing on its national, militaristic, resource depletion, andhuman security dimensions (e.g. Buzan et al. 1998, Brauch 2007, Pachova et al. 2008).Yet as Krahmann (2008) and others have noted, security governance is becoming a patch-work of public, private, and civil-society responsibilities. Drawing on Beck’s Risk Society(1992, 1999), Krahmann (2008) expands his work towards the role of the private sector inthe age of perceived risks. “Framed within a neo-liberal discourse of the small state andthe superiority of the market, the private management of risk promises to provide securitynot only more effectively, but also more cost-efficiently than political and cosmopolitanbargaining” (Krahmann 2008, p. 31). What has been described as the “retreat of the state”(Strange 1996) has given rise to new risks (known and unknown) that are created, managed,and sustained in the world’s “risk society” by private businesses (Krahmann 2008). Privatecompanies run prisons and act as hired guns in wars (as in Iraq); NGOs lend humani-tarian aid and provide essential basic services where governments chronically fall short(as in Haiti). This shifts power away from states towards private and, to a lesser degree,civil-society actors without democratic accountability.

Even though water governance is now a hotly debated and analysed concept in thewater sector, in general the literature on global water governance suffers from the sameneglect as much of the literature on global environmental governance: it lacks an appreci-ation of “corporate strategy or role within the broader structures of political and economicpower” (Newell and Levy 2006, p. 157). An emerging literature on hydropolitics and watergovernance has called attention to the role of transnational water corporations in global

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water management and supply – and as sponsors of international megaconferences as theestablished forums of global water governance (e.g. Barlow and Clarke 2002, Finger andAllouche 2002, Gleick and Lane 2005, Conca 2006, Biswas and Tortajada 2009). The lit-erature on “blue water wars” such as that in Cochabamba and El Alto, Bolivia (Boesen andMunk Ravnborg 2003, Warner 2004, Spronk and Crespo 2008), brings the global scrambleby private water companies for the small volumes of high-quality water, and the result-ing conflicts, into the frame. While this attention is very useful, it is important to notethat domestic and transnational water companies only manage globally a small if impor-tant proportion of the water, compared with the unnoticed majority of water resourcesmanaged and consumed in the global agro-food supply chains dominated by the Westernagribusiness conglomerates.

Accordingly, a significant aspect of global water governance should be viewed in theeconomic power sphere of the agro-food global political economy. The water security chal-lenge, intimately related to the food security challenge, reveals the role of agribusinessin global water governance, emphasizing the role of corporations alongside state andcivil-society actors as rule makers forming coalitions and networks of governance.

Virtual water hegemony – Western agribusiness power in global water governance

A necessary addition to the concept of virtual water (Allan 1993, 2001, 2003) in explain-ing the governance of global water security is an increased understanding of the role ofagribusiness and the global agro-food political economy in managing virtual water “flows”.Here the concept is enriched by bringing in theory developed in the domain of hydropoli-tics. First, the literature on hydropolitics will be explored, especially the hydro-hegemonyapproach of Zeitoun and Warner (2006), before coming back to expanding the virtual waterconcept with improved understanding of the power relations of the actors of food and watersecurity in the global political economy.

Hydro-hegemony approach explaining power play over water governance

The literature on hydpropolitics shows that while the global water governance literatureexpects much from institutional coordination and reform in reducing conflict and wastefulpractices, it is fairly blind to power play and asymmetries. First, the liberal-institutionalistapproach has been critiqued as naïve by both “realist” and “critical” views in the globalpolitical economy literature. Sneddon and Fox (2006), for example, highlighted the impor-tance of geopolitics and discourses, while Warner and Zeitoun (2008) showed that theabsence of open conflict does not mean peace and cooperation. Rather, material andideational power asymmetries are expressed in unequal room to manoeuvre.

The global political economy of food trade and management of virtual water “flows”has features similar to those which Zeitoun and Warner (2006) have identified in theirhydro-hegemony approach, looking explicitly at the connections between the local and theglobal in blue water as well as at the global ramifications of river basin politics. A hydro-hegemon may use several mechanisms to secure compliance from others in the arena. Thetactics being used include (1) display or threat of military force, covert actions, and coer-cion pressure, and (2) financial incentives and support (carrots and sticks), either by (a)persuasion, co-optation, and compromise, or (b) display of force. Hegemonic tactics cantake form in treaties and knowledge construction and via utilizing geographic position. Themost successful modality is where the power of the hegemon is accepted by the dominatedas a given. Supported by a mix of coercion and persuasion, hegemonic riparian states

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arrogate a special role for themselves in deciding how water is (re)allocated between users(Zeitoun and Warner 2006).

While influential, the Zeitoun and Warner article was critiqued by Selby (2007) andNaidoo et al. (2008) for its state-centricity. They argued that the analysis should beexpanded to cover global elites. Warner’s multi-layer hegemony approach (2008) soughtto fill this gap by linking basin politics to global hydropolitics, showing by the exampleof Turkish dams how states and multilateral organizations, water and construction compa-nies, and NGOs all act as global players with a strong bearing on discourse, local powerrelations, and decisions.

Western virtual water hegemony and its challengers

The work of Allan (2001, 2003) has usefully made an explicit connection between the(non)politics of green and blue water, arguing that the global “trade” of free virtual waterresources can (in economic invisibility and political silence) make up for local scarcities,and in so doing eliminate armed conflict over water at transnational and sub-national lev-els. However, conflict continues at lower levels of intensity. Re-ordering current tradingpractices and subsidies would facilitate access of water-scarce economies to cheap foodand enable poor economies to trade more fairly.

The world’s freshwater resources are not evenly distributed geographically or eco-nomically. While most of the Western world enjoys good access to water resources, thepicture in areas with high population growth looks very different. Water stress has hauntedthe Middle East since the 1970s but it has also become a serious obstacle to agriculturaldevelopment in China, India, and other Asian countries (Allan 2001). In the global foodsystem, however, water surpluses are located in a small number of industrialised politicaleconomies, mainly in temperate latitudes, promoting large-scale food exports to water-scarce zones. Nevertheless, major exporters can also be major importers (see e.g. Hoekstraand Chapagain 2008, Hoekstra and Mekonnen 2012). Figure 1 illustrates the dependencyof Europe, the Middle East, Central America and East Asia on virtual water “imports”. Themissing information is the scale of Western direct investment, privileged trade agreements,and subsidies that explain the direction of the “flows”. The tactics of the Western virtualwater hegemony include financial incentives, carrots and sticks, and the efficient utilizationof geographical position on the global water map.

At the Third World Water Forum in Kyoto in 2003, virtual water strategies were pre-sented as viable solutions for water-scarce countries but dependent on persistently lowinternational food prices and free access to markets (World Water Council 2004). The cur-rent global trend, however, tends to be in the other direction. Rather than remaining inert,newly emerging economies with a structural lack of precipitation have become much moreactive, especially in the case of China, making their economic and political power felt, sothat the map of virtual water continues not to be a level playing field. These tendenciesare evident notably in the response to the 2008 spikes in commodity prices, which madeeconomic aspirants think again about reliance on the invisible hand of the global market.

This is where the link to food and water acquisition comes in and the thus-far-prevailingWestern virtual water hegemony and its challengers are revealed. While a quietly unfold-ing trend before 2008, the food price spike and riots of that year made several states andmultinationals decide that reliance on a volatile market might be a political risk, whileothers benefited from their dominance over processing and transport (see e.g. Blas andMeyer 2010). A clear upsurge was notable in direct foreign investments in agriculturalland in response to the 2008 price spikes, with water rights and green water tied to the

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land. An example of this would be Sudan’s contractual share of the Nile waters, 18.5 bil-lion cubic metres, which investors have indirectly purchased through land deals in Sudan.The resulting land-lease contracts increase the rights of investing sovereign wealth fundsand transnational agribusiness corporations, while reducing the sovereignty of the recipientstate – bypassing the need for trade on the world market. These practices give manoeuvringroom for the leasing actors to pursue their own policies.

Western economies, their major corporations and investors, and their consumers havedeveloped significant advantages, in stark contrast to their eastern and southern counter-parts. Virtual water “flows” are determined by the capacities of the Western economiesthrough the interplay of Western governments, their private-sector institutions, and theirconsumers. Because policies around food, and therefore virtual water, are not subjectto much international scrutiny, the hegemonic conditions which characterize the globalpolitical economy of food and virtual water have been remarkably enduring.

