EXPERT GROUP MEETING ON STRATEGIC APPROACHES TO FRESHWATER MANAGEMENT 27 - 30 January 1998 Harare, Zimbabwe CHALLENGES FACING WATER RESOURCES MANAGEMENT IN LATIN AMERICA AND THE CARIBBEAN by Terence R. Lee Paper No. 6 Prepared for the Department of Economic and Social Affairs United Nations ------ THE CHALLENGES FACING WATER RESOURCES MANAGEMENT IN LATIN AMERICA AND THE CARIBBEAN Terence R. Lee United Nations, Economic Commission for Latin America and the Caribbean The major challenges facing water resources management at the beginning of the twenty-first century, are and will be determined for the countries of Latin America and the Caribbean by the needs of economic and social development. Oddly enough, or not, these needs are very much the same as those that were being faced as the twentieth century dawned, as well as those that have been faced for all this last century. Undeniably, the greatest challenge is to achieve what it has not been possible to achieve in this century - a high level of economic development, that is both sustainable and equitable. The achievement of sustainable and equitable economic development requires, in order of importance, that the societies of Latin America and the Caribbean, increase productivity, eliminate poverty and minimize the impact of economic activities on the environment. The water resource has many roles to play in resolving this challenge, both as a whole, as well as, for each separate component. Fortunately, in meeting these challenges for the region, as a whole, there is unlikely to be any crisis in the physical supply of water. The average annual precipitation is estimated to be 1,500 mm, over 50% above the world average, and the annual mean runoff is 31% of the total global land surface drainage entering the oceans. The distribution of precipitation in the region is, however, very uneven and this creates some very arid regions. Moreover, the population has tended to concentrate in the less humid areas of the region, over 90% of the population lives in areas with less than 2000 mm of precipitation a year and three of the largest concentrations of population - the metropolitan areas of Lima-Callao, Peru, Mexico City, Mexico and Santiago, Chile are in areas with less than 500 mm. In these areas, and in other urban and industrial areas, there will be increasing competition among uses which will add an additional change for water resources management. THE ROLE OF WATER RESOURCES IN IMPROVING PRODUCTIVITY Despite the optimism in the press and in many official reports, the economies of the countries of Latin America and the Caribbean have not grown significantly in the last 20 years. The only remarkable exception has been the sustained economic growth of Chile over the last 12 years. In many countries, there has been an overall decline in productivity, and in others recent growth has simply reflected recovery from the recession of the 1980's (Figure 1). Increasing economic productivity remains the major challenge facing the countries of the region. Figure 1. Changes in Per Capita Income [ not available ] What is true about the economy as a whole holds equally for those goods and services closely related with the water resource. Most water-based services, not only drinking water supply, but also hydroelectricity generation and irrigation, in most countries are still managed at a loss and require considerable subsidies not only for capital expansion, but even for routine operations. These subsidies are provided at the expense of more socially profitable uses of these financial resources. If water- based services are to make a maximum contribution to economic growth in general then they must become entirely financially self- sufficient, including future capital investment. Profitability and self-financing is quite achievable for all water-based services in all countries in the region. There are various alternative means, that are already being applied in many countries, to ensure that these services maximize their contribution to economic productivity, to increasing the productive base and through these means to economic growth. A fundamental step in this process is the reconsideration of the role of the government and the public sector in the economy and a revival of the faith in markets. The most common policy adopted to improve productivity has been the transfer, through sale or concession, of many water-based productive activities to the private sector. An even more radical institutional change is the decision, in some countries, to let the market determine the allocation of water. The basic components of these policies include, first, reductions on the direct provision of water services by central governments through: I) The transfer of responsibility from a central government ministry to another public institution, such as an autonomous public corporation, to the states or provinces in the federal countries, to a regional authority or a municipality in countries with a unitary system of government; ii) The transfer of management responsibilities to formally constituted water-user associations. This is particularly common for irrigation and rural drinking water supply; iii) The granting of water services in concession to private companies. This is particular common for drinking water supply and sanitation, although, it is also being considered for irrigation works in some countries; iv) Direct privatization through the sales of shares or by tender. A normal practice for hydroelectricity generation, although it is also being applied to water supply and sanitation services. Second, in some countries, water markets have been created or are being considered through the assignment of property rights to the water rights and the permitting of the holders of the rights to freely trade them. Such markets have existed in Chile since the early 1980's. Third, there is a trend towards self-financing. There is an increasing requirement in public policies that sellable water services (drinking water, irrigation, and hydroelectricity) finance the total costs of provision from tariff revenues, including the control of the external or environmental costs associated with their provision. It is already clear that these policies when thoroughly applied remarkably increase the productivity of water-based services. Their continuation, deepening and widening is the basis by which the use of the water resource can become more productive and its role as an economic good be fully played at the beginning of the twenty-first century. At the same time these policies are placing new demands on human resources. Raising productivity will not only require new skills from workers in the sector, but also create many new employment opportunities. Most countries of the region have extensive training systems both within the universities and within the sector, itself, although the supply and demand are not always coincident. WATER