Chile leads sanitation ranking in Latin America with private model and target of criticism

Chile currently occupies the first position in the rankings of access to water and sewage in Latin America, with a system in which the private sector predominates and with indicators well above those of Brazil.

The Chilean model, which has undergone a series of changes in nearly five decades, is far from consensus and also faces criticism, despite the good results, which are also attributed to the State’s ability to plan and regulate these services in that country.

Data from the JMP global database, a partnership between Unicef ​​and the World Health Organization (WHO), show that 79% of Chile’s population is served by a sewage system. In Brazil, they are 49%. In the Andean country, 99% of the population has access to uncontaminated water, compared to 86% among Brazilians.

Chileans appear in 45th and 46th positions in the global rankings of access to water and sewage, respectively, while Brazil is in 84th and 76th, considering a group of around 130 countries. Taking into account only Latin America, Chile is in first place in both categories, according to 2020 data.

Private sanitation companies are responsible for serving 94% of the country’s urban population. At the end of the 1973-1990 dictatorship, they were 9%.

At that time, the country had already reached rates of 90% in access to water and 70% in sewage, after two major reforms in legislation, with the creation of a national body responsible for regulation, improvement in the management of public companies, review of subsidies and the emergence of few private companies.

According to a study by the CNI (National Confederation of Industry), the situation in the provision of sanitation services in the country can also be explained by the changes that occurred after redemocratization, among them, the advance of privatizations from the new milestone of 1998.

This legislation changed the role of the State from entrepreneur to regulator and transformed public companies into corporations. The way was also opened for concessions and the definition of tariffs based on the costs of providing services, with subsidies that currently reach 12% of the population served and correspond to 5% of the sector’s revenues.

At first, the government remained a shareholder in the privatized companies, with veto power and using the profit from its participation to finance the service for low-income families. After ten years, this 35% shareholding was reduced to around 5%.

“As a result of the privatization process, there is an improvement in labor productivity, a higher level of investment and remuneration, a level of treatment close to 100% and a high standard of quality of services. However, there are still challenges for the transfer of gains in efficiency to tariffs, and in the improvement of the correlation between the tariff level and wages”, says the work of the CNI.

According to the entity, the results are also due to the situation of efficiency achieved by state-owned companies before privatization, something that was not a reality, for example, in Peru, where the concession process to the private sector remained blocked.

A study published by BNDES in 2022 analyzes the issue of sanitation in four Latin American countries (Chile, Bolivia, Mexico and Peru). All of them are better placed than Brazil in the ranking of access to sewage, but only Chile has a higher indicator in terms of water.

When analyzing these cases, the researchers conclude that the institutional capacity of the public power was very important for the success in advancing sanitation coverage in these countries, which includes the ability to diagnose investment needs, plan the expansion of services, contract financing, provide technical assistance and make adjustments.

“It is also highly relevant to prioritize sanitation in the political agenda of the country and its federal entities”, says the study.

According to the researchers, one of the biggest concerns today is the reduction in water availability in Chile, a problem that affects most countries in the world and is linked to climate change.

They also defend the need to reduce inefficiencies in order to reduce the value of tariffs, to advance in the universalization of the service in the rural segment and to increase the volume of investments in the maintenance of the infrastructure — currently very low.

Another problem that has been raised in the country is that part of the privatizations took place in a system that made it possible to transfer ownership of water rights to the private sector. Subsequently, only the right to exploit the concession was auctioned for a period of 30 years, and the State began to retain ownership of rights and assets.

In an article published in 2013 by the Development Bank of Latin America, former Chilean President Eduardo Frei Ruiz-Tagle (1994-2000), responsible for the law that spurred privatizations, also warned of the problems generated by the perpetual concession on property of water carried out in previous decades.

“One of Chile’s great challenges in terms of water is to equip ourselves with a transparent and real market, where this resource —which is a national good for public use—is rationally used and is not left to the mere discretion of those who have the economic capacity to buy rights that in time were handed over free of charge and in perpetuity by the State.”

According to him, this problem was only partially corrected from 2005 onwards, as some changes collided with constitutional issues and opposition in Congress.

Another point of criticism is the issue of tariffs, which have risen since the system began to be financed by users, back in the 1970s.

According to the country’s Superintendency of Sanitary Services, from 1991 to 1999, the average tariffs charged by state companies had an 80% readjustment. The increase was 10 percentage points less than the increase promoted by companies already privatized in the period 1999-2007. The comparison considers values ​​corrected to prices at the end of that period.

Even so, the entity says that a new mechanism for setting tariffs is needed to transfer all productivity gains to the consumer.

The entity points out that investments in the sector grew 13% in the period 1977-1990, in relation to that made from 1965 to 1976. previous. From 1998 to 2007, they increased by another 53%.

Chile has some very different characteristics from Brazil. Among them, low water availability. Its population and area is equivalent to about 9% of Brazil, with only 0.3% of people in extreme poverty and 88% living in urban areas, a factor that facilitated the universalization of services.

Sanitation milestones in Chile

1931

The General Directorate of Potable Water and Sewage of the Ministry of the Interior is created, an entity that marked the beginning of the institutionality of the sanitary sector in the country

First renovation (1977)

The National Service of Sanitary Works was created, responsible for 11 regional companies, and two more autonomous state companies for Santiago and Valparaíso. Higher tariffs and loans finance the expansion of the service. From 1977 to 1988, some private companies were formed

Second reform (1988-1990)

New framework allows concessions and changes tariff rules, with exclusive subsidy for the vulnerable population. Created the Sanitary Services Superintendence (current regulator). Transformation of state concessionaires into SAs (anonymous companies)

Start of privatizations in the democratic period

In 1993, the Patricio Aylwin government (1990-1994) granted the concession of an area for 30 years. The Eduardo Frei government (1994-2000) promoted a change in the legal framework, with greater control over concessions and government participation in privatized companies of no less than 35% for ten years (currently 5%). From 1998 to 2001, the country’s large state-owned companies are privatized

Second round of privatizations

Ricardo Lagos government (2000-2006) limits concessions to 30 years, with no transfer of ownership of water rights and company assets to private capital. From 2001 to 2004, the rights of the last companies belonging to the State were auctioned