As long as the current system provides importing economies with sufficient food com-modities, there is little reason for the dominated to challenge the hegemonic condition.However, when food prices are volatile for various reasons, the dominated governmentsmay be forced to look into alternatives. As noted above, water is unevenly distributedaround the globe. Hegemonic conditions in the global political economy are thus likelyto be under careful scrutiny by import-dependent economies.

The argument for virtual water hegemony will next be underpinned by providing twocase studies with different facets: First, who dominates the market? – and second, whodirectly invests where?

Case studies

Non-evident power of the “ABCD” of transnational agribusiness corporations in globalwater management and governance

The nature of the power relations that determine global water security will be examinedhere by analysing the activities of a group of major agribusiness corporations called the“ABCD” of the industry: Archer Daniels Midland, Bunge, Cargill, and Louis Dreyfus.Depending on estimates, these corporations handle 70–90% of the internationally mosttraded staple food commodities (see e.g. Lawrence 2011). They therefore also handle ahigh proportion of the virtual water flows “traded” internationally (see Tables 1 and 2). Therecent grain price spikes have again brought these corporate conglomerates that underpinthe world food system to the attention of media and non-governmental organizations (seee.g. Blas and Meyer 2010, GRAIN 2011, Lawrence 2011). Based on their major involve-ment in and leverage on the international agro-food commodity trade, these corporationscould be described as virtual water hegemons, considering their geographic productionlocations and extensive networks of power in the global political economy.

While the origins of ADM and Cargill lie on the water-abundant North Americancontinent, Bunge and Louis Dreyfus were established first in also well-endowed WesternEurope. All four have in the course of the twentieth century expanded their corporate oper-ations across all continents, naturally investing in water-rich regions of Latin America,western Africa, and Asia. This is a legitimate business strategy. However, it has led tohegemonic conditions over global water resources, which needs to be addressed in a globalwater governance context.

Although the corporations are aware of their dominant role in global food trade, theyhave until now either been unaware of their role in global water management or turneda blind eye. Besides managing global supply, the ABCD corporations are also powerful

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Table 1. Global water consumption and international virtual water contents of trade flows.

Global water consumption km3/yr,period 1996–2005 International virtual water flows km3/yr, period 1996–2005

Agriculture Total

Related to trade inagricultural

productsRelated to trade in

crop products

Related to trade inagricultural and

industrial products

8363 9087 2038 1763 2320

Share of global water consumptionin agriculture %

24 21 –

Share of total water consumption % 22 19 26

Source: Mekonnen and Hoekstra (2011).

Table 2. International virtual-water flows for the nine largest crops by international trade volumesand associated virtual water contents, period 1996–2005.

CropInternational virtual water flows

(Mm3/yr)Contribution to the total international

virtual water flows %

Seed cotton 568, 830 24.5Soybeans 202, 899 8.7Wheat 200, 619 8.6Cocoa beans 86, 895 3.7Coffee, green 84, 911 3.7Oil palm fruit 70, 945 3.1Maize 68, 785 3.0Rice, paddy 68, 585 3.0Sugar cane 66, 523 2.9

Source: Mekonnen and Hoekstra (2011).

actors in the global agro-food supply and value chains and networks that govern globaldemand. Through vertical integration between different stages of the supply chain, theyprovide seeds and fertilizers to farmers to ensure their supply for their trading opera-tions and their crushing, processing, and manufacturing facilities downstream in the chain.In these roles they have a major influence on the dynamics of the global agro-food chain(Hendrickson and Heffernan 2002, UNCTAD 2009). In a wider network setting, their closeinteraction with the national trade organizations of the countries in which they operateand the resulting lobbying power which influences national export and import policiesexplain how they contribute to knowledge construction on what is evident and what isnot in the world agro-food system (see e.g. Magdoff et al. 2000, McMichael 2000, 2009,Kneen 2002, Murphy 2006, Clapp and Fuchs 2009). In addition, the corporations have astrong global infrastructural capacity, from sourcing, to storage and processing, to portsand transport fleets. Furthermore, they have immense experience and institutional capacityin finance and hedging (Kaufman 2011).

As noted, the corporations contest their role as water managers, judging by interviewsof corporate representatives and their trading partners conducted by the authors in 2010 and2011. However, besides open contestation, resistance or accommodation to the idea oftheir role as water managers, non-intentional and non-evident forms of their power alsomatter in the hegemonic water management and governance context (Newell and Levy

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2006, Zeitoun and Warner 2006). In the case of the ABCD corporations, this strength ismost evident in their remarkable shares of international virtual water “flows”. With onlysparse market-share and non-location-specific aggregate operation data it is impossibleto give accurate statistics on the water footprints of the ABCD corporations. However,indicative estimates of the scale and efficiency of their role as global water managers canbe based on the numbers available by multiplying the associated international crop tradevolumes (tonnes/year) by their associated virtual-water content (m3/tonne) (Hoekstra andChapagain 2008). As noted, considering that the corporations dominate 70–90% of inter-national agro-food commodity trade (see e.g. Lawrence 2011), reportedly trading all themain crops with highest shares of associated international virtual water “flows”, they aremajor global water managers (Table 2).

Considering that the main grain and oilseed sourcing regions of the corporations inNorth and South America are green water intensive and the destination regions in Europe,Middle East, North Africa, and Asia are blue water dependent (Aldaya et al. 2010), it couldbe suggested that the corporations also contribute to global water efficiency gains andimproved water security in the importing countries. Accordingly, the resulting water lossesto the exporting countries are likely to be small, along with their water security impacts.On the other hand, the majority of the corn and soybeans traded by the ABCD corpora-tions goes to animal feed instead of directly to human food consumption. The emphasis oncontributing to animal feed accounts for the large water footprints of diets and both landand water resource scarcity (Liu et al. 2008). Through their market dominance, the corpo-rations can lower prices, with impacts on global prices, and make farming unprofitable insome parts of the world. They can also adopt restrictions to the crops they buy, affecting thesecurity and diversity of farming livelihoods (see e.g. Magdoff et al. 2000, Hendricksonand Heffernan 2002, McMichael 2005, Clapp and Fuchs 2009).

The scale of the ABCDs’ operations is such that they can operate in the financial sector.Providing their customers with “risk management and financial solutions” (Cargill 2011,Louis Dreyfus Commodities 2011), Cargill and Louis Dreyfus are active in the banking andfinancial markets inhabited by investment banks such as Goldman Sachs. Further investi-gations are needed into whether they are themselves contributing to the root causes of risksthey claim to manage – like Goldman Sachs, which was recently accused of gamblingwith hunger in grain price speculation, affecting especially African grain markets (WorldDevelopment Movement 2011, Kaufman 2011). The roots of the power of the ABCD cor-porations are deep in the structures of the international political economy, but this depthis still not widely understood. According to McMichael, “the focus on financialisation istimely, and possibly portends the further centralisation of the corporate food sector as theglobal financial crisis unfolds” (2009, p. 159).

All of the transnational food corporations are located in the Western Hemisphere ofthe political and economic world. It is important to note that ADM and Bunge have onlyrecently been transformed into public companies while the other two are still owned byprivate and influential families. We argue that by dominating the global agro-food supplychains and international trade in crops they are main actors constituting and supportingWestern virtual water hegemony.

