Keywords

1 Introduction

Chile was one of the early economic reformers in Latin America, instituting a series of market based policies . These reforms included, liberalization of the capital accounts, steep reduction and harmonization of import tariffs , liberalization of foreign exchange markets, and aggressive privatization of state-owned companies , including public utilities . Increased private-sector investment was encouraged by Chile’s focus on maintaining its macro-economic equilibrium, coupled with the many safeguards in place to protect foreign capital.

During the 80’s, the economic paradigm changed from one in which the State must protect and oversee optimal allocation of resources to one in which the market is responsible for allocating resources in an efficient manner. Thus, natural resources policies shifted from command and control to market based management policies. Since water policies in existence prior to 1980 were inconsistent with this paradigm shift, a new water code was adopted in 1981.

The essential characteristics of the Chilean Water Code of 1981 (WC81) are

  1. 1.

    Water rights (WR) granted in perpetuity which can be consumptive or non-consumptive, permanent or contingent, and exercised continuously, discontinuously or alternating;

  2. 2.

    Transferability of WR;

  3. 3.

    Protection of traditional and customary WR;

  4. 4.

    Fostering economically beneficial reallocation through market transfers;

  5. 5.

    The subsidiary role of the State, and

  6. 6.

    The essential role of water user associations (WUA) in the local management of water resources.

The legal security , intangibility, and transferability of WR allows for a market-based WR reallocation mechanism. In order to control potential negative effects on third parties due to the transfer of WR, the WC81 established that the National Water Directorate (DGA) must authorize the WR transfers between natural water sources.

Water governance in Chile has evolved throughout history according to the natural and social context in which water resources management has been developed. It has gone from a simple structure in colonial times to a model that is characterized by the coexistence of centralized and decentralized institutions . Centralized organizations comprise the administrative bodies of the State, in which the DGA plays the most important role. These centralized institutions include water quantity and quality management bodies and the judicial system that resolves most water conflicts . Decentralized bodies, on the other hand, are represented by Water User Associations (WUA) , which are private organizations that manage and distribute water at the local level and are not part of the State administration.

The macroeconomic, sectoral and natural resources policy reform was far from frictionless, GDP growth in 1982 was −14%, and official unemployment was approximately 24%. However, after this economic crisis, Chile entered a virtuous cycle of strong economic growth led by exports. After the return to democracy, Chile pursued a development model based on three major themes:

  1. 1.

    Maintaining macro-economic equilibrium;

  2. 2.

    Strengthening the market based allocation of resources, including water; and

  3. 3.

    Opening the economy to world markets and exporting products for which the country had a comparative advantage such as copper, fruits, wood pulp, and salmons, among others.

It is important to point out that the water sector itself has not exerted the greatest influence on water resources and their management. Instead, social and macro-economic policies and concomitant decision-making in trade, agriculture , and other sectors, had an even more profound effect. This is particularly true of policies related to the country’s national development strategy, even though such policies have often seemed to be completely unrelated to water.

The remained of this chapter presents a global assessment of Chile’s water policy and its challenges to face increasing water scarcity, drawing from the significant analysis and perspectives offered by all contributors.

2 Chile’s Water Policy Performance

As a result of the structural policy reforms , since Chile’s return to democracy, real per capita GDP per capita increased in real terms over 100%. In response to this accelerated growth, during the same period, total granted consumptive and permanent surface and groundwater water flows (m3/s) grew 1083% and 633%, respectively (DGA 2017). Hence, there has been a clear correlation between the growth of the country and its water consumption . Consequently, decoupling of economic growth from water consumption has not been an automatic by-product of growth in national incomes.

Water rights markets in Chile have also enabled this economic growth by facilitating the reallocation of water use from lower to higher value users and providing access to water resources at a lower cost than alternative sources such as investment in water infrastructure and desalination . Water markets have matured in the 35 years since the WC81 was promulgated. Market transaction frequency has increased throughout the nation during the last decade, with more frequency during relative dry years. Agriculture is the sector with the largest number of transactions as buyers and sellers WR. Additionally, farmers mainly trade WR within the agricultural sector .

WR prices have been highly variable, with more experienced buyers and sellers negotiating favorable prices due to asymmetric information. Many WR transactions have been for relatively small amounts of water and for low transactions amounts. This implies that transactions costs have often not been prohibitive.