AND THE SATISFACTION OF BASIC NEEDS Much of the criticism that has been made of the poor management of water services has been justified by the ample evidence of the results of ineffective management such as the construction of unjustified or ill conceived projects and in the development of an unwieldy and overly centralized bureaucracies. The greatest failure has been in the provision of drinking water supply and sanitation services, especially in urban areas. The result has been the maintenance of human misery and recurrent crises, such as that of the recent cholera epidemic. There are far too many examples in the region of badly run water services which fail to meet the demands placed upon them to be able to claim that the administration of these services does not demand radical reform. Over the last three decades, tremendous efforts have been made in most countries to improve public utilities. Nevertheless, the efforts have consistently failed to achieve the objectives set. One of the principle limitations has been the weak financial situation of the state-owned public utility companies due to the failure to use full-cost pricing. The lack of financial resources has been compounded, in many cases, by poor management. This two factors have had the consequence of insufficient increases and even decreases in the provision of services and have constituted an important limitation for those systems which have shown a better performance. Privatization does not necessarily have to be in the form of the sale of whole systems to the private sector, although in many cases this may be the preferred alternative. Granting a total or partial concession can have an equally effective innovative impact as can the conversion of state companies into autonomous public companies registered on the stock exchange. Improving the financial situation of public utilities, privatized or not, demands that all customers pay for their services, a custom which has not exactly been common in the region and has implications for equity given the nature of the distribution of income in Latin American societies. Perhaps, however, not such serious implications as the existing failure to provide services, close to 100,000,000 people have no access to services and many more have very poor services (Figure 2). Moreover, there are examples of successful solutions through direct subsidies to the consumer. No one wishes to pay more for any good or service. But, only moving towards self-financing will allow the whole population, both urban and rural, to have access to the basic services necessary for a minimum quality of life. Moving towards the self-financing of public utilities is an end of century imperative for the countries of Latin America and the Caribbean. The financial restrictions, which have plagued public utilities, can be eliminated through the establishment of tariff systems which allow the whole cost of the provision of basic water services to be met. There should be no doubts either that this is the only way of having well managed services which maximize the contribution of the water resource to the elimination of poverty. This is the basis for one of the strongest arguments in favour of increasing private participation in water management. Introducing private investment into public utilities requires full-cost pricing. The objective is not, however, privatization for its own sake, but the transformation of public utilities into companies where the investments and provision of services do not continue to be in deficit and where the quality of the services is low, especially for the poorest members of the population. It is here that gender differences become very significant. It is women, and children, who bear the highest proportion of the costs of lack of water and sanitation. It is women who must carry water. Not surprisingly, as everywhere, women are the most enthusiastic participants in programmes to remedy deficiencies. The only real solution to the deficiency lies in the extension of public systems, other solutions are only stop gap remedies. THE WATER RESOURCE AND THE ENVIRONMENT The future growth of the economies of the countries of Latin America and the Caribbean will require that dams are built, swamps drained, rivers diverted and use water be used for the production of electricity, for irrigation, for flood protection, for drinking water supply and incidentally change the environment. Fresh water is a major component of the environment and one of the major challenges facing water management is and will be the need to minimize the environmental disruption society causes through its use of water. On one hand, the building of dams and reservoirs, especially large dams and reservoirs, has come under mounting criticism in recent years. Part of this criticism stems from the poor performance, in many countries, of the development programmes with which the construction of the dams was related, especially, but not only, in irrigation. Much of the criticism is based, however, on a failure to consider the environmental and social impact of the reservoir on the region in which it has been inserted and the general absence of participation by the population affected in the process of design, construction and operation of the project. On the other hand, changes in the spatial distribution and structure of human activities, related to increasing urbanization, will continue to have serious effects on the environment through changes in the patterns of streamflow and water quality. The concentration of population in large metropolitan centres has led to considerable interference in the natural order through the growth in sewerage and the subsequent discharge of untreated wastes; interference in the hydrological cycle caused by urban building; the more intensive use of agricultural land close to metropolitan regions; and the increase in the artificial regulation of stream flows. Equally significant, from the viewpoint of the role of the water resource in the environment, have been the changes that have occurred in the economic structure. Industrial growth and changes in industrial structure have been of particular importance, and the recent adjustments in many economies will only result in greater industrial growth in the decades ahead. Over the last 20 years, for example, the manufacture of intermediate and capital goods has become as important as the production of food and other non-durable goods. The intermediate and capital goods industries and mining, all demand large volumes of water in the production process and produce larger and more complex waste discharges. Concern for the impact of economic development on the natural environment together with the increasing awareness of the close interrelationship between poverty, especially rural poverty, and environmental degradation has placed environmental management in the forefront of political discussion. At