This chapter provides an overview of the current development and performance of water and sanitation services in Argentina, and zooms in the legal, institutional and regulatory frameworks of the sector. It describes how regulatory functions and responsibilities are allocated across different levels of government. It identifies key governance and regulatory challenges that the sector faces. It then discusses how to improve water and sanitation services governance, as well as the delivery of regulatory functions, tools and incentives.
Water Governance in Argentina
OECD Studies on Water
Chapter 4. Water services governance in Argentina
Abstract
Access to water and sanitation services
In 2015, 84.4% of the 43 million inhabitants of Argentina had access to water through a public network and 58.4% to sewers. Although there are no reliable statistics regarding the level of wastewater treatment, it is estimated that 15-20% of collected wastewater is treated (SIPH, 2016). However, in the Wastewater Treatment Plants (Plantas de Tratamiento de Aguas Residuales, PTAR) survey carried out by the National Directorate for Drinking Water and Sanitation (Dirección Nacional de Agua Potable y Saneamiento, DNAPyS), it is estimated that by 2018, 36% of the wastewater collected received primary or secondary treatment.
Whereas sewer coverage has historically been lower than water coverage, over the last decade, the increase in sanitation coverage (6%) has been superior to the expansion of drinking water supply coverage (4%), thus helping to slightly reduce the gap. This has been the case in all provinces with the exception of Formosa, Misiones and Santiago del Estero, where access to drinking water supply growth has been more important.
According to the Joint Monitoring Program/ World Health Organization (JMP/WHO) data, despite strongly improving over the last decade, access to improved water in rural areas is still lagging behind, with only 83% of the rural population accessing improved water in 2016, while the rate reaches 98% in urban areas (Figure 4.1). Improved water source is defined by JMP/WHO as a source that, by nature of its construction, adequately protects the water from outside contamination, in particular from fecal matter.
Figure 4.1. Evolution of access to improved water in urban and rural areas, Argentina
Source: JMP/WHO (2016), Access to improved water, https://washdata.org/data/household#!/.
The water supply coverage for populations that present unsatisfied basic needs (Necesidades Básicas Insatisfechas, NBI) is 73%, while it reaches 85% for people without NBI. The same is true for sanitation, as coverage for vulnerable population is 31.2% and 56.3% for non-NBI inhabitants.
Taking stock of this situation, the National Water Supply and Sanitation Plan (Plan Nacional de Agua Potable y Saneamiento, NWSSP) set development targets for the sector, with the objective of reaching 100% coverage for drinking water and 75% coverage for sanitation in the country’s urban areas by 2023. This represents an additional connection of 8.2 million people for water and 8.9 million for sanitation. The projected investment required is approximately USD 21 613 million, comprising USD 8 220 million for drinking water and USD 13 393 million for sanitation. To achieve these expansion objectives, an annual average investment of USD 3 000 million is necessary, with a maximum of USD 5 420 million in 2019 (Table 4.1). These amounts of investment represent respectively 0.7% and 1.2% of 2016 gross domestic product (GDP). According to the latest data available from the DNAPyS, USD 2 495 million was spent on works during the period 2016-18 (USD 665 million in 2018, USD 913 million in 2017 and USD 917 million in 2016). The estimated investment for the year 2019 amounts to USD 505 million, for a total of USD 3 000 million from 2016 to 2019. Taking into account the investments made by the provinces, total investment for the past four years amounts to USD 4 290 million.
Table 4.1. Water services investment needs and funding
Million USD
Source: SIPH (2016), Plan Nacional de Agua Potable y Saneamiento, Ministry of the Interior, Public Works and Housing, Buenos Aires, https://www.argentina.gob.ar/sites/default/files/interior_agua_plan_agua_saneamiento.pdf.
There are clear challenges for funding the levels of investment needed to achieve the universal coverage objectives in Argentina. One such challenge is effectively channeling and co‑ordinating financial contributions to ensure the best use of fiscal resources and external financing. A further challenge is the fact that achievement of the NWSSP universal coverage objectives relies in a large part on the provinces’ willingness to undertake investments that are aligned with those objectives. However, rather than aligning their priorities with those of the national government, it has been found that provinces generally design their own portfolio of projects in an independent manner that may not strictly correspond to the NWSSP objectives and associated deadlines (albeit they still seek national funding for delivery of those non-aligned projects). This is the case notwithstanding the fact that the central government provides up to two-thirds of the funding for projects.
This highlights the long-term risks which arise from the mismatch of large infrastructure investment policy priorities across levels of government. Misalignment can result in too much, too little or the wrong type of infrastructure and, in the worst case, can deliver a system which lacks the capacity for interconnection (physical, financial or social) and hence reduces the overall effectiveness of the country in its sourcing, delivery and use of essential services such as water and sanitation services (which are key drivers of economic activity and social welfare). This, in turn, also highlights the need for consistent, collaborative and enforceable large infrastructure investment policy priorities across all levels of government, including a systematic economic, social and environmental assessment process underpinning policy development and investment delivery. Despite the existence of an overarching universal coverage policy strategy, the drinking water and sanitation sector remains characterised by a lack of legal capacity and instruments from responsible and regulatory bodies to enforce them and related policy resolutions and decisions. Moreover, there is a lack of clear accountability; ongoing independent performance assessment and reporting; and mechanisms for the review, assessment and update of the overall the universal coverage policy. In addition, although no formal mechanism is provided for the review, evaluation and update of the current NWSSP, the DNAPyS is expected to formulate a new plan for 2020-23 along with other regulations (including conditional funding mechanisms or performance-based projects).
Quality and management of water and sanitation services
In addition to the objective of increasing access and connection to water and wastewater services, the NWSSP also seeks to improve the quality and management of services. Despite the lack of data and information, an assessment of the water and sanitation services sector was carried out on the basis of data under development by the DNAPyS (through the National Water and Sanitation Information System and management plans and results) focusing on the situation of 20 providers in Argentina (serving about 27 million inhabitants, or around 65% of the country’s urban population with drinking water). Table 4.2 summarises the results of this assessment, clearly showing a lack of efficiency and a low level of cost recovery.
Efficiency of water services providers
The efficiency of Argentinean water service providers shows a great diversity across the country, but the performance remains low on average when compared to a sample of water companies in Latin America. Staff costs represent a large share of operational expenditure. As a result, looking at staff efficiency is key to assess utilities’ operational efficiency. Staff efficiency (measured as the ratio of staff per 1 000 connections for drinking water) is on average 3.33 employees per 1 000 connections, ranging from 1.00 to 7.10. For a sample of companies in Latin America, the ADERASA (Association of Regulators of Water and Sanitation of the Americas) benchmarking study estimates that the average staff efficiency is 2.94, with a variation of 1.04 to 6.48. The micro-metering levels are around 27%, ranging from 0% to 95% (Table 4.2). This latter statistic appears very low in comparison with levels recorded by ADERASA, where the average is 70% and ranges from 20% to 79%.
Cost recovery of water services providers
The actual tariff setting system does not incentivise efficient or rational use of water, nor promote demand management. Most users pay for services according to a “canilla libre” (free tap) system under which a fixed rate is charged regardless of the water volume consumed, thus providing no incentives for the efficient use of water. This “free tap” system is based on an old presumed consumption criterion taking into account the location, surface covered, quality and age of the property. These variables are supposed to reflect users’ income level and therefore their ability to pay. However, the “canilla libre” system appears somehow outdated and would need to be actualised to ensure cross-subsidies between wealthy and vulnerable customers are still effective. This pricing system also distinguishes residential from non-residential users, thus providing cross-subsidies from non-residential to residential users, as well as from metered to unmetered users. While cross-subsidies are not inherently wrong, they should be reviewed and tested from time to time to assess their effectiveness and efficiency and to determine whether or not the cross-subsidy is still required from an overall perspective. For the time being, current cross-subsidies appear diverse and scarcely focused.
Table 4.2. Indicators for a sub-set of 20 water services providers, Argentina
Note: The average water consumption per inhabitant per day is 300 litres, with a minimum of 148 and a maximum of 422. These values are well above the registered values in ADERASA for Latin America, where the average is 173 with dispersion from 49 to 366.
Source: Internal data of the Dirección Nacional de Agua Potable y Saneamiento.
With the tariff structure and level being disconnected from the cost to serve, the service operator is dependent on other funding sources (government grants, etc.) to make the business model viable, especially in a context of high inflation. This situation presents significant challenges for the economic regulator.
First, while it may be the case that, subject to data availability, the regulator may be able to establish the prudent and efficient costs of service delivery, it does not have the ability to set revenues or prices at a level which allows the operator to cover those costs. At best, the regulator can help provide transparency on the true costs of service, and on the amounts of revenue received under the “canilla libre”, thus identifying the “funding gap” which the operator needs to cover.
Second, in such a system, neither the operator nor the regulator can set revenues or prices which might drive better use of the services (from a social, economic or environmental perspective). For example, subject to government policy directives, tariff structure could be set to discourage excessive water use (an environmental as well as an economic consideration). Alternatively, they could be set to recognise industries which are heavily water-dependent for production (economic and social considerations). Further, they could be used to cross-subsidise water and sanitation services to provide the least well-off with better capacity to access those services (social considerations).
Such a tariff system also deprives the regulator from a vital tool to evaluate the efficiency of the service provision and set tariffs accordingly. Moreover, it deprives the provider from implementing any incentive tariff policy.
According to AFERAS’ report (2011), since 2006, major tariff increases have been implemented in order to improve the level of cost recovery from tariffs, with a great diversity among provinces. A similar evolution occurred between 2011 and 2015 (AFERAS, 2018). In some cases, collection arrears dating back 2010 were compensated. Figures 4.2 and 4.3 show the cumulative tariff increases during the period 2011-15, and the average monthly invoice per jurisdiction for 2015.
Nevertheless, despite tariff increases cumulated between 2006 and 2015 in more than half of the main providers of the country with available information, revenues collected are still not sufficient to cover operating and maintenance costs. This is due to a combination of low economic efficiency, increasing opex and insufficient tariff levels. On average, the operating cost coverage reached 0.91 when excluding Aguas Cordobesas and ABSA, which have extreme values with 0.28 and 1.31. This situation of increased operating costs and frozen or delayed tariff revenues results in the necessity for external contributions in order to maintain the financial viability of the service. In some cases, these have come from the reallocation of funds destined to expansion plans and service improvement, while in other cases they have been provided through government subsidies. Even so, these external contributions are often themselves insufficient and the ongoing underfunding/under-recovery means that there are resultant reductions in the levels and/or quality of assets, especially for the restoration and renewal of networks. This has resulted in poor network health, with poor service quality and high levels of network leakage. There is currently no evidence that actions have been taken to improve efficiency and thus reduce the average cost of services.
Figure 4.2. Cumulative water and sanitation tariff increases, Argentina, 2011-15
Notes: CABA: Autonomous City of Buenos Aires. The increase of CABA + 17 districts (AySA) corresponds to the nominal increase of the K coefficient, as the subsidies to a significant portion of the users were maintained, the average increase in rates was much lower.
Source: AFERAS (2018), Sistemas Tarifarios y Tarifas en Argentina. http://www.aderasa.org/v1/wp-content/uploads/2017/10/AFERAS_libro_Sistemas_Tarifarios_Tarifas_Argentina.pdf
Figure 4.3. Average monthly water and sanitation invoice per jurisdiction in pesos, Argentina, 2015
Note: CABA:Autonomous City of Buenos Aires. + 17 districts = AySA, 2015
Source: AFERAS (2018), Sistemas Tarifarios y Tarifas en Argentina. http://www.aderasa.org/v1/wp-content/uploads/2017/10/AFERAS_libro_Sistemas_Tarifarios_Tarifas_Argentina.pdf
Data performance of water and sanitation service providers
On top of efficiency improvement challenges, the NWSSP identified the need for reliable and systematised information. Indeed, the lack of comprehensive information is hampering the definition and development of strategic policy and decision making both at the national and local levels. As a result, the Secretariat of Infrastructure and Water Policy (Secretaría de Infraestructura y Política Hídrica, SIPH) developed in 2017 a Guide to Performance Indicators and Indices for Water and Sanitation Providers, and implemented in 2019 the National Water and Sanitation Information System (which also includes the guide). Bridging this information gap implies an intensive interrelationship and co-ordination between the DNAPyS and the main sectoral actors of the provinces, such that the information system will become a fundamental instrument for the planning, monitoring and enforcement of the NWSSP goals. In 2018, the SIPH launched a consultancy for an interactive information system to collect and process data on water and sanitation infrastructure and services at the national level (Box 4.1). This system, once implemented, is expected to improve the definition of policies, plans and programmes at the national and provincial levels; guide the prioritisation of investments; establish management goals; and assist in the evaluation of operators’ performance based on benchmarking. In addition, the SIPH is carrying out discussions, together with the Under-secretariat of Public Innovation and Open Government, so that, together with civil society, an agreement can be reached on the proposed publication of a set of performance indicators of key providers for the 4th Open Government Action Plan 2019-2021 of the Open Government Partnership1 (Chief of Cabinet Office, 2019).