It is important to point out that water rights markets have not eliminated the need for government agencies in water management . The National Water Directorate (DGA) must maintain a key responsibility in registering WR, providing market information to buyers and sellers, and in regulating trades that change the location of water-use in arid basins .

Chile’s urban water supply and sanitation (WSS) system represents a successful case given that virtually universal levels of coverage have been achieved in both drinking water supply and wastewater collection and treatment . It is characterized by three main features:

  1. 1.

    Separate role of the regulators from service providers;

  2. 2.

    Establishment of efficient tariffs that allow operators to finance operation, investment requirements, and obtain a minimum return on their investments; and

  3. 3.

    Implementation of a subsidy so as to ensure affordability of water supply and sanitation to low income and vulnerable families.

The privatization of the Chilean water industry was a gradual process that was carried out in two main phases and following two different approaches. As a consequence, currently in Chile there are two types of water companies namely: fully private and concessionary water companies. At present, private water companies provide WSS to most urban customers (95.8%).

The Chilean process to set urban water tariffs is unique worldwide and compares the costs of the real water company with a virtual, efficient company which is considered to be the benchmark . This model has been successful in providing WSS to most of urban customers. However, it presents notable asymmetric information problems and does not integrate quality of service variables and water scarcity in the tariff setting process.

Nevertheless, the Chilean water industry presents an important challenge related to nonrevenue water which is associated to the low reposition rates of both water and sewer networks . Chilean WSS companies must also improve wastewater treatment , replacing maritime outfall by more effective wastewater treatment systems and by removing nutrients from wastewater before it’s discharge into water bodies. Moreover, water companies and the regulator should develop and implement plans for climate change adaptation given that extreme events such as droughts , floods and extreme turbidity are already a reality in Chile.

Beginning in the 1960’s, a large portion of the rural population did not have access to drinking water . The Rural Potable Water Program implemented during the 60s has provided drinking water infrastructure to approximately 1,900,000 beneficiaries, increasing rural water coverage from 6% in 1960 to 53% by the year 2016. However, unlike urban service providers, rural water supply and sanitation sector has not been subject to regulation . This has led to tariffs that have not allowed for full cost recovery and adequate investment and maintenance so as to satisfy growing demand.

The current status of these rural water drinking systems (APR) depends on how long they have been operating. The average age of current APR systems is 23 years old and it is to be expected that these require improvements and constant maintenance in order to be able to provide quality services to their population . Although several systems have had maintenance work and/or made improvements in the past, these have not been sufficient; more than half of APRs report at least one unscheduled water outage in the past. Maintenance plans with timelines over a year are necessary to ensure system continuity. On the other hand, at least 13 of every 100 APR organizations do not have a sanitation operations authorization needed for potable water delivery. Hence, not all comply with current drinking water quality standards.

Rural drinking water system’s ability to respond to scarcity during times of drought has become increasingly relevant. During the drought between 2011 and 2016, 6% of all APRs had to be supplied with lorries. It was estimated that about 200,000 people living in rural areas received a variable and insufficient quantity of water to satisfy basic human needs. Thus, rural WSS systems are precarious and vulnerable.

Growth of the agricultural sector has been achieved by intensification of production, constant land use transition from agricultural use in import competing crops into higher value export crops (fruits and nuts), accompanied by a marginal expansion of agricultural land, and increases in water use efficiency . Overall irrigation efficiency increased by 17% between 1997 and 2007, rising from 48.6% to 56.9%. The greatest increases were achieved in regions where water is scarcest. However, water use efficiency, defined from an economic perspective as the economic return per unit of water used for crop production, is on average low, indicating that there is substantial improvement potential without an increase in water consumption . Agriculture will continue putting pressure on water resources since the declaration of the goal for Chile to become a world agricultural and food production power in the twenty-first century by 2020, requires an increase of the total area under irrigation by at least 36%.

The mining industry only consumes 3% of the consumptive water use in Chile. This can be explained since mining activities in Chile have a high-water use efficiency, currently at 0.75 m3/ton of copper ore, compared with nearly 2 m3/ton of copper ore in the 1980s. This efficiency increase was motivated by increased prices for water rights in the arid macroregion , due to increasing water scarcity over the last 20 years. However, the use of water in mining has produced several socio-environmental conflicts over the past two decades. These problems mainly concern the environmental impacts on wetlands and riparian areas.