the same time, the recent tendency towards rationalization, decentralization and privatization of former public sector responsibilities in many countries has brought about an unprecedented change in the institutional environment for water management as many new actors enter into the management and decision-making process. Management processes which were closed, are now open, and wide public discussion of water management decisions is increasingly common in many countries and has replaced the traditional centralized, closed approach to decision-making. At the same time, the recent tendency towards rationalization, decentralization and privatization of former public sector responsibilities in many countries has brought about an unprecedented change in the institutional environment for water management as many new actors enter into the management and decision-making process. Management processes which were closed, are now open, and wide public discussion of water management decisions is increasingly common in many countries and has replaced the traditional centralized, secretive approach to decision-making. One important aspect of the criticisms made of the traditional approach to decision making turns on the lack of consideration of the environmental consequences of water management decisions and the consequent damaging environmental effects of many decisions to construct works and assign water use. It is arguable that the over- centralization of any activity is likely to lead to sub-optimum decisions and, especially, to a failure to consider their wider implications. The more open and participatory the process of decision-making is, the more probable it is that all aspects of the decision will receive consideration. The transfer of responsibilities from central government agencies to lower levels of government and to the private sector is producing a need for new institutional structures for water management in the countries of the region. The centralization of water management destroyed the traditions of local and user participation in management nearly everywhere. Even among the federal states of the region, only in Brazil was extreme centralization avoided and the participation of the States maintained. Now the process of decentralization demands that the idea of user participation, of partnership among the different organizations and the private sector, be recreated through the adoption of institutional structures appropriate to the traditions and idiosyncrasies of the countries of Latin America. Figure 3: Latin America - Urban population Percentage of total population [ not available ] Centralization seem also to be the cause of the neglect of shared resources. There are 59 rivers and lakes in Latin America and the Caribbean - only one in the Caribbean, the Artibonite - whose drainage basins are shared by two or more countries. The drainage basins of these rivers account for over half the area of the countries of the region and to more than three-quarters of the total runoff. Many shared water bodies have been subject to some form of international legal arrangement, either specifically or within some broader instrument dealing with border issues. In general, however, the institutions contemplated under these agreements have not been created or, where they have been, only operate in a very limited manner, with the exception of the agreements between the United States of America and Mexico. Despite the moves within the region towards greater economic integration, it is not certain that the relative importance of shared water resources will change in any significant way. Shared basins remain marginal to the main focus of development for most of the countries of the region. One possible way in which this situation could change radically is with the growing concern for the environment. Privatization leads, by its very nature, to an increase in the participation of non-government agents in water management. In itself, however, the transfer of responsibilities to the private sector is not a panacea and cannot create a new institutional system for water management. Such a system must be specifically created. The need for innovation in management systems is now widely recognized in the region. There has been little real progress, however, in the construction of systems of water management based on local institutions with wide social participation and where the environmental aspects of water management can be given their due weight. It is undeniable that the creation of new institutions is complex. Simply coordinating the activities of the public sector can be a difficult task. For example, in the River Bio Bio basin, in Chile, 16 public sector institutions from 9 different central government ministries were identified as having responsibilities for aspects of water management. In addition, there are regional governments and municipalities. In many cases, these institutions have jurisdiction over the same area of water policy. In the Bio Bio example, 9 institutions were shown to share administrative responsibility for water pollution and 8 to share responsibility related to the physical modification of the riverūs course. There is no reason to think that such an administrative situation is any exception, either in Chile or in Latin America, as a whole. Even given this complexity, the idea of establishing some form of river basin administrative authority for water management is very attractive and has been proposed for many years. The use of such authorities has not, however, been common in Latin America and the Caribbean. More recently, however, as part of the ongoing revolution in water management policy local management institutions have become the focus of considerable interest by governments. This is leading to the increasing discussion in the region of a need to create river basin based management institutions in order to solve conflicts between users, to better manage supply and to permit the better taking account of the impact of water use on the environment. The regional development corporations for the Cauca Valley (CVC) and the Rio Bogota (CAR) in Colombia are examples of innovative and efficient regional institutions involved in water resource management. Both provide good examples of local environment management. The CVC began a water quality control programme in the 1960's and it now has perhaps the most successful programmes for controlling industrial pollution in Latin America. It is the type of institution which can be expected to be become more widespread in the region. New examples of local management institutions include the creation of river basin consortia among municipalities in the state of Sūo Paulo, and other states in Brazil, a renewed interest in river basin authorities under the application of the new Mexican water law promulgated in December, 1992 and moves in Argentina and Chile among other countries, to