Box 4.1. A set of synthetic performance indicators to assess and monitor the performance of utilities
As an initial step in the development of a data system for the water supply and sanitation sector, a set of nine “synthetic indicators” are being considered in the NWSSP in order to assess and monitor the performance and achievements of operators:
1. Drinking water and sanitation coverage (as a percentage of the population or active connections).
2. Percentage of sewage with treatment.
3. Water not invoiced during the period, technical losses being distinguished from commercial.
4. Global indicator for staff productivity (full-time equivalent employees/active water and sewer connections).
5. Overall indicator of water and wastewater quality.
6. Global indicator of service quality perception based on customer surveys. This indicator is linked to commercial practices, communication, customer relationship and the image of the provider.
7. Operating margin or cost coverage.
8. Share of personnel expenses of total expenses. This indicator can be used to set targets in relation to cost projections and can be linked with productivity and connection increase over time.
9. Financial structure of the company (debt/equity).
These indicators appear to be a good first step to assess and monitor the performance of water supply and sanitation providers and provision. The DNAPyS plans to complete this list of indicators with indicators regarding operational efficiency (technical losses, pipe breaks, sewer blockages), service quality (service continuity) or commercial efficiency (collection ratio, collection period, commercial losses).
Source: SIPH (2016), “Plan Nacional de Agua Potable y Saneamiento”, Ministry of the Interior, Public Works and Housing, Buenos Aires, https://www.argentina.gob.ar/sites/default/files/interior_agua_plan_agua_saneamiento.pdf .
Legal and institutional framework for water and sanitation services in Argentina
The legacy of the privatisation era
The regulatory framework for water supply and sanitation in Argentina stems from the legacy of a decade of privatisations in the 1990s when, many regulatory agencies were created, with limited capacity to discharge their duties over time. In the 1990s, Argentina privatised the management of drinking water supply and sanitation services in several provinces, and in metropolitan areas, including Buenos Aires, Córdoba, Mendoza and Santa Fe. In 1993, for instance, Aguas Argentinas S.A. (AASA) (SUEZ), was granted a 30-year concession in the Metropolitan Area of Buenos Aires (AMBA), becoming at that time the largest private water concession covering a population of around 9 million. In parallel to the the execution of public-private partnerships (PPPs) in most parts of the country, dedicated regulatory authorities were set up in provinces. In practice, the newly created regulators controlled the proper execution and delivery of obligations under the concession contracts (e.g. control of operators’ contractual commitments, and interpretation of contractual clauses) rather than regulating water and sanitation services per se (e.g. setting incentives for efficient water use, promoting demand management, information and data gathering, customer engagement). In addition, several researchers concluded that many regulatory authorities suffered from political and economic capture, which was found to highlight the shortcomings of the institutional architecture put in place through the privatisation process (Azpiazu, Bonofiglio and Nahón, 2008): lack of neutrality at the time of renegotiations, lack of clearly stated principles regarding the allocation of regulatory functions, lack of transparency in decision making, co-optation in the appointment of directors or councilors. The risk of capture was also reinforced by the asymmetry of information and technical skills between the private operator and the newly created regulator.
With the termination of the various concessions in the second half of the 2000s, service provision was transferred back to the national, provincial and/or municipal authorities under public concessions. However, the regulatory framework remained largely unchanged. As a result, regulatory authorities still tend to be control agencies, and can find themselves hampered by economic and political interference (Box 4.2). For instance, tariffs continue to be firstly reviewed and approved by political authorities. In recent years, the emphasis was put on the improvement of cost recovery through tariff increases to reduce the financial dependency towards subsidies. This situation occurred particularly in the AMBA, where the operator AySA had seen its tariff rate quasi frozen from its creation in 2006 until 2016. It was then granted an accumulated tariff increase through the adjustment of the K coefficient of 629% from 2016 to 2019. In addition, this financial sustainability policy allowed the company to increase its operating costs from 42% in 2015 to 81% in 2018.
Nevertheless, the role of certain regulators tends to be limited to formal approvals of proposed tariffs, albeit some regulators have an advisory role to political authorities in the tariff-setting process. Regulators are funded through a fee perceived on the water supply and sanitation invoice. In the case of the Metropolitan Area of Buenos Aires and the city of Buenos Aires, due to important increases of the coefficient K and consequently of the tariff since 2016, the regulatory agencies’ financial resources increased significantly as their situation went from deficit covered by the National Treasury to surplus. This evolution led the Ministry of the Interior, Public Works and Housing to approve a resolution reducing the rate perceived on the water invoice by the regulatory agencies (ERAS and APLA) from 2.6% to 1.79%, as of 1 July 2019.
Box 4.2. Preventing undue influence and maintaining trust: The case of electricity and gas regulators in Argentina
National electricity regulator
The legal powers that Law 24.065 of the Electric Power Regime grants to the National Electricity Regulatory Entity (ENRE) as a self-governed organisation with institutional boundaries can provide the foundations to build trust as an independent regulator.
Defining serving terms for members of the governing body of regulators as fixed and in staggered periods can reduce the risk of regulatory capture and appointments should last beyond presidential periods. In the case of ENRE, governing bodies are designated for five years and the president is elected for a four-year term. The members of the board cannot have direct or indirect interests or relations with the electricity firms. There is also a three-year “cooling off” period, during which an individual is prohibited from working in the industry before or after holding a public position in ENRE.
Direct intervention of ministries in the policy space of regulators can undermine trust in the regulator. Decree 134/2015 issued in 2015 declared the energy sector in a state of emergency. This decree provided instructions to the Ministry of Energy and Mining to implement actions to improve quality and ensure the supply of public services in technical and economic conditions. The intervention of the ministry included the generation, transport and distribution of electricity. A decree of this nature granted the executive power faculties to intervene in ENRE, narrowing its capacity as a regulatory authority.
National gas regulator
Law 24.076 of Natural Gas grants ENARGAS an institutional design similar to that of ENRE, including the status of a self-governed body, the arrangements for the board of the institution, and the system for the appointment of board members, among others. These legal instruments seem to be consistent with OECD principles on the governance of regulators, but any potential risk in the institutional design that threatens independence should be identified and avoided, or limited.
In the case of ENARGAS, through Decree 571/2007 issued in May 2007, the president of Argentina intervened, taking control of the regulator’s functions and responsibilities. The arguments put forth included defective administrative reporting, serious faults and other misconduct. The decree made explicit that the intervention was planned for 180 days, with the possibility of extension. The short-term intervention lasted ten years, however, until the publication of Decree 594/2017 issued in 2017, which declared the end of the intervention and appointed the vice president of ENARGAS and other senior officials.
In order to prevent undue influence and maintain trust, regulators need to have, among other things, clear objectives, a solid regulatory and institutional framework to dispatch their function effectively and efficiently, and an institutional and regulatory landscape to resolve disputes and misconduct under the rule of law. Interventions of a nature similar to the one described above may have largely negative effects over the performance of the institutions, as well as in stakeholders’ perception.
Source: OECD (2019), Regulatory Policy in Argentina: Tools and Practices for Regulatory Improvement, https://doi.org/10.1787/d835e540-en.
The present legal and institutional setting
The multi-level institutional setting for water services provision in Argentina is rooted in policy choices and reforms dating back to the 1980s and 1990s. In 1980, the provision of drinking water and sanitation services was transferred to the 23 provinces, with the decentralisation of the state-owned Obras Sanitarias de la Nacion (ONS). In 1994, Argentina underwent a constitutional reform that introduced an environmental provision (Article 124) acknowledging the historical right, whereby the 23 provinces and the Autonomous City of Buenos Aires own the water and have jurisdiction over them. They are therefore responsible for the provision of water services within their own boundaries. Article 41 states that the National state may dictate minimum standards of quality and protection, which can be supplemented by the provinces. This means that the national government can establish a national water policy, strategy, programme or plan, but needs the support of the provinces to implement it (Figure 4.4). In practice, there is no national water law nor framework, and each of the 23 provinces and the city of Buenos Aires have their own water legislation, both in terms of resource management and water and sanitation services. Their powers include policy making, policy implementation, operational management, financing and regulation. A full fledge institutional mapping for water supply and sanitation is available in Figure 2.2 under chapter 2.
Figure 4.4. Allocation of responsibilities regarding water and sanitation services, Argentina
At national level
The Ministry of the Interior, Public Works and Housing has the sectoral competence for water and sanitation services policy at the national level. Within the line ministry, the SIPH establishes the national policy and planning for water and sanitation services and decides the financial national resource allocations to and within the sector.
In particular, the SIPH is the enforcement authority of the regulatory framework for water and sewer services provided by Agua y Saneamientos Argentinos SA (AySA). This water and sanitation services provider is a public limited company owned by the state (90%) and by its employees through their union (10%). Currently AySA provides services to the capital of Buenos Aires and 26 municipalities of Greater Buenos Aires.
The National Entity for Sanitation Water Works (Ente Nacional de Obras Hídricas de Saneamiento, ENOHSA) sits within the SIPH as a decentralised body with legal status and administrative autonomy. Historically it has acted as a financial agency channeling national and external resources to the provinces and service providers. In 2004, it became authorised to contract for and execute works, projects and acquisitions for the construction, maintenance and replacement of sanitation infrastructure.
Two further self-governing bodies, the Water and Sanitation Regulatory Entity (Ente Regulador de Agua y Saneamiento, ERAS) and the Planning Agency (Agencia de Planificación, APLA) have the respective functions of policy planning and regulation in the context of AySA’s service provision. ERAS exercises control over the provision of drinking water and sewerage services, including control of water pollution in AySA discharge. APLA reviews and validates investment planning by liaising with the municipalities and the concessionaire, and monitors the execution of works.
Although the SIPH is in charge of managing and co-ordinating the water and sanitation sector policy at the national level, an initial diagnosis revealed the absence, until recently, of a specialised working group or department under the SIPH dedicated to those functions. In reality, it had not existed for more than two decades, except with a small team to fulfill the functions of the Application Authority of the Metropolitan Area of Buenos Aires’ (AMBA) services contract (AASA and AySA). The current management of the national government considered it necessary to constitute a dependency within the scope of the then Undersecretariat of Water Resources (now the SIPH) as the governing body at the national level. As a result, the DNAPyS was created in 2016. Its tasks include, among others, the formulation of sectoral policies for water and sanitation services, as well as the medium and long-term planning of investments and the quality of services. It is also in charge of developing a national data system to bridge the information gap on water and sanitation services, of carrying out specialised studies, promoting good practices for the maintenance of infrastructure and operator management, transferring knowledge, and strengthening provincial and municipal services.
Horizontal co-ordination among these various national institutions is a challenge because of an allocation of responsibilities that is overlapping, unclear or rivalrous. Moreover, there are difficulties linked with the design, implementation and monitoring of water and sanitation services policies, deriving from the lack of co-ordination between these national entities. Taking stock of these horizontal co-ordination challenges at the national level, a Water Cabinet has been created (Box 4.3).