Inward investment in land and water in Africa

As a result of the volatility of global food prices since 2007–2008, with trends in2011 pointing towards further volatility and record heights, future development remainsan enigma. It would be an historic moment in the world’s economic history if food prices,

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after falling for a thousand years, were to trend upwards permanently. Such are the currentglobal economic conditions and the volatility of oil prices. The linked food prices–foodsecurity question has been given a prominent role in the agendas of most Asian gov-ernments (McBeath and McBeath 2010). Thus, the rising interest in farmland across theglobe can be interpreted as an attempt to challenge Western hegemony over virtual water.A country that is especially affected by water scarcity, Saudi Arabia, belongs to the biggestinvestors in foreign direct investments in African farmland (Deininger 2011). One of thecountries targeted by Saudi investors is Ethiopia, where the government has introducedpolicies to incentivize (through five-year tax exemptions) investments in Ethiopia’s agri-cultural sector (Tamrat 2010). An Ethiopian/Saudi billionaire, Mohammed Hussein Ali AlAmoudi, who has been described by observers as a Saudi proxy in East Africa to trans-act strategic interests of the Saudi royal family, is one of the driving forces of agriculturalinvestments. His company, Saudi Star, is growing rice and vegetables on 500,000 hectaresin the southwestern-most region of Ethiopia, close to the Sudanese border. According torepresentatives of the company (interviewed in 2010), objectives include the creation of aSaudi equivalent to Western food trade giants. At a time of water scarcity on the Arabianpeninsula, Saudi Star is attempting to invest in agricultural land to decrease dependency onfood imports. With low land prices (US$12 per hectare) and labour costs (a farm labourerreceives approximately US$0.26 per hour in Ethiopia), the privileged connections betweenAl Amoudi and the Ethiopian government, and relatively low investment costs in theuntapped soil and its water (US$15,000 per hectare), Saudi Star intends to produce onemillion tons of rice per year on their land. No policy of Saudi Star stipulates that the finerice to be grown will be solely exported to the Saudi market. On the contrary, Saudi Starintends to become a new player on the global food market. Food price development is themain trigger of the agricultural investment. At a time of water insecurity in the Middle Eastand global economic change, the Saudi investors do not want to be dependent on Westernagribusiness power. Other investors in Sudan from the Middle East have strategic interestsand aim to import meat and fodder from East Africa to secure the water-intensive meatindustry on the domestic level by “importing” water. The current international politicaleconomy of food trade may improve global food security, but it cannot secure affordablefood prices, nor does it steer farmers towards better stewardship of water resources or fosterfair trade.

Discussion

The two case studies illustrate the hegemony of Western agribusiness corporations overinternational virtual water flows and the strategies of those economically aspiring water-insecure countries that seek to challenge the hegemonic agro-food system. Corporateglobal investment strategy has naturally followed water resources but has increased thevulnerable condition of global food and water security. The resulting power asymmetriesin the global food production system have been accepted by the dominated as given, aslong as food prices have been low. The crucial resource of the agribusiness conglomerates’power is water, and the concept to illustrate these power relations in the agro-food systemis virtual water. The current wave of investment in land in thus far under-utilized regionssuch as Sub-Saharan Africa, Latin America, and Asia is a response to the hegemonic con-ditions. If viewed through the lens of global political economy, the rush for land and watermarks a return to economic nationalism and perhaps even economic imperialism.

The findings of the analysis suggest that global water governance should be developedto encompass a wider range of concerns, including the current hegemonic conditions in

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the management of international virtual water “flows”. The use of water in global supplyand value chains and networks, and thus the role of the private sector and especially theagribusiness sector, is very poorly understood, although considerable progress has beenmade in the past five years. Corporate stakeholders are becoming increasingly engaged butare still the “elephants in the room” because they tend to be separate from the processes andnot related to the institutional development of global water governance. Water resourcesand water security are rising higher on the agendas of transnational agro-food corpora-tions. However, water concerns tend to be separate from the “big business” processes andunrelated to the institutional development of global water governance. Despite this de-emphasis, political decisions on water security are constantly made, invisibly and silently,in market structures that shape the overlapping agro-food and water governance networks.

The architecture of the (deliberately distorted) global food market strongly affectsglobal water security. Can the market provide a governance architecture that brings bothglobal water security and the stewardship of regional water resources? In general, inter-national trade, and thus the liberal paradigm in global political economy, can contribute towater use efficiency and hence global water security if commodities are traded from areasof high water productivity (ton/m3) to areas of lower productivity, resulting in global netwater savings (see e.g. de Fraiture et al. 2004, Oki and Kanae 2004, Aldaya et al. 2010).Studies of global water savings and losses as a result of international trade indicate that thenet effect is savings (de Fraiture et al. 2004, Oki and Kanae 2004, Chapagain et al. 2006,Aldaya et al. 2010). Further liberalization of trade could create opportunities to increasephysical water savings on the global scale (Ramirez-Vallejo and Rogers 2004, Hoekstraand Chapagain 2008). However, water security is not only made up of macroeconomic andvolumetric constituents. From social and environmental points of view, trade choices canbe weighed totally differently from the benefits derived from improvements in global wateruse efficiency (Roth and Warner 2008). Moreover, in distorted market conditions attentionhas to be focused on who has power over these decisions.

The ongoing global power shifts from the industrialized West to the industrializingEast further incite the need to reflect upon global water governance. Instead of emergenceof a cosmopolitan global water governance regime under the umbrella of water insecurityrisks, states and private actors have securitized water resources and water embedded infood, triggered by expected consumer demand and profit. Instead of tackling the under-lying causes of water and food security, both the thus far hegemonic and the emergingcounter-hegemonic system function along the rationale of treating the symptoms, not thecause, of the water and food crisis. The Western private sector benefits from sustaining therisk management discourse, but Eastern emerging economies cannot afford it in the longerterm. The current global political and economic shifts pose new global challenges. Waterand food security are undoubtedly global issues. The first decade of the new century haswitnessed the birth pangs of a new era. A return to economic nationalism in the globalpolitical economy of food is not an option. On the contrary, this economic sector desper-ately requires more competition to make efficient use of the available water resources forgrowing populations in emerging economies. It is important to stress that these economiesare not only located in East Asia and the Arab World but also in the target countries ofinward investment of land and virtual water – especially in Sub-Saharan Africa.

New times demand different means of policy choices. The growing water security riskswill inevitably change the dynamics of the agro-food system, highlighting the importanceof its chain and network structure to the overall architecture of global water governance.The ABCD corporations remain powerful bargaining actors in the global political economy,but their position is increasingly challenged in global agribusiness and agro-food supply

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chains. The current surge for global farmland illustrates the need for more virtual watersupply in the global south and east. A Western world that claims to be environmentally car-ing cannot outsource the consequences of global change to the most vulnerable membersof the global society.

Conclusions

This study has illustrated that virtual water is a major driver of Western agribusinesshegemony over the global agro-food trade and market system, and accordingly, alsobehind the surge of inward investment in land and competition over sources of the globalagro-food supply chains by the water-scarce rising economies challenging the hegemony.Virtual water hegemony, the “old food trade order” deliberately or non-deliberately del-egated to agribusiness, cannot be sustained if global water and food security are takenseriously.

There is a growing need to review the structures that underpin the overall architectureof global water governance beyond the water sector. More research is required to analysethe role of the agribusiness corporations and their role in global water management, aswell as the inward investment in land and water by foreign sovereign wealth funds andstate-led enterprises. This goes hand in hand with more compliance on the corporations’and investors’ side to provide greater transparency in terms of water resource use andaccountability. To conclude, the actors of the agro-food system managing the virtual water“flows” need to be engaged in the development of global water governance if global waterand food security are to be ensured.

AcknowledgementsThe authors wish to thank the reviewers for their helpful comments, Professor Arjen Hoekstra andDr Mesfin Mekonnen for providing the data for tables and the figure, and Dr Matti Kummu forassisting in drawing the figure.

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CORRESPONDENCE

Responses to Gleick et al. (2011), which was itself a response toFrederiksen and Allen (2011)

Harald Dixen Frederiksen

Consultant, Eugene, OR, USA

The response by Peter Gleick and his colleagues at the Pacific Institute to Frederiksenand Allen (2011), published in Water International, is very helpful for understandingtheir application of hydrological principles and references in their analyses of water uses.It had been hoped that a more productive exchange within the journal would have resulted.A summary of the principles and their application in our article will be set out here to allowwater resources managers, legislators, and others active in the water resources field to com-pare the two approaches when choosing the methodology to apply in assessing water uses.Greater detail can be obtained from our paper.

Our objective was to introduce a common basis for the analysis and comparison of all“offstream” uses of water resources. This was followed by an example of flawed analysis.Other misleading methods of evaluating water resources were cited in our article, but notaddressed in detail.

Categories of water use – offstream and instream. The U.S. Geological Survey (USGS)categorizes “offstream” water uses in the USA as water diversions from a fresh-water body,all of which consume water to a varying extent (USGS 1988). Examples include munici-pal, domestic, manufacturing, agricultural, mining, and cooling uses. The USGS describes“offstream” uses in terms of the source and quantity of diversion (groundwater or surfacewater) and its disposition (water consumed or returned and available as supply to otherusers; the unconsumed unusable quantity is negligible relative to the total volume of freshwater diverted in the US). Figure 21 (p. 55) in the USGS circular presents an applicationreporting total US water use. Of the total quantity diverted in the US, 28% was consumedand 72% was return flows. The quantity of return flow reflects the repeated reuse of waterin the course of most offstream uses.