The increase in consumptive water use has led to important water stress situations that are triggering a greater number of conflicts and social, economic, and environmental vulnerability. The above phenomena will be exacerbated by climate change that is expected to affect Chile in a complex fashion, with increased temperatures throughout the country and decreased annual precipitation in the Central and South Macroregions .

The increase in granted non-consumptive permanent water flows mainly for hydroelectric generation was explosive between 2001 and 2017, increasing 50,000 times (DGA 2017).

Hydroelectricity has been part of Chile’s energy history since the end of the nineteenth century. Significant developments of the hydroelectrical infrastructure have taken place, however evidencing significant deficits in their social and environmental sustainability. In recent years, both regulatory requirements and industry practices have improved, and the reality of the sector is much better than that of the 1990’s. However, as the recent sustainable hydroelectricity government committee concluded, there are still challenges to move towards more sustainable hydroelectricity with the environment, communities and territory.

Twenty years ago, Chile’s electricity supply presented a markedly hydroelectric component, with a participation of 76% of the total generated energy. Hydroelectricity has lost popularity in Chile due to two main factors: (i) increasing social conflicts , and (ii) increasing environmental costs of large hydroelectric projects. On the other hand, the increasing cost-efficiency of other renewable energy sources, in particular wind and solar energy which have a growing participation in the Chilean power grid, have reduced the attractiveness of hydropower generation. In contrast, run-of-river hydroelectric plants, with much lower environmental footprint, have been growing in importance in Chile. This has led to an important decrease in the participation of hydroelectricity in Chile, accounting for 36% of the total energy generated in the main system in 2016.

3 Water Policy Challenges

Chile’s legislative and regulatory framework would seem to be adequate to effectively manage water resources. In the following section we analyze those aspects which have limited its performance.

Achieving water security is not only a question of adequate legal frameworks, but equally a matter of good governance . An assessment of Chile’s centralized water governance evidenced a low performance (World Bank 2013). This is mainly due to the following institutional weaknesses:

  1. 1.

    Limited institutional role of the DGA .

  2. 2.

    Lack of institutional coordination.

  3. 3.

    Deficiency in strategic water planning and management formulation and monitoring .

  4. 4.

    Problems in the generation and dissemination of relevant information for water management .

  5. 5.

    Lack of participatory instruments for an integrated water management .

  6. 6.

    Insufficient institutional budgets.

The WC81 entrusts water management , administration, and distribution, to WR holders that are organized in WUA . In general, the performance of the WUAs is regular (World Bank 2011, 2013). This can be explained by the fact that an important proportion of WUAs do not fully satisfy Ostrom’s 8 principles for an effective collective groundwater management .

The main difficulties that limit WUA effective water management are (Vergara et al. 2013):

  1. 1.

    Legal and administrative obstacles in the determination of their statutes and rules of operation.

  2. 2.

    Lack of adequate professional management.

  3. 3.

    Insufficient budgets for an effective water management and to maintain and improve their water infrastructure.

  4. 4.

    Strong administrative presence and intervention in some basins where hydraulic works have been built by the State.

  5. 5.

    River and aquifer sections with autonomous and independent WUA, limiting an integrated water management .

  6. 6.

    Lack of effective integration of all water users in WUAs, especially groundwater user associations and non-consumptive WR holders.

  7. 7.

    Lack of complete registry of WR.

Improving the performance of the water institutional system in Chile requires strengthening of horizontal and vertical inter-institutional coordination as well as institutions themselves. This would require reallocating part of the functions and activities that multiple actors currently develop, so as to avoid inefficiencies, duplicities and gaps. Some specific institutional modifications have been studied in the matter such as the creation of an Under-secretariat of Water Resources or a National Water Agency. Governance of WUAs must also be strengthened by increasing their organizational and management capacity moving towards an effective collective water management .

Due to the exponential growth in both granted consumptive and non-consumptive permanent WR, at present, several basins in the north and central macroregions are overallocated. With respect to surface water , up until 2015, the DGA had declared 11 water basins as water depleted, 4 in the north and 5 in the central macroregion (DGA 2016), representing 35% of the main basins and 11% of Chile’s total number of water basins. In these depleted watersheds surface WR are recognized as shares of water flows . Groundwater overallocation was more serious; over the past two decades, the use of wells in agriculture has increased sixfold and the use of wells for drinking water and mining fourfold and twofold, respectively. 153 aquifers or hydrogeological sectors were declared under restriction and 4 under prohibition, all in the north and central macroregions. In the absence of public interest, the state is not allowed to intervene directly to restore groundwater balance. WR holders can petition their groundwater association or the DGA to impose a water sharing mechanism; however, this has not occurred. Thus, the hydrogeological balance has been increasingly negative and the sustainability of aquifers in the north and central macroregions are compromised.