As discussed above, in 2016, the DNAPyS established the NWSSP, targeting universal coverage for urban drinking water supply throughout the country, and a 75% coverage for sewage by 2023. The plan identifies water services access gaps as well as key efficiency issues in service delivery, and proposes an investment plan and policy actions to improve the overall performance of the sector. In theory, the DNAPyS should drive the implementation of the NWSSP throughout the country; but from a legal standpoint, its enforcement power is limited to the Metropolitan Area of Buenos Aires where AySA operates. Besides the exception of the AMBA, drinking water and sanitation is usually under the responsibility of the provinces, within a co-existence of provincial and municipal ownership of services (see the following section). Hence, the SIPH does not have the legal capacity to make the provinces accountable for the implementation of the NWSSP, and faces difficulties to align national, provincial and local priorities. Provinces voluntarily implement infrastructure or policy measures included in the plan. In such cases, nevertheless, ENOHSA can act as a financial agency to channel monetary resources to the provinces and service providers. ENOHSA can also, with the agreement of the provinces, contract and execute projects related to the construction, maintenance and replacement of water services infrastructure in co‑ordination with the responsible provincial authorities.
Box 4.3. The creation of a Water Cabinet, Argentina
In December 2015, in order to articulate the management and governance of water policies between the various stakeholders involved at the national level, the Ministry of the Interior, Public Works and Housing created the Water Cabinet (Gabinete del Agua, GEA) as an instance for policy co‑ordination, planning and budgeting. The GEA meets regularly upon invitation from the Secretariat of Infrastructure and Water Policy with a view to report progress, exchange and receive instructions, and integrate commissions and technical work groups. The main goals of the GEA are to generate favourable conditions to promote and implement integrated water resources management, and to develop water resources management based on the definition of specific goals and objectives from the National Plan for Water Supply and Sanitation.
Figure 4.5. Composition of the Water Cabinet
At subnational level
The legal and institutional organisation of the provision of water and sanitation services at the provincial level replicates the organisation of AySA and the AMBA, with the provincial governments having powers over their territory (with the exception of AySA mentioned above).
The most frequent institutional organisation at the provincial level consists of a body responsible for sector-based planning and collection of revenues (provincial ministry, secretariat or undersecretary) and a regulatory body for water supply and sanitation. When there is no economic regulator, as is the case in eight of the provinces (Table 4.3), the regulatory functions are exercised by provincial water administrations.
Table 4.3. Existence of provincial regulatory authorities, Argentina
Notes: 1. Predominantly municipal. 2. Only the drinking water service of the city of Córdoba; other water services and sanitation services are operated by municipalities and/or co-operatives. 3. Predominantly co-operatives with one regulator for the city of Trelew. 4. Regulatory functions are exercised by the water directorates.
Source: SIPH (2016), “Plan Nacional de Agua Potable y Saneamiento”, Ministry of the Interior, Public Works and Housing, Buenos Aires, https://www.argentina.gob.ar/sites/default/files/interior_agua_plan_agua_saneamiento.pdf
Water and sanitation services are generally provided by provincial companies organised as commercial companies, with their share capital owned by the provinces, municipalities and unions. They cover the main cities within the provinces (with the exception of the provinces of Chubut, Entre Ríos and La Pampa, where services in the main cities are provided by municipal entities and co-operatives). In many small localities and local communities, services are provided by the municipal administration, user co-operatives or community entities.
It is estimated that there are 1 828 water and sanitation service providers in urban areas in Argentina. Of those, 23 are provincial and regional (the regional one referring exclusively to AySA, which covers two provincial jurisdictions, the city of Buenos Aires and 26 municipalities of the province of Buenos Aires). Of those 23 provincial and regional providers, 15 are public companies, 4 are state entities and 4 are private concessionaires (Corrientes, Córdoba, Misiones and Santiago del Estero). The 15 provincial and regional public operators serve around 60% of the country’s population. Provincial private companies serve close to 10% of the population. Municipal operators (including cooperatives) represent more than 98% of the total number of operators, but they comprise the smallest localities, and serve approximately 30% of the population (Table 4.4).
The problem of access to and operation of water and sanitation services of disfavoured neighbourhoods and of the rural population presents specific challenges that differentiate them from the expansion of services in areas with formal and planned urbanisation conditions. The policies and regulations issued by the national government have resulted in the creation of the National Registry of Disfavoured Neighbourhoods (Registro Nacional de Barrios Populares, RENABAP), which aims to create a favourable framework for the urban regularisation of these neighbourhoods. It also seeks to design a national plan to expand access to water and sanitation services in those neighbourhoods, with the participation of the provinces and promoting horizontal co-ordination. The DNAPyS, with the technical support of the IDB, is currently conducting studies to formulate a "National Program of Access to Water and Sewers for Popular Neighborhoods" focused on the provinces of the interior of the country to complement the actions undertaken by AySA in these type of neighbourhoods.
Table 4.4. Scale and number of water supply and sanitation services providers, Argentina
Source: SIPH (2016), “Plan Nacional de Agua Potable y Saneamiento”, Ministry of the Interior, Public Works and Housing, Buenos Aires, https://www.argentina.gob.ar/sites/default/files/interior_agua_plan_agua_saneamiento.pdf.
Economic regulators are generally responsible for regulating all water and sanitation operators within a province or territory, including municipal operators and co-operatives, and generally apply the same regulatory framework across all of those operators (a one-size-fits-all approach). However, the regulatory frameworks provide limited economic efficiency incentives to the operators: the regulatory system generally only promotes financial operating cost recovery through tariff increases, not through efficiency gains. Further, other financial and institutional incentives generally focus on short-term investment and solutions which can close gaps in access to services – there is no longer term focus. This limits investments in other areas (IT, leak management, demand-side measures, for example) that could help improve the operator’s technical or financial efficiency, which would (in the medium to longer term) improve the level of resources available to invest in closing service gaps. Thus, it may be argued that there is a focus on short-term gain but long-term pain in the sector – facilitated by the regulatory model in place.
An illustration of this missed opportunity can be seen in the levels of water losses, which are high (40-45% leakage rate on average). Moreover, there is a lack of technical capacity to develop projects on the part of service providers at the provincial and municipal levels, in particular to carry out socio-economic assessments of projects as well as to monitor their implementation. At the same time, there is a lack of training of the operational personnel and a lack of infrastructure maintenance. In general, bidding documentation is of low quality and there are excessive delays in the administrative bidding steps, leading to extensions of time and/or additional work being required.
The decentralisation and fragmentation of water and sanitation services also makes it difficult to co-ordinate the sector and for the national government’s decisions to be implemented at provincial and local levels. In order to overcome these co-ordination challenges, the Secretariat of Infrastructure and Water Policy has set up various local mechanisms, namely the creation of the Metropolitan Water Board in the AMBA (Box 4.4), the Plan Belgrano Executing Unit2 in the northern provinces of the country, and the management and result plans (Planes de Gestión y Resultados, PGRs). The PGRs are designed as a planning and control tool for water and sanitation providers, which analyse the demand over a five-year period and the main indicators of performance and efficiency. They also include financial projections to assess funding needs and sustainability. They comprise a diagnosis of the provider’s management, with proposals for improving its activities. Objectives are set jointly by sector authorities, providers and regulating bodies through consensus and on a technical basis. The first PGRs for provincial providers started at the end of 2016, and were financed by the World Bank and the Inter-American Development Bank (Acuña et al., 2019). Each PGR entails a working period of four to five months and includes:
programming horizon of five years
investment plan, with works priorities
management diagnosis and improvement plan
demand prospects, coverage goals and levels of efficiency
financial projections and financing structures.
Actions aimed at improving transparency and providers’ accountability are also planned. The objective is that users gain access to administrative, financial, operational and technical information through the publication of financial statements, annual reports, management indicators and master plans. Moreover, the PGRs could be used to prioritise investments.
Box 4.4. The Metropolitan Water Board of Buenos Aires, Argentina
The Metropolitan Water Board (Metropolitana Mesa del Agua, MMA) was created in January 2016 and operated until 2018 within the Under-secretariat of Water Resources, the actual Secretariat of Infrastructure and Water Policy (SIPH) within the Ministry of the Interior, Public Works and Housing. It was formed by representatives of the SIPH, the Water and Sanitation Regulatory Entity (ERAS), the Planning Agency (APLA), and the company Agua y Saneamientos Argentinos S.A. (AySA), the Ministry of Infrastructure and Public Services of the province of Buenos Aires, the Buenos Aires Water Control Agency, the Provincial Directorate of Waters and Sewers of the province of Buenos Aires, the company Aguas Bonaerenses S.A. (ABSA), the National Entity for Sanitation Water Works (ENOHSA), and the Matanza Riachuelo Basin Authority (ACUMAR).
The MMA’s objective was to articulate common policies on water and sanitation between the government of the province of Buenos Aires and the national government with emphasis on the Autonomous City of Buenos Aires and the parties that make up the Buenos Aires Metropolitan Area. The goal was to overcome the lack of urban planning that characterises the Metropolitan Area of Greater Buenos Aires (AMBA) and that is one of the most important challenges for water and sanitation management in the area.
This initiative was part of the Water and Sanitation Axis included in the National Water Plan announced by the Argentinean president. It allowed accelerating the deadlines and increasing the magnitude of the investment planned in the AMBA.
Stakeholders held working meetings to exchange information for evaluation and decision making to reach a common understanding on policies. One of the MMA’s main objectives was to co-ordinate initial works and legal and institutional arrangements between stakeholders in order to expand and improve services and to reach the global goals set for 2023, i.e. 100% access to drinking water and 75% access to sewage for the population in the area.
As a result of the MMA’s actions, from the end of 2016 onwards, nine municipalities were incorporated into AySA’s service provision area. Prior to 2016, these municipalities were served either by the provincial company, ABSA, or to a lesser extent by municipal services.
Source: OECD Questionnaire
Regulatory functions and processes for water and sanitation services in Argentina
Regulatory functions in water and sanitation services encompass economic, environmental and social aspects. They can be shared among several institutions. However, they need to be clearly defined and allocated to avoid overlaps and incoherence. Table 4.5 provides a list of regulatory functions for water and sanitation services and the level and institution to which they are allocated in Argentina. These functions are part of a broader analytical framework produced by the OECD on the governance of regulators. This section reviews how these functions are discharged in the case of Argentina and some of the gaps identified.
Table 4.5. Allocation of regulatory functions for water and sanitation, Argentina
* For the Metropolitan Area of Buenos Aires, these functions are jointly exercised by a national entity, namely the Secretariat of Infrastructure and Water Policy, and a subnational entity.
Source: OECD (2015c), The Governance of Water Regulators, https://doi.org/10.1787/9789264231092-en.
Quality and reliability standards
Whereas provincial regulatory authorities are in charge of drinking water and wastewater quality control, compliance bacteriological and chemical parameters and thresholds are defined at national level (Food Code and regulatory standards). When there is no regulator, provincial or municipal authorities are in charge of this control. While there have been no serious and widespread breaches, many operators face specific compliance problems. Some are resolved within reasonable time frames, but this is often not the case due to ineffective management or lack of resources. With regard to service continuity, some unscheduled service cuts or low‑pressure issues can occur in the summer due to peak consumption. In order to mitigate these problems, storage tanks are common, but can generate drinking water quality issues. Likewise, in the outskirts of large cities, there are risks of poor water quality and pollution due to the poor maintenance of networks and the precarious state of septic tanks. In addition, it is difficult to set a clear and sound diagnosis of the quality levels of water provided throughout the country, due to the very limited information available. Large operators have quality monitoring programmes, which sometimes involve the use of contracted specialised laboratory services, which can guarantee the quality of the testing. However, many operators do not meet the mandated quality standards as they do not have sufficient human or financial resources. While regulators are entitled to carry out additional verification inspections if needed, they often only check the water quality information provided by operators.
Tariff regulation
Tariffs are proposed by operators to provincial or municipal authorities for approval, before they are reviewed and cleared by subnational regulatory authorities. In the case of AySA, the company proposes tariff increases to the SIPH, the authority responsible for tariff setting. ERAS, the Users’ Ombudsman of the ERAS and APLA are consulted and, although not mandated by law, since 2017, a public hearing has been convened for all tariff increase requests. In Argentina the actual tariffs set are commonly at a level lower than that required for cost recovery for a large number of utilities. This reflects the trade-off made by public operators and local political authorities between economic and affordability objectives. This said, it has been observed that, for some private operators (Córdoba, Corrientes, Misiones, Santiago del Estero), higher tariffs and/or operating cost coverage ratios have been established as compared to public operators.