“Instream” uses include fisheries, shipping, recreation and hydroelectric; all are non-consumptive uses. However, any water discharged directly to the ocean that otherwise couldhave been used by “offstream” uses would be classified as consumptive use within the con-text of a state or country’s total resources. Such situations arise when the ocean dischargeis authorized by legislation or court orders as having superior water rights, whether forreasons of instream water quality or quantity.

Some references and background work reflected in Frederiksen and Allen (2011).An early application of the USGS (1988) hydrological definitions and principles to theevaluation of water uses was made in World Bank Technical Paper 185 (Frederiksen 1992),which was later referenced in Willardson et al. (1994). The document presented a uni-versal relationship in terms of efficiencies for evaluating all offstream water uses. At that


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http://dx.doi.org/10.1080/02508060.2012.666410

http://www.tandfonline.com

184 H.D. Frederiksen

time, efficiencies were defined consistently in quantities of diversions, consumptive use,and return flows and non-reusable water where necessary. The paper noted that a riverbasin, with its defined hydrological and physical boundary, was an obvious choice forsummarizing the overall impacts of all basin uses and that increasing efficiencies mayreduce supply to downstream users. “Productivity” was defined as a measure of water useeffectiveness in conjunction with efficiency. Information on efficiencies was presented forurban, manufacturing, mining, and irrigation, drawing on such sources of information asthe USGS, United States Department of Agriculture, American Waterworks Association,United States Department of Commerce, United States Statistical Abstract, and CaliforniaWater Resources Control Board. These were to serve as examples for use by World Bankstaff. The paper was part of a broader policy to require the Bank’s borrowers to invest incountry water plans, advanced data collection, and a comprehensive water rights system.However, bank management failed to support the policy with the associated funding andenforcement.

Willardson et al. (1994) introduced the use of “fractions” in irrigation water use anal-ysis as a means to avoid the many conflicting applications of the term “efficiency”. Thefractions equation followed the USGS hydrological principles with rigorous water account-ing set forth in a closed equation. The sum of the fractions of diverted water that are (a)consumed, (b) returned flows, and (c) non-reusable flow equals 1. Quoting from the closingparagraph of the article: “Use of Consumed Fraction, Reusable Fraction, and Non-ReusableFraction will provide for better consideration of the effects of all users of water on otherusers in the same hydrologic system, and on the effects of return fractions to the streamsor aquifers.” The proposal, however, has not been adopted universally by the irrigationcommunity.

A 225-page USGS report (2009) provides a comprehensive set of data and evaluationof the second-largest US groundwater basin, describing the interdependences of surfacewater and groundwater uses and the associated return flows. The groundwater recharge byreturn flows from the application of imported surface water on the overlying lands provesto be critical to reducing overdraft in this basin.

Some recent trends in water use analysis. Despite these findings, the last several yearshave witnessed an ever-wider promotion of water use analyses that ignore fundamentalhydrological principles and sound water accounting. The Pacific Institute report (2010)describing how one million acre-feet (1.2 km3) could easily be “freed up” for other useswas seen as an example and was discussed in Frederiksen and Allen (2011). This ongoingtrend also led to the proposal in our article of a universal equation for the analyses of alloffstream water uses. This would allow a common means of evaluating water uses andhalting use of the many inconsistent definitions of water use “efficiencies”. Placement ofsuch a proposal in Water International was believed the most appropriate means to reachthe broader international audience and the wide range of disciplines in the InternationalWater Resources Association membership.

Universal equation for the evaluation and comparisons of “offstream” water uses.The definition of terms and structuring of the resulting Water Uses Assessment (WUA)equation described in Frederiksen and Allen (2011) is summarized herein to facilitatethe reader’s reference when comparing WUA with the approach set forth in Gleick et al.(2011). The WUA equations can be utilized for evaluating both the quantitative impact andthe productivity of a use per unit of water.Withdrawals (QW) is the quantity of water extracted from aquifers, streams, lakes, and asso-ciated storage. The disposition of withdrawals to satisfy demands of offstream uses include:

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(a) consumed water quantity (QCF)(b) non-consumed, recoverable water quantity (QRF) – water that can be captured and

reused(c) non-consumed, non-recoverable water quantity (QNRF) – water that is neither

beneficially consumed nor available/suitable for further use.

The proposed equation adds the three dispositions defined above to close the water balanceand account for all water withdrawn: QW = QCF + QRF + QNRF.

In terms of the fractions of the total quantity diverted: 1 = QCF/QW + QRF/QW +QNRF/QW.

The portion of diverted water consumed productively (QCF), the portion that is notconsumed but recoverable for use by (QRF), and the portion that is not recoverable and lostto the resource system (QNRF) can be expressed for an urban use as quantities per capita.The same equation quantities can be expressed for an irrigation use as quantities per unitof product and for comparing types of irrigation or for any other use.

Responses to our article. Aside from Gleick et al., all of the 19 responses Ihave received to our article to date have been strongly supportive. Relative to alle-gations that irrigation improvements would provide large quantities of new water,the Center for Irrigation Technology, California State University, Fresno found that“potential new water [irrecoverable inefficiencies] is only 1.3 percent of current agri-cultural consumptive use, 0.5 percent of California’s total consumptive use” (Zoldoskeet al. 2011).

AcknowledgementMy co-author, Richard Allen, played an equal role in writing our paper. His more specific responseto Gleick et al. follows.

ReferencesFrederiksen, H.D., 1992. Drought planning and water efficiency implications in water resources

management. Washington, DC: World Bank, Technical Paper 185. Available from www.haralddfrederiksen.com.

Frederiksen, H.D., and Allen, R., 2011. A common basis for analysis, evaluation and comparison ofoffstream water uses. Water International, 36(3), 266–282.

Gleick, P.H., Christian-Smith, J., and Cooley, H., 2011. Water-use efficiency and productivity:rethinking the basin approach. Water International, 36(7), 784–798.

Pacific Institute, 2010. California’s next million acre-feet: saving water, energy and money. Oakland,CA: Pacific Institute.

United States Geological Survey [USGS], 1988. Estimated use of water in the United States in 1985.Reston, VA: USGS, Circular 1004.

United States Geological Survey [USGS], 2009. Groundwater availability of the Central ValleyAquifer, California. Reston, VA: USGS, Professional Paper 1766.

Willardson, L.S., Allen, R.G., and Frederiksen, H.D., 1994. Elimination of irrigation efficiencies. In:Question 47: irrigation planning and management measures in harmony with the environment.13th Technical Conference, United States Committee on Irrigation and Drainage, 19–22 October1994, Denver, CO. Available from www.haralddfrederiksen.com.

Zoldoske, D., Canessa, P. and Green, S., 2011. Agricultural water use in California: a 2011 update.Fresno: The Center for Irrigation Technology, California State University, Fresno.

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http://www.haralddfrederiksen.com







186 R.G. Allen

Richard G. Allen

Research and Extension Center, University of Idaho, Kimberly, ID, USA

Introduction

For decades, water shortages have worsened around the globe, with warnings andsuggestions widely deliberated in technical journals and conferences. Unfortunately, phys-ical bases of shortages and solutions have not been easily understood nor effectivelycommunicated to the public, government leaders, and legislators. This shortcoming hasprompted the introduction of a stream of “new concepts” to address expanding crises.However, some of these “new concepts” have serious shortcomings that violate physicalprinciples. People working in water resources management have a responsibility to evaluatesuch concepts, including the physically based examination of data, analyses, and findings.

The article in this journal by Frederiksen and Allen (2011) (F/A) used Pacific Institute(2010) as a prominent example of what we see as “new” approaches that lead in thewrong direction. To demonstrate this, we presented a rigorous method for assessing allcategories of water use, founded upon long-established physical principles of hydrologyand water use accounting (WUA), and referenced to publications of the U.S. GeologicalSurvey (USGS). These basic principles are well established in nearly every country andinternational agency, as well as in the scientific literature on hydrology and hydrogeology.