A major concern is the general lack of information about groundwater and insufficient knowledge about its dynamics, in particular its interaction with surface waters . An additional challenge for a sustainable groundwater management is the fact that at present ground and surface waters are managed independently despite their recognized interrelations and regulation that calls for joint management. This implies that there has been no conjunctive management of surface and groundwater , which has proven to be an effective adaptation mechanism for climate change .

In response to growing water scarcity, Chile has concentrated on water supply management policies focusing on three priority areas

  1. 1.

    Regulate variable surface water flows by investing in major reservoirs;

  2. 2.

    Implement groundwater artificial recharge projects; and

  3. 3.

    Investment in desalination plants.

The State has proposed to invest US $ 1300 million in small and large water reservoirs, as well as US $ 265 million in desalination plants (Delegado Presidencial para los Recursos Hídricos 2014). On the other hand, the private sector has also proposed to solve its water scarcity challenges by investing in projects to increase water supply. Most of these have to do with water desalination . By 2015 there were 20 desalination plants in operation of which 11 are used in mining , 8 are used to supply water for human consumption , and 1 plant destined for industrial use. Most of these plants are located in the north macroregion , being the Region of Antofagasta the one that concentrates the greatest number of plants, with a total of 12. There are an additional 16 projected plants, with different stages of progress.

However, this policy on its own is unsustainable, given that as water availability increases so does water consumption , leading to the initial problem of water scarcity. The private sector, as a measure of water demand management , has increased its water use efficiency . As pointed out previously, agricultural irrigation and mining water use efficiency increased by 17% and 63%, respectively. In the industry there is also evidence of improvement in water use efficiency. However, there has not been significant increases in urban water supply water efficiency.

As competition for water has grown, Chile has sought better institutional arrangements for water management , coordinate use and resolve conflicts . Although the WC81 was successful in promoting investments related to water and improving water use efficiency in many economic sectors, it also led to new difficulties which were partially addressed in the reforms of 2005. The 2005, reform sought to establish a more stable balance between the public interest and the rights of private individuals and among social and productive demands and environmental considerations. Key reforms addressed concerns regarding speculative hoarding of unused water-use rights by implementing a non-use tariff on all WR that were owned but remained unused. This was particularly evident in the case of non-consumptive WR where entry barriers were created for new hydroelectric plants, discouraging competition in hydroelectric power generation. As a result of the 2005 reform, non-use of non-consumptive permanent WR has been reduced, but not significantly. Due to the lack of evidence on the effectiveness of this policy instrument, the actual WC81 reform under debate in the Senate, contemplates the implementation of a “use or lose it clause”.

In the past years conflicts among multiple water users have increased. More importantly, current regulations have been ineffective to resolve these conflicts. There are multiple sources of conflicts. One of them are the conflicts that have arisen between users of different economic sectors in water stressed basins . Increased consumptive permanent WR market activity between economic sectors has generated increased conflicts with downstream and other groundwater users due the reduced return flows and infiltration . A l/s used in agriculture with an efficient irrigation system consumes approximately 16,000–18,000 m3/year, whereas the same l/s used for urban water supply or mining consumes 32,000 m3/year. For this reason, in rivers with significant return flows, there have been attempts to prohibit or restrict the transfer of WR from agricultural users to non-agricultural users in earlier sections of these rivers. During the drought between 2011 and 2016 significant conflicts arose among rural water supply systems and agriculture and mining. The reduced hydrological flows due to the drought coupled with overallocation of WR and WR transfers led to important water shortages in rural areas with less impact on the productive sectors. This sparked the argument to reform the WC81 to prioritize drinking water over productive water uses; this proposed reform is under debate in Congress. As of 2007, the DGA has declared 28 water reserve decrees to insure water supply for the population because of increasing water scarcity and lack of other means to obtain waterFootnote 1.

Other conflicts have arisen between water users and the DGA with respect to the WR granting procedure and the definition of water availability. The procedures to regularize customary WR has also generated conflicts between customary WR holders and the DGA. The application of the non-use tariff has similarly been conflictive, in particular with respect to the definition of water extraction infrastructures to determine water use.