When there is no provincial regulator, prices are directly approved by provincial or municipal authorities. The “canilla libre” system completely disconnects tariff setting from production costs and local conditions of service delivery, which prevents regulators from assessing efficiency and setting tariffs accordingly. This, in turn, fails to drive behavioural change towards a lower water consumption and a reduction of operational costs.
According to the Association of Argentinian Regulators of Water and Sanitation Services (AFERAS), the most common price setting methodology across the country is a price cap (Figure 4.6). However, in practice, hybrid methods do exist since, in all jurisdictions, periodic reviews are carried out following different methodologies, mainly addressing cost increases. Currently, periodic or ordinary tariff reviews are rare, especially in state-owned companies. In general, rates are increased on an annual or semester basis due to cost increases or extraordinary modifications.
Figure 4.6. Most commonly used tariff setting methodology among a sample of 16 regulatory authorities, Argentina
Source: AFERAS (2018), “Sistemas Tarifarios y Tarifas en Argentina”, Serie de Publicaciones sobre Tarifas Nº3. http://www.aderasa.org/v1/wp-content/uploads/2017/10/AFERAS_libro_Sistemas_Tarifarios_Tarifas_Argentina.pdf
Incentives for an efficient use of resources and spending
Water services providers are subject to the provisions of the General Environment Law No. 25.675 regarding environmental impact assessment, as well as the requirements of Law 25.688 regarding water use permits for abstraction and wastewater discharges. Nevertheless, there are currently neither systematic nor standardised ex ante economic and social assessment processes for proposed infrastructure development, with the exception of investment projects funded by donors, which usually include a cost-benefit analysis. As a result, most projects funded by the provinces are neither routinely appraised nor selected according to a cost-effectiveness, cost-benefit or multi-criteria analysis. Moreover, the concept of efficiency does not generally prevail in the political decisions regarding works to be undertaken.
It is worth mentioning that, for national projects financed by the national government, the Public Investment Project Bank (BAPIN) verifies that investment projects to be incorporated into the BAPIN comply with certain standardisation criteria, in order to allow comparability and prioritisation for their eventual inclusion in the national budget.
Nevertheless, due to the federal structure of the country and depending on the province, the limited scrutiny of resource use and spending is done either by a regulatory authority, the provincial administrative authority or a dedicated agency. For example, in the AMBA, APLA is responsible for analysis, assessment and scrutiny of AySA’s investment and business planning. For instance, on 9 October 2019 APLA issued a resolution to express its conformity with AySA’s 2019 – 2023 Plan for Improvement, Operation, Expansion and Maintenance of Services (Plan de Mejoras, Operación, Expansión y Mantenimiento de los Servicios, PMOEM). Of note, in 2018, APLA established a multi-criteria methodology to select investment projects that will be ready for implementation by November 2019.
Social obligations
Given the multiplicity of subsidy systems in the different provincial and municipal jurisdictions – including direct, crossed and social schemes – it is difficult and complex to compare situations and plans among providers. Nevertheless, the information regarding social obligations is only available at operator level. For instance Box 4.5 shows the description of the social tariff system in AySA’s concession.
Box 4.5. AySA’s social tariffs, Argentina
In 2018, 304 943 users were benefiting from one of AySA’s three social schemes, which represented subsidies equal to 478.7 million of Argentinian Pesos. The Water and Sanitation Regulatory Entity (ERAS) is responsible for authorising and implementing these three social schemes described below.
Table 4.6. AySA’s social schemes
Social rate for households
This social scheme is based on income (subject to verification by ERAS), and encompasses three different types of social support. First, it supports connection to the water or sewer service by providing a 50% discount of the connection fee for households that are not yet connected to the water or sewer service. Second, it allows variable discounts for households that cannot afford to pay their water bills due to low incomes. Third, it provides debt cancellation when households are unable to pay back their arrears due to low incomes.
Social case
This social support is targeted towards households that are in a critical social situation and cannot pay the social rate payment described above. For these households, the connection charge to the service is free, water and wastewater services are provided for free, and all past debts are entirely cancelled.
Community rate
This social scheme is targeted towards non-residential customers such as civil or non-profit associations or organisations, universities, public schools, public hospitals, community sports clubs, theatres, food charities, and any other institution upon agreement by ERAS. These institutions benefit from a 50% discount on the connection fee for their first connection to the water or sewer service. They also get a 30% discount on the tariff for metered customers and a 25% discount on the general daily rate of the variable charge when they are non-metered. They are entitled to 50% debt cancellation when they are unable to pay their arrears due to economic issues.
Source: AySA (2019), “Tarifa Social”, https://www.aysa.com.ar/usuarios/Tarifa-Social., (accessed on June 2019)
Participation of users and consumers
At the national level, there are legal guarantees for consumer access to information. Decree 1.172/2003 of Access to Public Information was promulgated in 2003. This decree contains five bylaws dealing with public participation in the drafting of regulations and access to public information. Also in 2003, the Law on Free Access to Environmental Public Information (Law 25.831) was passed. This law, which is applicable at national, provincial and municipal levels, guarantees the right to access to environmental public information provided by the national government. In 2016, a Law on the Right to Access Public Information (Law 27.275) was passed establishing “the possibility to search, access, request, receive, copy, analyze, reprocess, reuse and redistribute freely information in custody” (Article 2). Article 42 of the National Constitution establishes that consumers and users of goods and services have the right to the protection of their health, security and economic interests; to adequate and truthful information; to freedom of choice; and to conditions of fair and dignified treatment. The protection of economic interests and the right to adequate and truthful information can be demanded by users against the service provider and before the regulatory authority.
In addition to these national, generic and overarching legal provisions, a few regulators and operators disclose information and data to the public through annual reports freely accessible on their website. Furthermore, in the AMBA, with a view to strengthening citizens’ consultation and participation, public hearings are held since 2016 for tariff revisions requested by AySA. The Ombudsman of the different jurisdictions (Nation, CABA and province of Buenos Aires) attends those hearings. The use of public hearings for the tariff adjustment process exists in several provinces (for example Buenos Aires, Córdoba, Salta, Santa Fe, among others).
In the case of the AMBA and according to Article 54 of its regulatory framework, a Users’ Syndicate of ERAS is formed within the scope of the regulatory entity. This Users’ Syndicate is made up of representatives of the water users’ associations duly registered in the Sub-secretariat of Consumer Defense of the Ministry of Economy and Production. Its members attend the Users’ Syndicate meetings ad honorem. The Users’ Syndicate establishes its own internal operating rules, which must be approved by ERAS’ Board of Directors within 30 days. These meetings are held on ERAS’ premises at least once a month. Members review the issues considered to be of concern and relevant to the activity carried out by providers of the regulated area. The Users’ Syndicate issues opinions which must be considered by the Board of Directors. The administrative costs of the Users’ Syndicate are borne by the regulatory entity that sets its annual budget.
Nevertheless, the participation and consultation of water and sanitation services users remains limited in all provinces. In Argentina, there are other regulators on electricity, gas and telecom whose engagement practices can provide inspiration (Box 4.6).
Box 4.6. Engagement: Practices of the electricity, gas and telecom regulators in Argentina
In Argentina, the participation of civil society in the drafting of regulations was ruled and mandated in 2001, when Law 25.432 of Binding and Non-Binding Popular Consultation was issued by the National Congress. It is only in the last few years, however, that this practice effectively began being adopted by ministries and national government agencies. Public hearings constitute a channel for society to participate in the decision-making process. Public hearings are public participation procedures in which the authority provides formal spaces of communication in which stakeholders may express opinions about particular interests.
Decree 1.172/2003 includes the regulation of public hearings, which defines actors, roles, timing, budget responsibilities, stages, protocols, formats and procedures. The decree also publishes the regulation of the public participation of norms, as an institutional mechanism to express opinions regarding drafted administrative norms and laws that the executive will present before congress. In this regulation, any person can formally request the authority to launch a public participation procedure of norms – implying that not all regulation proposals may be subject to a consultation process.
The decree also defined the regulation to publish the interests and opinions of any person within the public hearing, with the aim to influence functions and decisions of public entities, as economic regulators. The basic principle of this regulation is that all information recorded is public and must be free to access, updated daily and published on web portals.
In addition to public hearings, the National Electricity Regulatory Entity, the National Gas Regulatory Entity and the National Communications Entity hold meetings with different stakeholders. For instance, the National Communications Entity has monthly consultations with consumer commissions, but there is no evidence of systematic meetings beyond public hearings with regulated firms with protocols to ensure transparency. In the National Electricity Regulatory Entity, the National Gas Regulatory Entity, apart from public hearings which follow transparency practices, there is no evidence of formal meetings within a planned agenda with regulated entities or other stakeholders.
Source: OECD (2019), Regulatory Policy in Argentina: Tools and Practices for Regulatory Improvement, https://doi.org/10.1787/d835e540-en.
Handling consumer complaints and disputes
Each provincial regulatory framework stipulates specific mechanisms for consumer complaints and handling disputes. For instance, Law 11.220 on the Regulatory Framework of the province of Santa Fe establishes that users may lodge a complaint with the regulatory authority if the operator does not give a timely and satisfactory response to their claim. Likewise, users may refer to the regulator cases of irregular conduct or omission of the operator or its agents affecting their rights; or harming the service, natural resources and the environment. Article 30 of the aforementioned law establishes an obligation on the regulatory authority that “all matters submitted to its knowledge be handled as quickly as possible, guaranteeing the right to defence of individuals, users and providers, and respecting in all cases the due administrative process”. In the AMBA, the regulatory framework that applies to AySA stipulates (in Article 9) that the operator shall handle users’ queries and complaints “within a reasonably short delay and in a substantial and satisfactory manner”. Article 59 refers to the application of consumer protection and defence norms as defined by the National Consumer Defense Law 24.240. Article 60 certifies the right of users to refer to the regulatory authority when the level of service provided by the operator does not match legal requirements, or when the operator has not responded in due time to the customer’s claim. Article 54 stipulates the creation, the missions and the functions of the “Users’ Ombudsman” as well as the “Users’ Syndicate” established within the regulatory authority.
Collection of information
Despite the DNAPyS recent efforts to set up a national and standardised data and indicators system, there is currently no unified collection or monitoring system regarding the performance of water and sanitation services in Argentina. In each province, operators report information to their regulatory or administrative authority, and the nature and content of reporting varies between operators and provinces.
Regarding affordability information, the National Institute of Statistics and Censuses (INDEC) is currently the main source of information at the national level, as it is in charge of preparing the National Household Expenditure Survey (ENGhO). Nevertheless, it does not have updated information to measure the share of water and sanitation services expenditure in household incomes, as the most recent available and approved data date back to 2004. In the first quarter of 2020, the results of this ENGhO (2017/18) will be published. Meanwhile, some preliminary results have been published.3
Regarding infrastructure maintenance data, there is no national nor provincial information available. Two surveys are presently being carried out by the DNAPyS to know the status of the drinking water treatment plants and the wastewater treatment plants.
Performance monitoring of service provision
There is currently no comprehensive performance monitoring of service provision at the national level due to the lack of standardised data and indicator collection system (see above). Nevertheless, as already mentioned, and as part of the NWSSP, the DNAPyS is implementing a performance monitoring system using synthetic performance indicators encompassing technical and economic efficiency.
In the provinces, regulatory authorities publish reports of regulated providers’ performance indicators. However, these reports remain largely descriptive and include neither regulatory recommendations nor targets. While only a few regulators publish reports regarding their yearly operation (including information such as financial execution, administrative compliance, activities undertaken, etc.), the publication of performance indicators measuring progress in achieving the policy objectives of the regulator is not a common practice.
Figure 4.7. Synthesis of regulatory functions and gaps in water and sanitation services, Argentina
Policy recommendations
Provide a national overarching legal framework to support regulation consistency and set common water supply and sanitation policy criteria across the country
The development of a clear policy framework and underpinning legal and regulatory system that defines roles, allocates functions, powers and duties would help to get rid of overlaps, unclear responsibility allocation and competition between national institutions in the water and sanitation services sector.