For reasons of space, F/A focused on the 2010 Pacific Institute (PI) report, although, asnoted, it is far from the only example of the genre. Gleick et al. (2011) offered an article-length response defending their position. We have read this critique carefully and do notfind any consequential issue there that we did not clearly and fully address in our article.For the record, here are some responses to specific comments in Gleick et al., referencedby page number. These are organized in three categories – water accounting and efficiency,basin management, and irrigation – and are offered to help readers contrast the statementsand perceptions of PI versus F/A.

Water accounting and efficiency

Page 784. For at least two decades, water scientists and managers have explored and debatedhow to define, measure, and evaluate the efficiency and productivity of urban and agriculturalwater uses.

Perry (2007) summarized a 60-year history of “efficiency” in irrigation, explaining howthe term evolved and the wide mixture of inconsistent definitions and usage. Perry arguedfor the use of fractions, rather than efficiencies, to clarify analyses and arguments, as F/Ahas also done.

Page 784. In a recent example of an effort to apply faulty and outdated concepts, WaterInternational published a paper purporting to provide a consistent basis for evaluating andcomparing water uses (Frederiksen and Allen 2011). Instead, that paper repeats earlier workand perpetuates misunderstandings about how to define and measure water use efficiency andproductivity.

That earlier writings of many scientists have converged on a consistent framework shouldbe viewed as a strength rather than as a weakness. The USGS definitions of the components

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of water use applied by F/A and by others are clear. Readers are referred to USGS materialin the F/A article.

WUA adheres to fundamental principles of hydrology that are universally applicableand based on conservation of mass. As noted in F/A, WUA may be used to assess hydro-logic impacts of a use, mixture of uses, or proposed intervention when setting policies,programs, and regulations at a given level – site, body of water or political jurisdiction.The relative impacts of one use are compared physically with another. The WUA equationof F/A purposely did not assign attributes regarding beneficial aspects of uses, which hasbeen regarded as a flaw by PI. Evaluating the economic, social, and environmental impactsof alternative options is a quite important, but separate, exercise.

Part of PI’s issue with F/A traces to their incorrect and frequent mixing of terms“consumption” and “use”. Water consumption is a subset of water use, and importantlyrepresents only that component permanently removed from the water resource, gener-ally through evaporation and transpiration. Other components of water use, except QNRF,remain in the water resources system for reuse. The primary intent of F/A is to provide asimple, physical structure for making this distinction. PI also confuses the term “water-useefficiency”, which has been standardized by professional communities to express the pro-ductivity of water in terms of biomass per unit of water consumed. PI associates this termwith general water application efficiency, which is discouraged, confusing, and anotherreason why use of efficiency terms in water use analyses is discouraged (Willardson et al.1994, Perry 2007).

The disposition by component in WUA (QCF + QRF + QNRF) provides a rigorouscomparison of all factors affecting the consumptive use of the resource.

Page 794. We take issue with some additional specific misrepresentations by Frederiksenand Allen (2011) of the assumptions, findings, and conclusions of research from the PacificInstitute. Frederiksen and Allen (2011) imply that we ignore key characteristics of water use:

(1) that impacts of efficiency programs on urban water use “are not universal but varydepending on location”;

(2) that “recycling treated effluents to supply to recreational spaces are not adequatelydiscussed”;

(3) that we “ignore the fact that return flows are already part of the downstream watersupply”; and

(4) that all the water we identify through efficiency improvements is “new water.” All ofthese claims are false.

Gleick has published many documents offering a variety of terms, views, concepts andconclusions. F/A only reacted to the specific text in PI’s 2010 report. Portions were quotedfrom the report in F/A and include:

The water literature is rife with confusing and often misleading terminology to describe wateruse, e.g., water withdrawal, consumptive use, non-consumptive use, etc. (p. 274)

Some water planners believe that conservation measures that produce savings in non-consumptive water uses are less important than that from consumptive water uses. They arguethat water that is used non-consumptively is available for reuse by downstream users and thusconserving this water does not produce any new water. (p. 274)

The 2010 PI report did not make the very important distinction between water consump-tion in many coastal urban centres, where generally all effluent is lost to the ocean, andconsumption by inland cities, where most effluent becomes return flow. This distinction

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188 R.G. Allen

must be primary when assessing consequences of conservation programs and change inwater use. F/A noted several potential water sources and savings that were not mentionedin the 2010 report, for example desalinization, recycling, and reclamation.

Page 786. Frederiksen and Allen (2011) argue that Equation (1) “close[s] the water bal-ance and account[s] for all water withdrawn” (p. 268). As we show below, however,Equation (1) fails to adequately differentiate between different kinds of water use, whichmakes it inadequate for analysing water-use efficiency potential.

It is important to understand basic water accounting and “closing” of an equation.Mathematically a closure term is simply the final element completing an equationdescribing an identity, in this case the sum of all the water inflows to a particular use,and the sum of all components of outflow.

Page 786. In particular, the first term, QCF, demonstrates a basic weakness in the traditionalevaluations of water use by failing to differentiate between beneficial and non-beneficialconsumptive uses.

Consumed water is a loss of water that reduces a basin’s, region’s, or jurisdiction’s residualquantity of water resources. Consumption of water, whether “beneficial” or “nonbene-ficial”, has the same impact on resource availability. Deciding what is “beneficial” inPI’s terms varies widely with perspective and economics and must have a local con-text. For example, do trees beside a canal provide useful shade, improve amenity value,and provide natural habitats that are considered to be beneficial, or do they constitutea wasteful consumption of water? Views on benefit will differ, but consumptive use isa physical fact. We welcome the partitioning of QCF into productive and nonproductive(or beneficial and nonbeneficial) components, as was done by Perry (2007) and Perryet al. (2009).

Page 786. Water use can be categorized as consumptive or non-consumptive. Consumptive usecommonly refers to water that is unavailable for reuse in the basin from which it was extracteddue to evaporation, incorporation into plant biomass, transfer to another basin, seepage to asaline sink, or contamination. Non-consumptive use, on the other hand, refers to water that isavailable for reuse within the basin from which it was extracted, for example return flows. Thisdistinction is very clearly made in all of the Pacific Institute’s work.

Governmental jurisdictions, the USGS, and proper analyses do not apply these partic-ular definitions of “consumptive use”. Consumption is independent of where it occurs.Basin transfers certainly are not consumptive in and of themselves. Nor is water that iscontaminated, unless it is severely degraded by merging with a highly saline system.

Page 788. A simple addition to Equation (2) [WUA] might look something like this term for“productivity of water use”:

P/QW = P/[QCF(P) + QCF(UP) + QRF + QNRF] 3

. . . One of the most important things to note about Equation 3 is that for any given applicationof water, P/QW becomes the metric to maximize.

Adding “productivity” to the WUA equation should be avoided. As noted in the exampleof trees by a canal, subjective judgments are not physical facts and only confuse rigor-ous physical accounting. Maximizing P/QW is not necessarily a valid or desirable policybecause of recycling of the QRF component of QW. Only the P/QCF(P), P/QCF(UP), and

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P/QNRF components should be maximized (if one were to use PI’s equation). Positive andnegative features of P/QRF must be evaluated in a local context.

Page 789. Using Frederiksen and Allen’s Equation (1) does not capture this increased produc-tivity. If the logic of the “basin approach” had been applied to US water policy, these massiveeconomic productivity gains in US water use since 1980 would not have happened.

The vast majority of gains in crop productivity per unit of water over the past 50 yearsis due to genetic advances in crops, which have increased the harvestable fraction of pro-duced biomass, and to increased fertilizer use (Perry et al. 2009). Water consumption hasremained relatively constant, as is evident by observing outflows from many basins to theoceans. More discussion follows under the topic of irrigation.

Page 791. Frederiksen and Allen give this issue lip service when they hint that “some mayhave to modify the WUA equation” to address quality issues.

There is no universal accommodation of pollution in water accounting (see the recent UNStandards for Economic-Environmental Accounting for Water, for example (UN 2012)).Actions and regulatory measures are determined on the basis of factors such as origin,type of pollutant, quantity, duration, and assimilative capacity of a receiving body. Clearly,pollution is an important issue and impact by water use. The WUA equation is intended tobe one component of water use impact assessment, and, as such, must retain a quantitativebasis.