Higher income brought by economic development has meant that Chileans care more for the environment and this has increased the demand for stricter regulation for water so as to increase water quality and reduce aquatic ecosystem deterioration.

Policies that regulate the environmental quality of the waters in Chile have advanced significantly. New water and environmental laws and regulations have been put in place. The main environmental legal body is Law N° 19.300, initially approved in 1994 but later modified multiple times, focuses on command and control policy instruments such as primary and secondary environmental quality standards. Primary quality standards establish pollutant concentration levels and their respective maximum or minimum duration, whose presence in the environment may constitute a risk to the life or health of the population . Meanwhile, secondary quality standards establish pollutant concentrations levels and maximum or minimum duration for the protection and conservation of the environment. Thus, in principle, Chile’s environmental policy potentially guarantees water quality . However, it has taken about 22 years to be implemented and thus, at present, there are significant water quality problems and challenges.

The main water quality issues include elevated salinity and concentrations of metals and metalloids in Northern and Central Chile and eutrophication primarily in Central Chile. The natural presence of copper and arsenic from geological sources in addition to anthropogenic activities explain heavy metals enrichment. Wastewater treatment coverage in urban areas is close to 100% but only 5% includes nutrient removal and 29% of the generated wastewater is discharged in Chilean coast by marine outfalls. An integrated approach that articulates water monitoring (quantity and quality) with working conceptual and quantitative models of water quality is needed.

This delay in implementation of water quality regulation has been, in part, due to the lack of systematic and reliable water quality information, differences in the technical criteria and discretion of the authority in its application. A more decisive push to add more areas is needed for the regulation to have a significant effect in the country. Because this means more funding, it makes sense to continue prioritizing those areas where the standards would yield the highest net benefits to society.

The high levels of water extraction for consumptive as well as non-consumptive uses, has led to important aquatic ecosystem degradation and loss of biological diversity. Estimates indicate that 90% of Chile’s freshwater fish species are in a category of conservation danger and extinction and some rivers do not maintain water flows due to over allocation of WRs .

The 2005 reform of the Water Code of 1981 was a turning point incorporating minimum ecological flows (MEFs) explicitly. This was further reinforced with the 2010 reform of Chile’s Environmental Law , which establishes that MEFs must be implemented for the protection of aquatic ecosystems . These requirements have been applied in the last decades, establishing MEFs when new WR are granted.

Environmental sustainability in Chile has actually improved in recent years. This was largely the result of factors outside the water sector, including economic growth , which has provided the financial and technological resources needed to bring about environmental improvements, and an ideological shift, which resulted in greater attention to social and environmental issues on the part of the government and Chile’s citizens. However, in spite of these advances, Chile has not been able to revert the deterioration of aquatic ecosystems in its main basins .

A compelling policy that assures the access to thorough and reliable data on water quality and status of aquatic ecosystem is necessary. In addition, further efforts to target main water quality issues, for example by promoting sustainable water treatment alternatives, are required to move forward in the successful implementation of these policies. Future public policies aiming to the protection of water resources and aquatic ecosystems need to be consistent with existing regulations and institutions .

4 The Need for Integrated Water Resources Management in Chile

A number of advances and reforms of Chile’s institutional and legal framework for water management have fallen short of what is needed to address the issues that Chile faces in its current phase of development. The growing divide between the nature of problems in a complex society with severe pressure on natural resources and the responses that traditional management structures are able to deliver has led to increased conflicts , inefficiencies, and missed opportunities for progress. This is due to its inability to deal with water management problems that affect the entire river basin and involve multiple stakeholders and sectors. At present, there are no participatory instances that bring together public, private and civil society. Additionally, water users of different sectors rarely interact although they are part of water user associations .

This unfavorable situation creates the need for the implementation of mechanisms to promote integrated management ; however, this is limited by the legal and economic framework of water resource use. Thus, adopting integrated water resources management is a priority so that Chile can face its current and future water management challenges. For this, Chile’s water management must incorporate participatory planning and decision-making with full public consultation and involvement of all water users as well as civil society.

This would lead to the improvement of:

  1. 1.

    Intersectoral use of water;

  2. 2.

    Intersectoral coordination of public and private institutions at the basin level;

  3. 3.

    Conjoint surface and groundwater management ;

  4. 4.

    Water quality management and environmental conservation ;

  5. 5.

    Water conflicts resolution and prevention; and

  6. 6.

    Sustainable water use.