To overcome the heterogeneity of regulatory practices for water and sanitation services, a national law for drinking water and sanitation could provide an overarching legal framework to support consistency of regulation across the country and foster good regulatory principles in the water sector. Such a national law could provide “national guidelines for water and sanitation services as a general framework from which each federated state defines its implementation and accepts as important principles the universality of access to services, efficiency and economic sustainability, transparency and social control; […] it [could set] the guidelines regarding the minimum requirements of the service quality; and provide the guidelines on institutional and regulatory aspects of the regulation and control of the provider entities” (Acuña et al., 2019). For instance, this national overarching framework could mention the human right to water and sanitation as approved by Resolution 12/8 of October 2009 by the United Nations Human Rights Council. Other examples from OECD federal countries, such as Australia, could be of inspiration to Argentina (Box 4.7).
Box 4.7. Australia’s National Water Initiative pricing principles
The NWI pricing principles were developed in 2010 jointly by the Australian Government and state and territory governments to provide a set of guidelines or road map for rural and urban pricing practices and to assist jurisdictions to implement the NWI water pricing commitments in a consistent way.
In Australia, state and territory governments are primarily responsible for the policy, planning, management, and regulation of water resources. Usually more than one state or territory department is involved in the urban water sector in each jurisdiction, such as: health departments, which usually play a role in drinking water and recycled water regulation; environmental protection authorities, which are involved in environmental regulation related to wastewater discharge; treasury departments, which are involved in budgets, community service obligations, borrowing controls and dividend policy; and in some cases, government ministers who are responsible for setting water prices and other key decisions. Within that framework, the urban water sector’s regulatory arrangements vary by jurisdiction, with independent economic regulators determining prices in some jurisdictions, while state and local government take on that role in others. Corporatised utilities rarely determine the prices of their services. The independent economic regulators set prices through a transparent process, involving community consultation and draft and final price determinations, with the aim of balanced service standards with cost recovery and a return on capital. While allowing the opportunity for review, price paths are generally set for a period of three to four years. Where there are small populations or widely dispersed communities, urban water and wastewater services provision have been the responsibility of vertically integrated government owned monopolies. This remains the case in South Australia, Western Australia, the Northern Territory and the ACT. Significant structural and ownership reform has taken place in recent years in some jurisdictions, which has changed the urban water supply structure. Since the 1990s, most metropolitan utilities have been corporatised, as have utilities in regional urban areas of Victoria and Tasmania. In the metropolitan areas of Sydney and Melbourne, structural reform has led to vertical separation of the bulk supply and retail–distribution functions of the supply chain. The private sector is becoming increasingly involved in urban water supply and wastewater treatment.
Sources: OECD (2013), Making Water Reform Happen in Mexico, https://doi.org/10.1787/9789264187894-en.; Australian Department of Sustainability, Environment, Water, Population and Communities (2012), “National Water Initiative Pricing Principles” Water for the Future Policy and Programmes website, www.environment.gov.au/water/policyprograms/urban-reform/nwi-pricing-principles.html
A national law on water and sanitation could also help fill existing gaps – such as the information gap, as national legal provisions have proven useful in other countries to frame the collection of information on water services performance. In France, for instance, the Water Law of 2006 requested the establishment of an observatory (Observatoire des services publics d’eau et d’assainissement) to support the country’s municipalities to: monitor water services; provide transparent information to consumers and citizens on tariffs and quality of services; and develop a database of service provision performance indicators. In Australia, the Commonwealth Water Act 2007 expanded the Bureau of Meteorology’s water information functions that were allocated under the Meteorology Act 1955.
Align national and provincial water and sanitation services policy objectives through financial incentive mechanisms
To ensure the efficient implementation of the NWSSP, sound and standardised investment assessment should routinely be conducted, both for provincial and national investment projects. The functions of the BAPIN could be reviewed and strengthened to fulfil this task for national projects. This would help prioritise projects according to their cost-effectiveness and cost-beneficial contribution to the economy and society. It would also allow the effective channelling of national funds to ensure the best use of fiscal resources and external funding. The allocation of national funds based on ex ante assessment can be a fundamental governance tool to help align local investment projects with the NWSSP’s objectives, thus increasing the enforcement capacity of the DNAPyS, and its subordinated institutions Plan Belgrano Agua, as well as of ENOHSA. The allocation of funds should be based on objective criteria, thus increasing legitimacy and predictability for public decision makers and investors, and reducing political discretion and interference. As such, this mechanism can be a powerful tool not only to foster efficient investment, but also to help utilities to get out of a low-level equilibrium (Box 4.8).
Moreover, the preparation of the PGRs by provincial operators should be made compulsory to obtain national funding. As the PGRs include planning and financial projections over a five-year period, they are essential tools to prioritise investment requiring national and provincial budget resources as well as to establish control and conditional mechanisms for granting the aforementioned transfers (Box 4.9) considering the compliance with performance and efficiency indicators (Acuña et al., 2019). This conditional obligation should also cover the provision of performance data to feed the DNAPyS’ Sectoral Information System. In this sense, recently the SIPH issued Resolution No. 44 (2 September 2019) to advance the implementation of PGRs and its information system throughout the country. The resolution delegates to the DNAPyS the design of the regulations to set the conditionality to access national funds as well as the monitoring of goals in PGRs.
Box 4.8. Low-level equilibrium concept and the big push
As described by Savedoff and Spiller (1999), the water and sanitation services sector in many developing countries is stuck in a so-called low-level equilibrium. In such situations, low tariffs are associated with low quality, low service expansion and general operational inefficiency. The term equilibrium indicates that without a reform of the sector’s set up, there is no movement toward improved water services.
This phenomenon originates in incentives for governments to behave opportunistically. By lowering tariffs or resisting tariff increases, they can reap short-term political benefits such as electoral gains, so they will support the status quo over costly political actions that might involve increased water rates in the short run and yield diffuse benefits in the longer term. Moreover, consumers are relatively dispersed and too disorganised to assume an active role in holding the water authority accountable. They also are unwilling to spend more on poor quality services that are seen as wastefully managed. In turn, this creates incentives for water companies to operate inefficiently regardless of whether the services are provided by a public or a private company.
Figure 4.8. Low-Level Equilibrium Concept and the Big Push
In order to get out of the low-level equilibrium, various strategies can be implemented, such as improving the regulatory environment or limiting government opportunism. Following the low-level equilibrium trap theory developed by Nelson (1956), large investment programmes can act as a “big push” that enables underdeveloped sectors to get out of the low-level equilibrium trap and embark on a development path.
Source: World Bank (2017), Joining Forces for Better Services? When, Why, and How Water and Sanitation Utilities Can Benefit from Working Together, https://openknowledge.worldbank.org/handle/10986/28095?locale-attribute=es.
Box 4.9. EU conditionalities to align investment in water infrastructure with water policy compliance
Making federal funding of water infrastructure investments contingent on compliance with key legislative requirements can foster compliance with national policies. With the funding programme concerning the period 2014-20, the European Union supports the implementation of policies and legislation by providing financial incentives to member countries, applying ex ante conditionalities that member countries must fulfil in order to qualify for the provision of such financial support. This ensures that investments are coherent and consistent with EU legislation and policies. In fact, if ex ante conditionalities are not met, the European Commission can suspend any payments in their support.
Water-related investment under funds intended for water-related programmes and projects to support regional development are subject to an ex ante conditionality and a number of criteria related specifically to whether member countries satisfy the most essential requirements of EU water legislation. Requirements applicable to all water-related programmes include the existence of:
compliant river basin management plans
compliant water pricing policies
a relevant monitoring network
compliant environmental objectives and use of exemptions
a summary of the programmes of measures that will deliver the objectives set.
Similarly, funds intended to support rural development are subject to an ex ante conditionality for payment of support for investments in irrigation systems, concerning the implementation of:
a water pricing policy recovering environmental and resource costs
the existence of a river basin management plan for the basin concerned
the use of water metering
a minimum requirement for water savings.
To be fair and effective, conditionalities should be attached to outcomes that are under the control of the parties, and cannot be affected by third-party failure. For instance, farmers should probably be able to receive funding to increase production or to meet environmental requirements, provided they comply with obligations incumbent on themselves, independently of whether their local public sector bodies comply with their obligations.
In Argentina, conditionalities could be used to better align investment planning at national level and investment projects implemented at provincial level. For example, it would be advisable that national funding for water and sanitation infrastructure is made available only for projects complying with the NWSSP objectives. Such compliance would have to be documented through thorough technical and economic analysis.
Source: OECD (2015d), Water Resources Governance in Brazil, https://doi.org/10.1787/9789264238121-en.; Peter Gammeltoft, former Head of Unit for Water at European Commission, Directorate General for the Environment.
Implement continuous and uniform information collection and performance monitoring
The continuous, consistent and standardised collection of information and data on the performance and efficiency of water and sanitation services across the country is a key asset for the development and improvement of the sector (Box 4.10). It can be used both to support the definition of public policies and business strategies and to evaluate the service actually provided to society to convey a reliable and regularly updated overview of the sector. Such an information system would be useful for the DNAPyS to design relevant water and sanitation services policy targets, produce mid-term reviews, and monitor achievements. It can also be used to implement result-based funding allocation for investment projects and be a central element for incentive mechanisms.
Box 4.10. Strategy monitoring, reporting and updating
Monitoring plays a key role in assessing and reporting the progress implementing a strategy. It provides stakeholders, at all levels, with key information regarding implementation progress and backlogs, allowing them to set up corrective actions whenever necessary. The monitoring process must be continuous, consistent, focused and disciplined.
Table 4.7. Characteristics of a monitoring process
Continuous process
In order to monitor the implementation and progress of a water and sanitation services national strategy plan, responsible institutions should provide an annual report detailing their achievements with regard to their assigned objectives.
Consistent process
Responsible institutions should use the same set and source of data to monitor and report the improvements and achievements on the ground with regard to their assigned strategic objectives. Indeed, clear standards for data reporting are critical for an effective monitoring.
Focused process
In the reporting, the progress achieved for each strategic objective shall be clearly detailed, compared and assessed against the forecasted targets for short, medium and long terms.
Disciplined process
Responsible institutions must follow a specific monitoring mechanism to report yearly to the line ministry.
From monitoring to updating
The ultimate goal of the monitoring and reporting process of a water and sanitation services national strategy plan is to ensure that implementation of the plan and improvement on the ground are carried out and effectively happening as planned.
When the reporting prepared by the responsible institution shows a deviation between forecasted targets and the progress made on the ground, a diagnosis should be made clearly stating the magnitude and the reasons for the observed deviation. This diagnosis should also include and describe appropriate corrective actions to be undertaken to respond to eventual problems and issues that were evidenced and still ensure forecasted targets are reached. When necessary, targets may be adjusted, thus leading to an update of the strategy plan. It is important to distinguish corrective actions from strategy plan updating. Corrective actions are not intended to modify the strategic objectives of the water and sanitation services national strategy plan, but rather to modify the action to be undertaken to ensure the strategic goals are achieved. The strategy plan is to be updated only when corrective actions are thought to be insufficient to allow the responsible institutions to achieve the targets in due time and at forecasted costs.
At the end of each year, the line ministry shall consolidate the reporting of the various responsible institutions to produce an operational follow-up document highlighting the progress made to achieve all forecasted targets, and identifying the remaining gaps and the corrective actions to be implemented. This follow-up document also helps assess how effective the actions on the ground are to achieve the forecasted targets, and can be used to annually produce an updated version of the national strategy plan. Figure 4.9 illustrates the full updating process.
Figure 4.9. Updating process of the strategy plan
An information system on the performance of water and sanitation services can also be used at utility level to routinely report key performance indicators to the provincial regulatory entity in a uniform manner sufficiently complete and easy to interpret. For such a purpose, performance evaluation should be done according to the underlying policy objectives targeted by the regulator. Finally, these key performance indicators can also be used as steering tools by utilities themselves to monitor and gradually improve their performance (Box 4.11).