Page 794. Frederiksen and Allen (2011) make one final argument against efficiency improve-ments that shows the illogical nature of their approach. They argue that inefficient irrigation isvitally important because excess irrigation “is a major contributor to aquifer recharge reducingthe rate of overdraft in California’s Central Valley” (p. 279). Here, we again find decision-making based on theory, rather than data. Not enough is known about groundwater rechargerates in many areas in the Central Valley, and there are portions of the valley that do not overlieaccessible groundwater aquifers. . . . By reducing excess surface water withdrawals, that savedwater can be used intentionally (not accidentally or incidentally) to recharge groundwateraquifers in the right places, at the right times.

F/A note the findings of a USGS study of the Central Valley aquifer, and do notargue against “efficiency” improvements. Rather, they note that seepage to accessiblegroundwater is frequently a benefit and can be an important component to formal “con-junctive management of surface and groundwater”. See the 225-page USGS ProfessionalPaper 1766 dealing with the Central Valley (Faunt 2009). Whether infiltration from “inef-ficient” irrigation is a loss or a gain is entirely a matter of hydrologic context, timing, andoptions for subsequent use. There are physical constraints to “intentionally” recharginggroundwater. Specific and expensive spreading basins may be required, which have theirown evaporation losses, and soil infiltration rates may impede rapid recharge at economicrates. “Incidental” recharge is often orders of magnitude larger than “intentional” rechargedue to its widespread distribution in space and time. See, for example, the recharge effortsand physical and structural constraints along the Snake River of Idaho (Blew 2005).

Basin management

Page 784. But we wish to move well beyond a principled defense against a single misrepre-sentation of our work to a broader critique of the “basin approach”.

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Page 785. The basin concept has been useful in helping to clarify some issues around the scaleand scope of water efficiency, but it has three fundamental flaws, which are perpetuated inFrederiksen and Allen (2011):

(1) The basin approach excludes or discounts a major component of inefficient water use:unproductive consumptive use.

(2) The basin approach does not adequately assess the broader (and often important)measure of water productivity because it only values “new” water.

(3) The basin approach fails to account for the many other non-water “co-benefits” ofefficiency, including improved water quality, greater reliability, decreased energydemands and associated greenhouse gases, and reduced or delayed infrastructureinvestments.

We subscribe fully to using the “basin approach” to assess hydrologic impacts and sus-tainability of water resources development. This concept has long been advocated inphysically based analyses. Gleick et al.’s remarks on basin management do not reflectan understanding of WUA and the physical requirements of water accounting.

The three “fundamental flaws” listed are neither valid nor intrinsic to adopting thebasin as a framework for water accounting, nor are they perpetuated by the application ofbasin management. The QCF of F/A includes, but does not separate out, “nonproductiveconsumptive use”, for simplicity and because productive versus nonproductive assessmentscan be qualitative and contextual.

Basin analysis is fundamental to water management as a geographically and hydro-logically bounded unit. Integrating over a basin allows the quantification of total availablewater resources, diversions, and consumption, as well as net return flows leaving the basin.Individual offstream uses consume water and return unconsumed water to a basin’s surfaceand groundwater systems. When water consumption integrated over a basin exceeds basininputs, then the consumption is not sustainable, water storage will decline, and consump-tive uses must be reduced and/or transferred among users and uses. This transfer is bestdone within a marketing framework.

Co-benefits of water use are determined by the characteristics of the supply, the cate-gories of water uses, the setting and management operations, and objectives to be achieved.These features must inherently be considered and tailored to the situation of an individualbasin to maximize overall benefits of an action. Mixing objective facts of water flow withsubjective evaluations of weights to be applied to mutually exclusive “benefits” is notrequired in basin water accounting.

Page 790. A third major failure of the narrow basin approach is the inability of Frederiksenand Allen’s Equation (1) to evaluate or assess any non-water benefit of water-use efficiencyactions beyond simple quantity or even productivity.

The F/A paper, USGS reports, agency documents, and others apply hydrologic principles.Co-benefits are not a part of hydrologic analyses or water use accounting. The benefitscited by Gleick result from wise development planning and execution as a part of societaladvances.

Irrigation

Page 787. A 2005 study, for example, found that unproductive soil evaporation was 75–85%lower with drip systems compared to flood irrigation during the early stages of cotton

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development (Luquet et al. 2005). Ignoring the potential to reduce such unproductive, con-sumptive losses may grossly underestimate potential water savings, even in regions thathave already made efforts to improve efficiency. In California, nearly 60% of crops arestill grown with flood irrigation, according to the most recent state survey (Orang et al.2005). A variety of improved water management practices, including irrigation schedulingand deficit irrigation (on appropriate crops), have also been shown to reduce unproductiveconsumptive use.

Yet, none of these potential savings are acknowledged by Frederiksen and Allen (2011), whosummarily dismiss their value, stating: “There may be other benefits from drip irrigation,however it is doubtful that there is a significant reduction in the consumptive use of water”(p. 279). They provide no citations or other corroboration for their “doubt.”

Burt (2011, this issue) describes the likelihood of relatively small differences in evapora-tion losses from frequently operated drip systems versus less-frequently operated surfaceirrigation systems. Burt makes it clear that a 75–80% reduction in evaporation, even if real,may constitute a relatively small quantity if the original amount of evaporation is relativelysmall compared to the total water consumption. Tasumi et al. (2005) and Tasumi and Allen(2007) showed, through intensive sampling by satellite, relatively small differences in totalgrowing-season water consumption among surface- and sprinkler-irrigated crops. The dif-ferences were small because many crops have nearly full ground cover during much of thegrowing season that reduces impacts of a wet soil surface. F/A do not argue against reduc-ing the “unproductive” consumptive components of water use. On the contrary, this is oneof the first places to explore for “new water” (Perry et al. 2009).

Page 787. This leads them to make another serious conceptual error. They argue that evenwhen “new” water is produced by efficiency improvements, there is no real benefit because“most farmers will use any freed-up water within their operations by altering crops orexpanding production rather than losing water allocations.” Here, Frederiksen and Allen(2011) confuse the analysis of real reductions in water use with subjective policy decisionsabout how that saved water should be used.

The adequacy of a seasonal water supply to meet a famer’s water right is determined byactual runoff and court decisions. Both may reduce deliveries below a farmer’s registeredrights. Farmers seek to effectively utilize their seasonal allocation to maximize long-termincome. The point that PI misses is that applying improved irrigation technologies mayprovide a farmer with the physical and legal opportunity to increase his water consumptionon his legally authorized irrigated area by utilizing reductions in return flows, especiallyduring drought. This is a benefit to the farmer (because crop production and water con-sumed by transpiration are strongly correlated), but constitutes a loss of water supply todownstream users.

Page 787. Decisions about allocations of saved water are policy choices.

Policies are policies, not legislated water rights.

Page 790 [following Figure 1, “Economic productivity of water use in the United States”, andFigure 2, “California crop productivity for field/seed crops”]. Using Fredricksen and Allen’sEquation (1) does not capture this increased productivity.

The interpretation of data in Gleick et al.’s Figures 1 and 2 is misleading. The improve-ment in agricultural yields has resulted primarily from plant breeding, use of fertilizers, soil

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192 R.G. Allen

amendments, pesticides, and cultural practices beginning in the 1920s. In the late 1930sthe Green Revolution accelerated this work, and efforts continue today. Over this period,large gains were made in rainfed crop production, yet the water supply did not change.Spectacular yield gains have also been made in irrigated rice, yet rice was and is flooded asbefore. Charts of production compared with expenditures on fertilizer, research and pesti-cides will yield similar findings. The WUA equation captures consumptive use associatedwith crop yields at all levels via the QCF component.

Page 790. Like increases in crop yields, discussed above, these co-benefits often accrue evenwhen there is no “new” water produced from efficiency actions. Assessments that continueto insist that water-efficiency programs produce “new” water will underestimate the trueeconomic, environmental, and social value of efficiency improvements.

We appreciate that PI acknowledges that water-efficiency programs often do not pro-duce new water. This was a primary objective of the F/A paper. As F/A have stressed,production of new water via efficiency improvements is largely tied to the location ofthe use in a basin (whether near the ocean or inland). F/A acknowledged the importanceof increased efficiency for economic, environmental, and social reasons, but stressed thatthese attributes should not be included in a strictly hydrologic assessment of water dis-position and supply. F/A argued strongly for efficiency improvements for irrigation andmunicipal uses in coastal areas.