introduce local water management institutions. It is perhaps in the transferring of administrative authority and responsibility to such local organizations that will provide the most effective means of incorporating consideration of the environmental repercussions in the water management process. At the same time, the incorporation into public policies of the consideration of sustainable and integrated water resource management is not restricted to the creation of local management agencies. Many countries have been innovating in water quality management. For example, in Mexico, to meet the demands associated with the environmental agreements entered into under the North American Free Trade Agreement, a system of discharge charges under the 1992 National Waters Law has been introduced. In both Argentina and Chile, the institutions responsible for water quality control have recently been strengthened. In general, however, pollution control and water quality management are areas where there is least management experience in the region. It is obvious to most governments, however, that there is a need for policies and strategies for controlling pollution; for establishing information bases on pollutants and water quality; to develop useful technology for pollution control and treatment of wastes; to advance in institutional development; and to establish appropriate financing mechanisms. WATER MANAGEMENT IN THE TWENTY-FIRST CENTURY Throughout this century, the demands over the water resource have gradually intensified in most countries of Latin America and the Caribbean. The intensification of demands can be expected to continue as population continues to increase and the economies renew and increase their growth. Demand will not only continue to increase, but its nature will change as the economies change. The changing and multiple role of the water resource will place tremendous pressure on the ability of managers to cope with the continually changing issues which must confronted in water management. The necessary progress towards sustainable and integrated water resource management is still hindered by many factors. One of the most important is the tremendous deficiency, that still exists in the provision of effective and efficient water supply and sanitation services. This important and growing social need, intensified by the reappearance of cholera in the region in 1991, does not harbor well for the achievement of sustainable water management being given a high priority by either political decision- makers or the public. If the water resource is to properly fulfill its role in increasing productivity, eliminating poverty and to minimizing the impact of economic activities on the environment then the achievement of sustainable management policies must have priority. So if the lack of adequate water supply and sanitation is an obstacle than this must be the first challenge that must be resolved. Looking at the broader context, the years since the Mar del Plata Conference can be divided, as far as the countries of Latin America and the Caribbean are concerned, into three markedly different periods. The first, which ended in 1982, was characterized by unprecedented economic growth. It was followed, however, in the years 1982-1990, by the most serious economic recession since the 1930's. Since 1990, most countries of the region have entered a renewed period of growth and begun to recover from the effects of the recession of the 1980's. Both the boom of the 1970's and the recession of the 1980's deflected interest in the state of the public sector which was reflected in a lack of innovation in water administration. Indirectly, however, both periods have had repercussions on the administration of the water resource which will undeniably persist into the next century. The boom at the end of the seventies marked the climax in the expansion of public economic activities typified by the undertaking of a number of grandiose water-related projects, mainly for the generation of hydroelectricity, but also for navigation and irrigation. This expansion of the public sector was reversed during the recession and the following recuperation. In most countries of the region, the role of the state in the economy has been fundamentally revised. The objective of this revision was the reduction or redirection of state expenditures, especially capital investment, in conditions of fiscal austerity. This reduction was accompanied by attempts to increase the efficiency of the provision of services by transferring responsibilities to the private sector or, at the least, to financially autonomous public companies or to the municipalities. One of the results of this policy has been to leave the central public administrations with responsibility for licensing and supervising the activities of third parties, but not for the direct operation of productive activities related to water. The adoption of such policies is far from even among the countries of the region. Some countries are still in the midst of macroeconomic stabilization. A few have a decade of stable policies and economic growth behind them. The reconsideration of the role of the state in water management is, however, general and marks a major change in water administration policies which had been in existence for more than fifty years. The steady expansion of the public sector in the management of water projects has been reversed. The context in which water administration is discussed has, fortunately, changed. In the last few years, there is a noticeable general tendency in the region to apply some of the basic precepts for water resource administration which were enunciated at the United Nations Water Conference, and incorporated in the Mar del Plata Action Plan. Agenda 21, adopted at the United Nations Conference on Environment and Development, Rio de Janeiro, 1992, particularly Chapter 18 Protection of the quality and supply of freshwater resources: application of integrated approaches to the development, management and use of water resources has also begun to influence water management policy in many countries. The emphasis in water management policies is, and will be for, at least, the beginning of the next century, on decentralization and participation. The opportunity has possibly been created for the general adoption of institutional arrangements based on the concept of integrated river basin management, by the removal of operational responsibilities away from the institutions of the central public administration to local government, to autonomous public companies or to the private sector. This institutional change may be the key to ensuring that in the twenty-first century the water resource finally fulfills the roles demanded of it by the societies of Latin America and the Caribbean. ------
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Date last posted: 8 December 1999 15:15:30