The set of indicators defined by the DNAySA could be supplemented with additional indicators to better reflect overall quality and performance of utilities. For instance, the following indicators should be and are planned to be added: continuity of service, collection period, collection ratio, metering level, sewer blockages, pipe breaks, average revenue per cubic metre produced and sold. For further guidance on additional relevant indicators, useful examples can be found in the OECD report on The Governance of Water Regulators (2015c). In addition, a synthetic performance index could be built to give a quick and clear outlook of the performance of a utility compared to the rest of the sector. The National Drinking Water and Sanitation Information System contains data on 91 variables that allow calculating the main indicators considered in the main international and regional benchmarking systems (IBNET-World Bank, International Water Association (IWA), ADERASA, etc.).
Box 4.11. Examples of water performance indicators
In Bulgaria, the regulator collects performance information on the following 15 indicators which are listed in the Law on Regulation of the Water Supply and Sewerage Services (Chapter 3, Article 9):
1. penetration of water supply services
2. drinking water quality
3. non-interruption of water supply (uninterrupted water delivery and duration of disruptions)
4. total water losses in the water supply systems and time limits for the reduction thereof
5. breakdowns of the water supply system
6. pressure in the water supply system
7. penetration of sewerage services
8. quality of raw wastewater and of treated wastewater
9. breakdowns of the sewerage system
10. floods in properties of third persons caused by sewerage
11. operational indicators of efficiency
12. financial indicators of efficiency
13. time limit for reaction to written complaints by consumers
14. time limit for connecting new consumers with the water supply and sewer systems
15. staff size in proportion to the number of consumers serviced.
These 15 key indicators are further elaborated into 49 sub-indicators (cf. Annex No. 1 of the Ordinance of Long-term Rates, Terms and Conditions for the Formation of the Annual Target Levels of Quality Water and Wastewater Services) which are themselves further developed into 72 performance indicators (cf. guidelines to the implementation of the above ordinance, Annex 2). The key indicators and their sub-indicators are part of the business plans of water and sanitation services operators in Bulgaria.
In Peru, 35 performance indicators are grouped into two high-level areas: provision of services and business management. Every high level has three sub-levels and two sub-levels, respectively. These are shown in Tables 4.8 and 4.9.
Table 4.8. Provision of services
Table 4.9. Business management
Some of these performance indicators are used to set the management goals of the water companies. The main management goals are related to increasing coverage and improvement of the service quality, such as:
household potable water connections
household sewer connections
annual increase in new water metres
water unbilled
pressure
continuity
wastewater treatment
update of technical and commercial cadastre
density of breaks in the distribution networks of potable water
density of sewer blockages
the tariff increases authorised by the regulator are subject to compliance of these management goals.
The Water Utility Performance Index (WUPI)
The WUPI is a simple index measuring how closely a utility company operates to accepted good practices. The index is based on ten dimensions generally accepted as key performance indicators in the industry and available from the IBNET dataset. These dimensions fall into three categories: coverage (water, sewer and wastewater treatment); quality (service continuity and sewer blockage); and management (metering, non-revenue water, staff productivity, collection rate and operating cost recovery). For each dimension, a score of 1-10 is computed measuring how close a given utility is to regional good practices. The sum of all scores gives the WUPI, with 100 (best practice on each dimension) being the best score.
Sources: OECD (2015c), The Governance of Water Regulators, https://doi.org/10.1787/9789264231092-en; Michaud, D. et al. (2015), Water and Wastewater Services in the Danube Region: A State of the Sector, http://documents.worldbank.org/curated/en/327761467999140967/Water-and-wastewater-services-in-the-Danube-region-a-state-of-the-sector.
Strengthen the independence of subnational regulators to lower the risk of political interference
In a fragmented, decentralised and politicised sector such as water and sanitation services, a certain degree of independence (or distance from political appointees) helps to overcome political interference in key decisions such as tariff regulation, for instance. However, it is not clear to what extent a subnational body would manage to achieve the necessary level of independence. De jure independence is achieved through explicit reference in the law. De facto independence of regulators is ensured through a mix of governance features and operational modalities. These involve independent decision making, i.e. decisions that are taken without being subject to government assessment; staffing based on technical grounds rather than political criteria; protection of the board and top management from political interferences; and a budget which does not depend primarily on the government (Boxes 4.12 and 4.13).
Box 4.12. Level of autonomy of water regulators
A majority of water regulators surveyed can be defined as independent regulatory body. Exceptions include Romania, where the regulator is an authority subordinated to a minister. In Belgium/Flanders the regulator is a sub-entity of a Governmental agency and has mainly an advisory role. In the case of Indonesia the regulatory body is independent but has a pure advisory capacity. In Estonia, the regulatory duties for WWS have been vested to the competition authority.
Figure 4.10. Status of the regulatory agency
Source: OECD (2015c), The Governance of Water Regulators, https://doi.org/10.1787/9789264231092-en.
De jure independence through explicit reference in the law is achieved for 22 regulators. De facto independence of regulators is ensured through a mix of governance features and operational modalities. These involve independent decision making, i.e. decisions that are taken without being subject to government assessment (28 regulators); staffing based on technical grounds rather than political criteria (28 regulators); protection of the board and top management from political interferences (26 regulators); and a budget which does not depend primarily on the government (23 regulators). In 13 cases, the regulator combines both de jure and all de facto conditions, achieving, at least on paper, the organisation most likely to ensure independence.
Figure 4.11. Ensuring independence from political influence
Source: OECD (2015c), The Governance of Water Regulators, https://doi.org/10.1787/9789264231092-en.
Box 4.13. Creating a culture of independence
Independence comes in two forms: de jure independence refers to the formal independence granted by law, whereas de facto independence promotes practical independence as shown by actions, decisions and behaviours. The OECD has produced guidance on how to establish and implement independence with regulators (OECD, 2017).
The guidance identifies five dimensions of independence (Figure 4.12).
Figure 4.12. The five dimensions of independence of regulators
Each of the five dimensions includes practical guidelines that can be considered as the basic and necessary institutional measures to create a culture of independence which establishes and maintains the capacity of regulators to act independently, based on an analysis of regulators’ institutional processes and practices within the OECD Network of Economic Regulators. The guidelines also include a set of aspirational steps that could be taken to bolster a culture of independence and safeguarding regulators from undue influence.
Source: OECD (2017), Creating a Culture of Independence: Practical Guidance against Undue Influence, The Governance of Regulators, https://doi.org/10.1787/9789264274198-en.
Strengthen and promote vertical and horizontal co-ordination
Co-ordination is one of the building blocks for the attainment of regulatory goals. Also, co-ordination can provide a platform to share experiences and innovate regarding good regulatory practices at the subnational level and help increase expertise and deal with common problems. The 2012 Recommendation of the OECD Council on Regulatory Policy and Governance states that countries should “promote regulatory coherence through co-ordination mechanisms between the supranational, national and subnational levels of government. As an important component of co-ordination, better communication between levels of governments may help to prevent conflicts and duplication of regulation” (OECD, 2012).
Vertical co-ordination between national and provincial levels
Repeated reference has been made to co-ordination problems between national and provincial levels in Argentina, especially in a context of high decentralisation. In order to overcome these vertical co-ordination issues, the DNAPyS, within the framework of a technical cooperation with the IDB, has recently completed guides to assist provincial and municipal providers to design tariff regimes and set tariffs as well as to implement regulatory accounting. Nevertheless, it seems necessary to strengthen these efforts and go beyond this initiative. The creation of an entity that brings together regularly the DNAPyS and provincial departments in charge of water and sanitation services policies could help overcome vertical co-ordination issues. Such an entity, similar to the Federal Water Resources Council, would offer a place for the definition and co‑elaboration of policy priorities for water and sanitation services, thus fostering consensus and diffusing potential conflicts. This entity would also be the place to jointly address critical issues affecting the sector and to build shared financial instruments and policies. In order to avoid any overlapping, the entity’s functions would be strictly limited to drinking water and sanitation services. Another option could be to restructure the Federal Water Resources Council to include water and sanitation services within the scope of its competence (Acuña et al., 2019). This formal co-operation mechanism would secure inter-governmental agreements and nation-wide policy arrangement.
Horizontal co-ordination at provincial level
Further efforts should be made to enhance horizontal co-ordination at provincial level to address capacity gaps. The role and activities offered by the Association of Argentinian Regulators of Water and Sanitation Services (AFERAS) to its members should be enlarged and reinforced. The same could be applied to the Federal Council of Sanitary Services Entities (Consejo Federal de Entidades de Servicios Sanitarios, COFES), which brings together the water operators from the whole country. Such associations are key stakeholders that can remedy capacity challenges by providing knowledge exchange activities through conferences or workshops. In particular, they can help foster evaluation, bench-learning processes, training and capacity-building activities for their members. Sometimes, they can also do some lobbying and advocacy work, or provide input for technical standards and setting guidelines (Table 4.10). Local, national and international fora where water officials can exchange practices and lessons learnt are also crucial. The participation in international networks, closer co-ordination with academia to develop tools and instruments, and further co-operation with universities are also options. International donors can provide financial support for the development and actions of these professional associations. Capacity can also be reinforced through collaboration with local universities, which can offer specific trainings to improve the skills of professionals and practitioners. They can also provide tailored research work using operators’ data and focusing on issues of key interest and importance for operators.
The regulation of the water and sanitation sector emerged in Argentina at the beginning of the 1990s, simultaneously with the privatisation of services. When the concessions were terminated, the National state hired international consulting services to design the new regulatory bodies and train its managers and officials. A generational change is presently taking place in the country, as those officials reach retirement age, and young professionals are being incorporated. It is important that the experience accumulated over the past decades can be transferred to the new generation through appropriate knowledge management processes and tools. Therefore, regulatory bodies must devote and sustain resources to develop skills through career plans for young professionals to promote greater professionalisation and enhance the effectiveness of regulation.
Table 4.10. Overview of water associations and the services they offer to their members in the Danube region
Source: Michaud, D. et al. (2015), Water and Wastewater Services in the Danube Region: A State of the Sector, http://documents.worldbank.org/curated/en/327761467999140967/Water-and-wastewater-services-in-the-Danube-region-a-state-of-the-sector
Support autonomous, efficient and financially sustainable water and sanitation services operators
Decentralisation shifts control rights of water and sanitation services over service distribution to local government. With limited political contestability of local elections, political interference may serve to slacken efforts to improve public services. In that case, accountability, efficiency and equity in service delivery may worsen. Overcoming political interference requires pursuing and strengthening the trend to make water utilities more efficient, self-sustained and performance-oriented. Box 4.14 describes some of the key responsibilities of service providers, as developed in the Lisbon Charter. The section below suggests steps that could be taken to strengthen operators, focusing on: corporatisation, organisation and management; accountability and stakeholder engagement; and financial sustainability.
Box 4.14. The Lisbon Charter, Guiding the public policy and regulation of drinking water supply, sanitation, wastewater management services
Responsibilities of the service providers
As key stakeholders of this sector, service providers, whether public or private, should effectively and efficiently ensure equitable, universal supply of the services, as a fundamental contribution to the wellbeing of society.
Regardless of their organisational structure and management model, service providers should:
[…]
Article 5.2
Improve operational efficiency, adopting an optimal type of organisation for the local context, particularly in relation to staff management, the gathering and sharing of information, administrative routines, financial resources, planning, accounts, budget and quality insurance; […]
Article 5.5
Contribute to human resources capacity development and innovation in service delivery through cooperation with other bodies, as essential factors to ensure overall quality of service provision;
Article 5.6
Verify the integrity of their processes by appropriate monitoring, reporting and auditing, keeping track of information and conducting suitable and auditable accounting, in accordance with the requirements of the regulatory authority in particular. This includes providing reliable information to support the design of appropriate public policies and business strategies, as well as to evaluate the service that is provided to society.