Many reports and editorials by PI have expressed all reductions in irrigation or munic-ipal diversions resulting from increased efficiency as “savings”, which has been incorrectand has caused confusion in the public and among policy makers.

Conclusions

In many basins, inland return flows, including urban effluents, are recycled, and during peri-ods of low flow, most are eventually consumed – as demonstrated where little river waterdischarges to the ocean. “New” water must generally come from reduced consumption ofwater (not necessarily reduced use) or from an expanded multi-year supply of excess floodwater or interbasin transfers. “New” concepts do not change this reality. Capturing excessflood flows will remain the primary means for most countries to increase supplies duringperiods of need if productive consumption of water for food production is to be sustained.

I wish to note that we do not oppose reducing the consumption of water by the agri-cultural sector. In fact, we see this as a necessary evolution in water use driven by societalneeds and goals and hopefully effected via a market system. We want, however, to havethe public and private sectors appreciate two important realities of these transformations:that where large amounts of “new” water are needed, they will probably not be fulfilledby reducing consumption (ET) by incidental, “nonbeneficial” systems such as phreato-phytes and wetlands created by canal and other seepage, or by reducing evaporation fromsoil or canopy from agricultural systems. These consumption amounts will generally beinadequate to fulfil all new demands. Most new water must come from reduced ET fromagricultural crops, which means less food production and/or a shift to lower-use crops.These outcomes will impact total food supply and local and global prices.

AcknowledgementSubstantial input and review was provided by H.D. Frederiksen.

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ReferencesBlew, D., 2005. Phase II evaluation of managed recharge on the ESRP: development of recharge

facilities. Idaho Department of Water Resources. Available from: http://www.idwr.idaho.gov/WaterInformation/Publications/misc/Phase2_Evaluation_of_Managed_Recharge.pdf [Accessed20 February 2012].

Faunt, C.C., ed., 2009. Groundwater availability of the Central Valley Aquifer, California. USGeological Survey Professional Paper 1766. Available from: http://pubs.usgs.gov/pp/1766/


Perry, C., 2007. Efficient irrigation; inefficient communication; flawed recommendations. Irrigationand Drainage, 56, 367–378.

Perry, C, Steduto, P., Allen, R., and Burt, C., 2009. Increasing productivity in irrigated agricul-ture: agronomic constraints and hydrological realities. Agricultural Water Management, 96,1517–1524.

Tasumi, M., and Allen, R.G., 2007. Satellite-based ET mapping to assess variation in ET with timingof crop development. Agricultural Water Management, 88, 54–62.

Tasumi, M., Allen, R.G., Trezza, R., and Wright, J.L., 2005. Satellite-based energy balance toassess within-population variance of crop coefficient curves. Journal of Irrigation and DrainageEngineering, 131, 94–109.

UN, 2012. Standards for economic-environmental accounting for water. Available from:http://unstats.un.org/unsd/environment/default.htm

Willardson, L.G., Allen, R.G., and Frederiksen, H.D., 1994. Elimination of irrigation efficiencies.USCID, 13th Technical Conference, Denver, Colorado, 19–22 October, 1994.

Charles M. Burt

Irrigation Training and Research Center (ITRC), Cal Poly State University, San Luis Obispo, CA93407, USA

Gleick et al. (2011) provided a critique of a short presentation I made to the CaliforniaState Water Resources Control Board (SWRCB). They refer extensively to a very simpleexample I used for illustration regarding the differences between field irrigation efficiencyand basin irrigation efficiency (not “water use efficiency”, as they state). Their statementthat “Burt (2011) argues that this shows that there is no real waste at the basin scale” missesthe fundamental difference between the words “consumption” and “beneficial use”. Theyalso misquoted me by inferring that I stated, “Field 1 consumes one unit of water.” Not true.My wording was “beneficial use”, which is clearly different from “consumption”. Checkit for yourself (Burt 2011a). Then please refer to Burt et al. (1997), which distinguishesbetween the two terms and the errors that follow from not understanding the differences.

My presentation was a short, 35-minute overview, including Q&A, to people who arenot irrigation specialists. The last slide stated that it was an “introduction”. My mandatewas to explain, with simplicity, a few important irrigation concepts such as the distinc-tion between field irrigation efficiency and basin irrigation efficiency. It was intended tocounter obvious confusions such as are found in Cooley et al. (2008). This analysis ofCalifornia irrigation by Pacific Institute (PI) stalwarts concluded that “all four agriculturalefficiency scenarios show substantial potential water savings, ranging from 0.6 to 3.4 mil-lion acre-feet” (p. 49). This huge conservation potential, if of consumptive use, would helpalleviate the annual overdraft in the San Joaquin Valley, where at least 2 million acre-feetof conservation is needed just to break even. Perhaps some trickles might flow into themajor portions of the San Joaquin River that have been dry for many years. But drying up

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http://www.idwr.idaho.gov

http://pubs.usgs.gov/pp/1766

http://unstats.un.org/unsd/environment/default.htm

http://www.idwr.idaho.gov/WaterInformation/Publications/misc/Phase2_Evaluation_of_Managed_Recharge.pdf

http://www.idwr.idaho.gov/WaterInformation/Publications/misc/Phase2_Evaluation_of_Managed_Recharge.pdf

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194 C.M. Burt

large phreatophyte/drain areas with return flows that have “non-beneficial” evaporation inthe Sacramento and San Joaquin Valleys would have large negative environmental impactsand are probably impossible to accomplish due to regulations and rulings related to theEndangered Species Act, as well as edicts from the Corps of Engineers and various Fishand Wildlife Services.

Gleick et al. (2011) state that my simplified example “excludes any co-benefits of on-farm water efficiency improvements”. True, as far as that one example goes. But it wouldbe nice if they had read other parts of my short presentation. For example, as one slidestated, “It is true that improved on-farm water management can result in: (i) Improved cropyields and quality (ii) Reduced application of fertilizers (iii) Reduced groundwater con-tamination (iv) Less energy consumption (v) Other improvements”. Another slide pointedto the problem with flow to salt sinks. I did not have time to get into the in-stream flowissues – others were assigned that topic.

My presentation sounds a recurring theme that there are almost always some watersavings available, but in general the potential savings are not as large or as easy to attainas commonly believed, or as propounded by PI. Readers who are interested in a moreextensive elaboration of points I could not fit into a 35-minute introductory lecture buthave made repeatedly for decades might refer to a recent speech (Burt 2011b) in which Ihad an opportunity to articulate the impact and importance of irrigation as related to theenvironment, energy, world food shortages, and so on.

It is gratifying that the PI analysts have discovered the existence of co-benefits. Fromtheir paper, it appears they have decided that they are the first to understand this. Apparentlymy speech is not the only item in their references that they skimmed a bit too hastily.I would suggest they take a little more time going through the professional work of HaraldFrederiksen, Richard Allen, myself, and others they list, before claiming we do not under-stand the value of increased crop yields, in-stream flows, and so on. I submit that one canmake an argument that we are running out of water, without at the same time digressinginto a long discussion about co-benefits of improved first-time irrigation efficiency.

The setting for my SWRCB talk was California. Many areas of the world have similarirrigation project hydrology. Some have extensive recirculation. But others are similar tothe Imperial Valley of California, in which on-farm losses are not recirculated but insteadflow into salt sinks such as the ocean. Another locally important point is that in our par-ticular California case, the evaporation losses from irrigation are generally over-estimated(Burt et al. 2002), with the exception of projects with very weak crop stands and large barespots in fields and extensive networks of field ditches.

There is no doubt that we need to improve irrigation efficiency at all levels (field, farm,district, and basin) when possible. It is only with improved first-time usage of water (whichwill hopefully be accompanied by better agronomic practices, crop variety selection, fer-tility, and pesticide management) that we will be able to increase the “crop per drop” ofresource consumed while still maintaining or improving environmental quality.

But, as I attempted to point out in my presentation, it is completely incorrect to assumethat our water scarcity problems will be solved by wishful thinking that improvements infield irrigation efficiency will greatly improve basin water availability in the San Joaquinand Sacramento Valleys of California. Once everyone understands how little water isremaining to be “conserved” in many of our basins, we will hopefully get much moreserious about improving water control, water delivery service, and field irrigation perfor-mance. We must continue to focus on the great technical, economic, social, and politicalchallenges of obtaining the maximum productivity per drop of water and oil consumed – apoint we have made for decades.