Source: IWA (2015), The Lisbon Charter, Guiding the public policy and regulation of drinking water supply, sanitation, wastewater management services, https://iwa-network.org/publications/the-lisbon-charter/
Corporatisation, organisation and management
Corporate governance of utilities should ensure a clear separation of functions and responsibilities between utilities and local governments. This would help promote transparency and accountability, and avoid political interference. “State-owned enterprises should observe high standards of transparency and be subject to the same high quality accounting, disclosure, compliance and auditing standards as listed companies. […] The boards of SOEs should have the necessary authority, competencies and objectivity to carry out their functions of strategic guidance and monitoring of management. They should act with integrity and be held accountable for their actions.” (OECD (2015a), OECD Guidelines on Corporate Governance of State-Owned Enterprises)
Moreover, in the case of state-owned utilities, as in Argentina, the state should act as an informed and active owner, ensuring that the governance of state-owned enterprises is carried out in a transparent and accountable manner, with a high degree of professionalism and effectiveness (Box 4.15).
In this regard, it is worth mentioning the Administrative Decision 85/2018 of the Office of the Cabinet of Ministers of the National Government that approved the “Guidelines for Good Governance of Companies with Majority State Participation in Argentina”, and the Decree PEN 202/17 stating the procedure to be carried out in case of conflict of interest of any person in charge of public procurement or license, permit, authorization granting over a public or private domain. Both regulations follow the guidelines established by the Inter-American Convention against Corruption and the United Nations Convention against Corruption, as well as the standards set by the OECD.
Box 4.15. The state’s role as an owner
Governments should simplify and standardise the legal forms under which state-owned enterprises (SOEs) operate. Their operational practices should follow commonly accepted corporate norms.
The government should allow SOEs full operational autonomy to achieve their defined objectives and refrain from intervening in SOE management. The government as a shareholder should avoid redefining SOE objectives in a non-transparent manner.
The state should let SOE boards exercise their responsibilities and should respect their independence.
The exercise of ownership rights should be clearly identified within the state administration. The exercise of ownership rights should be centralised in a single ownership entity, or, if this is not possible, carried out by a co-ordinating body. This “ownership entity” should have the capacity and competencies to effectively carry out its duties.
The ownership entity should be held accountable to the relevant representative bodies and have clearly defined relationships with relevant public bodies, including the state supreme audit institutions.
The state should act as an informed and active owner and should exercise its ownership rights according to the legal structure of each enterprise. Its prime responsibilities include:
1. Being represented at the general shareholders meetings and effectively exercising voting rights.
2. Establishing well-structured, merit-based and transparent board nomination processes in fully- or majority-owned SOEs, actively participating in the nomination of all SOEs’ boards and contributing to board diversity.
3. Setting and monitoring the implementation of broad mandates and objectives for SOEs, including financial targets, capital structure objectives and risk tolerance levels.
4. Setting up reporting systems that allow the ownership entity to regularly monitor, audit and assess SOE performance, and oversee and monitor their compliance with applicable corporate governance standards.
5. Developing a disclosure policy for SOEs that identifies what information should be publicly disclosed, the appropriate channels for disclosure and mechanisms for ensuring quality of information.
6. When appropriate and permitted by the legal system and the state’s level of ownership, maintaining continuous dialogue with external auditors and specific state control organs.
7. Establishing a clear remuneration policy for SOE boards that fosters the long and medium-term interest of the enterprise and can attract and motivate qualified professionals.
Source: OECD (2015a), OECD Guidelines on Corporate Governance of State-Owned Enterprises, https://www.oecd.org/corporate/guidelines-corporate-governance-soes.htm.
Accountability and stakeholder engagement
Accountability and transparency are the foundations of trust for economic regulators, but also a mechanism to align expectations between regulators and stakeholders. The main message is that compulsory or self-imposed practices in accountability and transparency promote the decision-making process and provide elements to lower the risk of regulatory capture.
Workers, administrative and managerial personnel of the operators are an important and strong stakeholder that should not be overlooked. They are grouped into unions in their respective provinces and are gathered in turn into the powerful National Federation of Sanitation Workers (Federación de Trabajadores de Obras Sanitarias, FENTOS). As mentioned previously, unions are shareholders of utilities and are represented in the boards of directors. The unions have a strong leadership capacity over the utilities personnel so that the managers of the operators shall accompany with a strong commitment the implementation of institutional reforms and new regulations designed by the national and provincial governments to face the sector’s future challenges. This is particularly true for the implementation of procedures and instruments required to strengthen corporate governance, improve operational efficiency as well as transparency and competitiveness of public purchase.
Accountability is presently low in the water and sanitation sector in Argentina. To address this issue, it is possible to strengthen the short route of accountability between customers and service providers by enhancing customer engagement mechanisms. To do so, utilities may internalise accountability mechanisms in their routine processes. These internalised mechanisms are helpful for depoliticising the provision of services, as they can create a “counterweight to the power of the owner” and help prevent political interference (Van Ginneken and Kingdom, 2008).
Despite the existence of several national laws on access to information in Argentina, there is low/insufficient engagement between water and sanitation services users and operators. Strengthening users’ participation in water utility consultative bodies and in water decision making is a necessary step and an essential accountability mechanism to ensure effective and efficient public services. There are various possibilities of engagement processes between customers and service providers, ranging from communication to co‑decision and co-production (Figure 4.13). International experience provides interesting examples of how other countries have engaged customers in decisions on water issues (Boxes 4.16, 4.17 and 4.18).
Figure 4.13. Level of stakeholder engagement
Source: OECD (2015b), Stakeholder Engagement for Inclusive Water Governance, https://doi.org/10.1787/9789264231122-en.
Box 4.16. Stakeholder engagement in the Portuguese water sector
Currently, the institutional framework in Portugal includes the regulatory authority (ERSAR), the environmental and water resources authority (Portuguese Environment Agency), the public health authority (Directorate General for Health), the consumer protection authority (Directorate General for the Consumer), the competition authority (Competition Authority) and the financial support management authority.
The success of the Portuguese public policy owes much to the good articulation between the aforementioned state-level bodies and the municipalities, but also to the participation of other stakeholders. The Portuguese National Water Council is the consultation body, independent from the government, where public administration bodies, municipalities, operators, consumers, non-governmental organisations, experts, research centres, universities and representatives from business associations engage to discuss the Portuguese public policies for water. This forum contributes to the coherence between the sector and regional interests and is a relevant platform to promote discussion over the public policy and the national water plans. In the case of water services, two other consultative bodies are in place – the Consultative Council and the Tariff Council – both within the regulatory framework. The inclusion of all relevant stakeholders in policy making is part of a co-operative environment, which highlights and explains the existence of a broad consensus in the Portuguese water sector and in the Portuguese society about the fundamentals of the public policy for water.
Source: ERSAR (2017), The Portuguese Public Policy for Water Services (1993-2016).
Box 4.17. South Australia: Water and sewerage revenue regulatory determination process
In South Australia, the economic regulator, the Essential Services Commission, has introduced a high level of engagement by consumers, consumer experts and other regulators in the process for setting the revenues for the water and sewerage service provider, SA Water (a state-owned monopoly service provider). It undertakes this process every four years, with the determination fixing service standards and revenue caps for SA Water of a forward-looking basis.
The overall objective of the regulatory determination process is to ensure that SA Water provides the water and sewerage retail services valued by its customers at the lowest sustainable cost.
The regulatory determination review process has a strong focus on transparency, raising publicly issues for consideration very early in the process and involving a significant amount of direct customer testing and negotiation in the preparation of SA Water’s draft business plan. That plan is ultimately submitted to the commission for review (and can be approved, approved with modification or substituted with the commission’s own independent determination, based on the commission’s assessment after a further public review process).
While the commission remains responsible for making the final regulatory determination, the review process will involve multiple opportunities for stakeholders to be involved prior to that final determination. Input from a diverse range of stakeholders is important, as it helps the commission to take better-informed and more inclusive decisions.
Guidance notes
To assist all participants in the process (SA Water, consumer groups, the media, the government, etc.), at the commencement of the regulatory process the commission publishes a series of guidance notes.
Those notes are publicly available and explain the process, methodological issues, past and expected future service performance and outcome, and also identify likely key issues. The papers provide any early opportunity for education and engagement by all stakeholders in the process.
Consumer Experts Panel
The Consumer Experts Panel draws on the collective knowledge, skills, expertise and experience of the commission’s Consumer Advisory Committee and SA Water’s customer advisory groups, sitting jointly as a Consumer Experts Panel.
The commission acknowledges and recognises the value that members of those committees bring to the regulatory system in South Australia, developed through some 20 years of utility regulatory experience. Through the panel the commission is looking to capture and support that value, and to provide a meaningful and ongoing role for consumer representatives and advocates in South Australian regulatory processes.
The key purpose of the Consumer Experts Panel is to allow members to identify and raise the issues that are important to the customers they represent – particularly through a public priorities report. The commission provides members with the resources and opportunity to have their views heard through a more efficient, effective and inclusive regulatory consultation process, including the capacity to commission research (through the commission), on relevant areas of inquiry which would benefit the regulatory determination review process and the outcomes for SA Water’s customers and the community.
The evidence, and other outputs, from these joint issue identification and prioritisation exercises will be provided to SA Water’s Board and to the Negotiation Forum (see below) and will be a critical input to the process. The Consumer Experts Panel will help to ensure that the proposed business plan that SA Water submits to the commission has been prepared with a sound understanding of the key issues raised by members.
Negotiation Forum
The Negotiation Forum will ensure that the draft business plan submitted by SA Water to the commission has been thoroughly tested by a wide range of stakeholders. The Negotiation Forum is comprised of a Customer Negotiation Committee, a team from SA Water (the chief executive and two other senior executives) and an independent probity advisor (appointed by the commission).
The Customer Negotiation Committee comprises an independent chairperson, a member of the Consumer Experts Panel and a member of SA Water’s ongoing Customer Working Group. Its task is to elicit and represent the perspectives, preferences and priorities of SA Water’s diverse customer base in the Negotiation Forum to test SA Water as it prepares its proposed business plan for the next regulatory period.
Through the Negotiation Forum, the Customer Negotiation Committee and the SA Water team are expected to discuss, deliberate and, where possible, reach a common position of draft regulatory positions put forward by SA Water. The process is one of transparency and challenge. While the positions reached are not binding on the commission or SA Water, they are persuasive and informative in the regulatory process – where it can be seen that there has been thorough transparency, testing and agreement, the positions reached are more likely to be accepted by the commission.
The Customer Negotiation Committee is expected to:
understand and operate within the regulatory and legislative framework that applies to the decisions the commission will take in SAW RD20 about SA Water’s retail services and provide its advice consistent with these requirements
understand SA Water’s strategic direction and priorities, the broader regulatory and legislative requirements around the retail services it provides, past performance outcomes, future service delivery challenges, opportunities, and investment needs
understand current customer and regulatory priorities, as evidenced through the Consumer Experts Panel priorities report and representations made by or available from other regulators, including but not limited to the members of the Regulators Working Group
elicit, understand and represent the perspectives, preferences and priorities of SA Water’s diverse customer base on the matters subject to the negotiations
constructively test and negotiate with the SA Water Negotiation Team with a view to agreeing on the matters to be included in SA Water’s proposed business plan that will provide water and sewerage services at the lowest sustainable price for the quality and reliability levels valued by customers.
The Customer Negotiation Committee is responsible for negotiating SA Water’s proposed business plan. There will be some aspects of SA Water’s plan that are non-negotiable, such as whether or not it should undertake activities to comply with the requirements of its regulators. It may, however, test SA Water on whether or not it has proposed the lowest sustainable cost of delivering the activities to meet regulatory requirements.
Regulators Working Group
Some of the requirements for SA Water’s drinking water and sewerage retail services are set by other regulators. This includes requirements around economic, environmental, public health, social and technical regulation outcomes that SA Water must achieve. Meeting all of these requirements constitutes the “basic” or “minimum” service SA Water must provide.
The commission has convened a Regulators Working Group to provide a forum for the various regulators to co-ordinate in achieving positive outcomes for the South Australian community through their combined regulation of SA Water.
The Regulators Working Group will continue to work together in the lead up to and throughout the 2020-24 regulatory period to jointly monitor and evaluate SA Water’s performance in meeting its overall regulatory requirements.
The members of the Regulators Working Group commit to:
working together to promote the best long-term outcomes for SA Water’s customers and the community
communicating openly to ensure a shared understanding of the overall regulatory system that applies to SA Water, the impact of regulation on each other’s priorities and the combined effect of regulation on SA Water and its customers.