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ReferencesBurt, C., 2011a. Fundamental elements of agricultural water use efficiency. Presentation to the State

Water Resources Control Board, 20 July, Sacramento, CA. Available from: http://www.itrc.org/papers/swrcb/SWRCB.pptx [Accessed 21 February 2012].

Burt, C., 2011b. The irrigation sector shift from construction to modernization: what is required forsuccess? In: 21st International Congress on Irrigation and Drainage, 19 October 2011, Tehran,Iran. Available from: http://www.icid.org/nd_gulhati_2011.pdf [Accessed 21 February 2012].

Burt, C.M., Clemmens, A.J., Strelkoff, T.S., Solomon, K., Bliesner, R.D., Hardy, L.A., Howell, T.A.,and Eisenhauer, D.E., 1997. Irrigation performance measures: efficiency and uniformity. Journalof Irrigation and Drainage Engineering–ASCE, 123(6), 423–442.

Burt, C.M., Mutziger, A., Howes, D.J., and Solomon, K.H., 2002. Evaporation from irrigated agricul-tural land in California. San Luis Obispo, CA: Irrigation Training and Research Center, ReportR 2002-001. Available from: http://www.itrc.org/reports/reports.htm [Accessed November 28,2011].

Cooley, H., Christian-Smith, J., and Gleick, P.H., 2008. More with less: agricultural water conser-vation and efficiency in California. Oakland, CA: Pacific Institute. Available from: http://www.pacinst.org/reports/more_with_less_delta [Accessed November 28, 2011]

Gleick, P.H., Christian-Smith, J., and Cooley, H., 2011. Water-use efficiency and productivity:rethinking the basin approach. Water International, 36(7), 784–798.

Chris Perry

London, UK

Water International recently published an article by Frederiksen and Allen (2011) settingout a framework for physical water accounting, and critiquing in particular a publicationby the Pacific Institute (2010). Dr Gleick and his colleagues at the Pacific Institute (PI)responded at length (Gleick et al. 2011), claiming that Fredriksen and Allen’s (F/A’s)“traditional” approach to water accounting failed to capture broader issues of “produc-tivity”. In Gleick et al., critical reference is made to a number of publications, includingPerry et al. (2009), implying failure to distinguish between beneficial and non-beneficialuses, and a focus on something Gleick calls “new water”.

The terminology proposed in the 2009 paper describes the physical disposition of totalwater use in agriculture (and indeed in any other sector) as follows.

(1) Consumed fraction (evaporation and transpiration), comprising:(a) Beneficial consumption: water evaporated or transpired for the intended pur-

pose, for example evaporation from a cooling tower, or transpiration from anirrigated crop.

(b) Non-beneficial consumption: water evaporated or transpired for purposesother than the intended use, for example evaporation from water surfaces,unproductive riparian vegetation, or wet soil.

(2) Non-consumed fraction, comprising:(a) Recoverable fraction: water that can be captured and reused, for example flows

to drains that return to the river system, percolation from irrigated fields toaquifers, or return flows from sewage systems.

(b) Non-recoverable fraction: water that is lost to further use, for example flowsto saline groundwater sinks, to deep aquifers that are not economicallyexploitable, or to the sea.

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http://www.itrc.org

http://www.icid.org/nd_gulhati_2011.pdf

http://www.itrc.org/reports/reports.htm

http://www

http://www.itrc.org/papers/swrcb/SWRCB.pptx

http://www.itrc.org/papers/swrcb/SWRCB.pptx

http://www.icid.org/nd_gulhati_2011.pdf

http://www.itrc.org/reports/reports.htm

http://www.pacinst.org/reports/more_with_less_delta

http://www.pacinst.org/reports/more_with_less_delta

196 C. Perry

This terminology is intended to provide unambiguous labelling of the categories of physicalflow that result from any water use; the terms are dimensionless fractions; beneficial andnon-beneficial consumption are identified, and there is no reference to “new” water. Theuse of these terms in no way precludes computation of “traditional” measures of efficiency(e.g. ratio of beneficial consumption to total water use) or concepts of “productivity” (e.g.output of crop per unit of water used, or power generation per unit of water consumed).

By contrast, the PI response to the F/A paper uses the terms “efficiency” and “pro-ductivity” in a variety of combinations (water use and efficiency; water-use efficiencyand productivity; field efficiency; efficiency measures; improved water efficiency) withoutever defining associated units or dimensions – cubic meters, kilograms per cubic meter,dollars per cubic meter, human well-being, environmental sustainability, or whatever.In consequence it is genuinely impossible to trace the logic, if any, of their critique ofF/A.

Gleick et al. suggest introducing the term “P” (for productivity) into water accounts tobetter measure outcomes. The difficulty of defining P is not addressed – but suffice it to saythat foresters, agriculturalists, protectors of wetland habitats, domestic and industrial users,recreational and commercial fishermen, environmentalists, and so on, are each likely tohave their own perspective on how the scarce resource should be allocated, and the weightor value that should be assigned to particular flows. Those various perspectives are unlikelyto align with the preferences of “society”, and thus we see political interventions to protect,limit, or enhance specific interests. To assume the Pacific Institute knows the value of P indifferent uses seems to me unsupportable. F/A, to their credit, make no such pretence,proposing only a better framework for physical accounting.

In sum, conflating physical accounting with productivity analysis mixes the value-neutral presentation of data in a consistent framework using unambiguous terminologywith value-laden evaluation of the socio-economic outcomes of particular patterns of use.The net result here is a meaningless mishmash. The claim that PI have somehow resolvedaccounting and productivity all in one step is the clearest indication of their confusion.

Many additional details could be pointed out, but perhaps the dangers of failing to do“traditional” water accounts properly are best illustrated by a brief review of another paperin the same issue. Shaofeng Jia et al. (2011) report on “Less water, more grain in dry HebeiProvince, China”. They conclude that farmers are now “consuming” much less water than40 years ago: “both irrigated area and grain output have increased while water consumed inirrigation has declined.” The reason for this is that “irrigation water use efficiency increasedand the irrigation norm fell.”

While the authors refer to consumption, closer examination shows that their data relateto water applied to the fields. Rigorous analysis by the International Water ManagementInstitute (Kendy et al. 2003) has documented this entire process, with quite different con-clusions. Since the 1970s, farmers have been adopting improved irrigation techniques andtechnology, allowing them to increase the irrigated area by applying less water per hectare.However, because the consumed fraction (that is, the proportion of total water pumped thatis consumed by the crop) increased dramatically and return flows to the aquifer decreased,the water table is falling even more rapidly. Now, the Chinese authorities focus on reducingconsumption (ET) as the only way to restore equilibrium.

One can only hope that the authorities are not diverted from pursuit of that essen-tial hydrogeological goal by papers such as that by Jia et al. (2011), which in its abstractstates that “there is little need for concern about a grain production crisis induced by watershortage.”

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Nothing could be further from the truth – as the rigorous application of the traditionalaccounting principles that PI find so inadequate will readily make clear to policy makers.Confusing that analysis by accounting for “water use and efficiency” or any of the six otherdefinitions specified by PI will not serve that basic purpose.

ReferencesFrederiksen, H.D., and Allen, R., 2011. A common basis for analysis, evaluation and comparison of

offstream water uses. Water International, 36(3), 266–282.Gleick, P.H., Christian-Smith, J., and Cooley, H., 2011. Water-use efficiency and productivity:

rethinking the basin approach. Water International, 36(7), 784–798.Jia, S., Ge, Z., and Fang, X., 2011. Less water, more grain in dry Hebei Province, China. Water

International, 36(7), 861–872.Kendy, E., Molden, D.J., Steenhuis, T.S., Liu, C.M., and Wang, J.X., 2003. Policies drain the North

China plain: agricultural policy and groundwater depletion in Luancheng County, 1949–2000.Colombo, Sri Lanka: International Water Management Institute, Research Report 71.


Perry, C., Steduto, P., Allen, R.G., and Burt, C.M., 2009. Increasing productivity in irrigated agricul-ture: agronomic constraints and hydrological realities. Agricultural Water Management, 96(11),1517–1524.

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