Public consultation
In addition to the able processes, the commission undertakes its own consultation once it has received a draft business plan from SA Water. This has two stages: 1) seeking comments on the draft plan generally and, once submissions have been received and analysed, 2) seeking comments on a draft regulatory determination. Both stages are open and transparent, and the commission explains in its decision documents how it has responded to any submissions received.
Sources: OECD (2015b), Stakeholder Engagement for Inclusive Water Governance, https://doi.org/10.1787/9789264231122-en; ESCOSA (2019), Essential Services Commission of South Australia, https://www.escosa.sa.gov.au/industry/water/retail-pricing/sa-water-regulatory-determination-2020, (accessed on June 2019)
Box 4.18. Collaborative and consumer-centric tariff-setting process in Scotland
In Scotland, the framework for setting water charges has gradually moved from a traditional, and at times adversarial, price-setting process between regulator and regulated entity, to an innovative approach that is highly participatory and involves customers in decision-making. This shift reflects the changing role of regulators in an increasingly complex environment where citizens’ and consumers’ demands, risks and uncertainty around long-term societal, economic and environmental impacts highlight the growing importance of mediation and collaboration.
Following three regulatory cycles (2002-2006, 2006-2010 and 2010-2015) aimed at improving the efficiency of Scottish Water, the sole water and wastewater provider, and complying with national and international standards, the focus of the Water Industry Commission for Scotland (WICS), the independent economic regulator overseeing the sector, has progressively shifted towards ensuring that overall performance and levels of service were consistent with consumer views and priorities.
For the Strategic Review of Charges (SRC) for the six-year period 2015-2021, further innovation was introduced to ensure that customer’s views were at the heart of the regulatory process. This took the form of the creation of a ‘Customer Forum’, which was tasked with negotiating directly with Scottish Water on the outcome of its business plan, within acceptable ranges set by WICS. Outcomes of this process included: agreeing on a price cap in constant nominal prices; the use of the consumer price index more easily understood by customers as a measure of inflation than the retail price index; higher level of capital efficiency with Scottish Water, and; three new performance indicators that would take into account the customers’ experience of the service provided.
The on-going Strategic Review of Charges for the period 2021-2027 has widened stakeholder participation to monthly meetings in which the regulators, the Scottish government, the water company and customer representatives discuss the emerging building blocks of the SRC. The current review has seen further innovation in the form of more targeted customer research, such as using behaviourally-informed experiments to better gauge the true preferences of consumers and the determination of investment and maintenance needs based on an improved understanding of asset conditions.
Sources: OECD own analysis and based on Water Industry Commission for Scotland (2017a) Innovation and Collaboration: future proofing the water industry for customers, Methodology for the Strategic Review of Changes 2021-2027, April 2017; Customer Forum (2015), The Customer Forum for Water in Scotland – Legacy Report – Lessons Learned from customer involvement in the 2015-21 Strategic Review of Charges; Heims. E. and Lodge, M. (2016) “Innovation through customer engagement and negotiated settlements in water regulation. Towards a transformed regulatory state?” carr discussion paper 83. London: London School of Economics and Political Science; Hendry, S. (2016) The Customer Forum – Putting customers at the centre of regulating water services. Water Policy. doi:10.2166/wp.2016.199 Littlechild, S. (2014) The Customer Forum: customer engagement in the Scottish water sector, Util. Policy, 31 (2014), pp. 206-218.
Addressing financial sustainability
The revenues from water tariffs do not cover the costs of the water sector in Argentina. This is partly a consequence of the real costs not being reflected in the price of water and the fact that there is a large amount of non-revenue water (NRW) and in some cases a low staff efficiency. Nevertheless, financial sustainability of water and sanitation services crucially depend on revenues raised through tariffs (in addition to subsidies) to cover operation and maintenance costs (Box 4.19). The politicisation of tariff setting is an important barrier to a more effective use of tariffs to promote financial sustainability. For instance, making tariff regulation transparent and disclosing information and technical reports on the use of revenues would help to build a more consensual understanding on the link between tariffs and sustainability of service provision. In addition, operators should not only approach cost recovery through increases in tariff levels, but they should also in priority seek efficiency gains, as there are many areas for improvement (staff efficiency, NRW, metering level, energy costs, etc.). Moreover, a sound accounting system should be put in place to enable an optimal accounting management and a documented tariff calculation (as mentioned throughout this Chapter, DNAPyS has started to implement some actions in this direction). Changes in the tariff structure (towards more progressive schemes) could also be explored in areas where the metering level is high. As the metering level increases, the “canilla libre” system should progressively be abandoned, as it prevents tariff from reflecting the real costs of service provision and does not incentivise operators to be more efficient In addition, the improvement of providers’ financial sustainability should go along with a fine-tuning of the subsidy systems to target efficiently vulnerable and disfavoured populations. This subsidy system should be designed carefully to avoid or at least minimize errors of exclusion and inclusion.
Box 4.19. Setting tariffs
Setting the right tariffs for domestic water use is a challenging task. In many cases, utilities do not know the cost of the service and operate inefficiently, which adds costs to the provision of services. In addition, from a political standpoint, charging below cost can be seen as paying off. However, it is in general counterproductive. When tariffs are set below cost recovery, the provider must either rely on government subsidies or cut back on service, maintenance and investment. Generally, tariffs that are below the costs (at least of operation and maintenance) result in poor service, asset deterioration and an inability to invest to meet growing demand. The role of regulation in tariff setting is to bring tariffs up to a sustainable cost recovery level in which a variety of objectives, e.g. economic efficiency and affordability of services for lower income households, is reconciled (OECD, 2009). There are four main objectives embedded in the design of water and sanitation tariffs: 1) environmental conservation; 2) financial sustainability; 3) economic efficiency; and 4) social fairness (OECD, 2010). In order to accommodate these objectives, three dimensions of tariffs policy are relevant: tariff levels, tariff structure, and the tariff setting and revision process.
Financial sustainability: Water tariffs are a key element of long-term financial sustainability of water operators and of systems. Low levels of tariffs, coupled with inadequate compensation from other sources of revenue – typically taxes (and international transfers in developing countries) – over the long run lead to a vicious circle of bad maintenance and deterioration of services that affect users’ willingness to pay and might, in turn, induce a decrease in bill collection rate and further reduction of revenue for the sector.
Economic efficiency: Prices provide important signals to providers and users that drive economic efficiency, i.e. that allow allocating water with priority to uses with the highest value to society and service provision at the cheapest costs.
Environmental conservation: Appropriate pricing of water supply and sanitation services contributes to environmental conservation when it is used to manage demand and discourage “excessive” uses of water. To this effect, increasing block tariffs are typically used.
Social fairness: Social fairness generally implies that the water tariff treats similar customers equally, and that customers in different situations are not treated the same. Social fairness accommodates affordability concerns, i.e. poor households are able to obtain adequate supplies of clean water. In practice, however, the debate on whether tariffs are the appropriate tool to address affordability concerns is lively. Increasing block tariffs, the traditional policy tool used to achieve social objectives, have raised many criticisms as they may not be appropriate if poor households consume more water than richer ones and if the poor are not connected to the water systems. Cross-subsidies have shown limitations over time when shifts in the balance between subsidised and subsidisers were not anticipated. Targeted subsidies for water consumption have also been criticised on the ground, pointing out that precise targeting requires good administrative capacity. Subsidies supporting connections to water networks have proved more helpful for the poor than subsidies to water consumption.
Source: OECD (2013), Making Water Reform Happen in Mexico, https://doi.org/10.1787/9789264187894-en.
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Annex 4.A. Case study: Metropolitan Area of Buenos Aires
Key facts and features
Box 4.A.1. Key data for the province of Buenos Aires
The Metropolitan Area of Buenos Aires (Área Metropolitana de Buenos Aires, AMBA) is an urban area encompassing the Autonomous City of Buenos Aires (Ciudad Autónoma de Buenos Aires, CABA) and the following 40 municipalities of the province of Buenos Aires: Almirante Brown, Avellaneda, Berazategui, Berisso, Brandsen, Campana, Cañuelas, Ensenada, Escobar, Esteban Echeverría, Exaltación de la Cruz, Ezeiza, Florencio Varela, General Las Heras, General Rodríguez, General San Martín, Hurlingham, Ituzaingó, José C. Paz, La Matanza, La Plata, Lanús, Lomas de Zamora, Luján, Malvinas Argentinas, Marcos Paz, Merlo, Moreno, Morón, Pilar, Presidente Perón, Quilmes, San Fernando, San Isidro, San Miguel, San Vicente, Tigre, Tres de Febrero, Vicente López and Zárate.
Population: 12 806 866 (2010), which represents 82% of the population of the province of Buenos Aires (15 625 084). The population of the province of Buenos Aires represents 39% of the total population of Argentina.
The weather of the area is influenced by the ocean, with hot summers and temperate winters. Precipitations are abundant and distributed throughout the year, ranging from 750 to 1 100 mm.
This megacity covers 13 285 km2 and extends from Campana to La Plata, with a physical western limit of the Río de la Plata. The territory is an undulating plain crossed by numerous water courses that flow into the Río de la Plata. The population of the AMBA grew from 10 918 027 inhabitants in 1991 to 12 806 866 inhabitants in 2010 (Census 2010) (Figure 4.A.1), representing 37% of the inhabitants of Argentina. The territorial expansion of the AMBA has followed the lines of railway communication and roads, inland and along the coast of the river. As a megalopolis, it is still constantly growing, so that its limits are increasingly blurred.
This urbanisation in the AMBA has acted as a major contributor to continuing gaps in access to quality water and wastewater services. Lack of decent housing for low-income households has resulted in illegal occupation of non-serviced land without basic services in the peripheries, particularly low-lying and flood-prone land (Figure 4.A.2).
Figure 4.A.1. Urban population growth in the Metropolitan Area of Buenos Aires, 1990, 2001-10
Source: Observatorio del Conurbano Bonaerense (2019), “Dinámica”, www.observatorioconurbano.ungs.edu.ar , (accessed in May 2019)
Figure 4.A.2. Share of households that present unsatisfied basic needs in the Autonomous City of Buenos Aires and the Greater Buenos Aires, 2010
Source: DINREP (2014), “Necesidades Básicas Insatisfechas (NBI): Información censal del año 2010”, Dirección Nacional de Relaciones Económicas con las Provincias (DINREP), http://www2.mecon.gov.ar/hacienda/dinrep/Informes/archivos/NBIAmpliado.pdf
Legal and institutional framework
Rationale
The legal and institutional setting regarding the provision of water and wastewater services of AySA, the concession area of the city of Buenos Aires and municipalities of the metropolitan area of Buenos Aires dates back to 1993 when the 30-year concession contract was granted to the private operator Aguas Argentinas (AASA) led by the SUEZ. This contract was terminated by the government through Decrees of Necessity and Urgency 303/2006 and 304/2006 in March 2006 to create a state-owned company Aguas y Saneamientos Argentinos (AySA) to take responsibility for the provision of water and sanitation services. In March 2007, new legislation created a new regulatory body, the Water and Sanitation Regulatory Entity (Ente Regulador de Agua y Saneamiento, ERAS), that took over the former responsibilities of the Tripartite Entity for Sanitary Services (Ente Tripartito de Obras y Servicios Sanitarios, ETOSS) created during the privatisation process. The law also established the Planning Agency (Agencia de Planificación, APLA) (Figure 4.A.3).
Figure 4.A.3. Regulatory framework of AySA
Regulatory functions in water and sanitation services encompass economic, environmental and social aspects and can be shared among several institutions. However, they need to be clearly spelt out and allocated to avoid overlaps and incoherence. Table 4.A.1 provides a list of regulatory functions for water and sanitation services and specifies the institution to which they are allocated in the AMBA.
Table 4.A.1. Allocation of regulatory functions for water and sanitation services in the Metropolitan Area of Buenos Aires
Notes: ERAS: Water and Sanitation Regulatory Entity; SIPH: Secretariat of Infrastructure and Water Policy; APLA: Planning Agency; AGN: General Auditing of the Nation.
Main players and instruments
Until 2016, the AySA concession comprised the CABA and 17 municipalities of the province of Buenos Aires (Almirante Brown, Avellaneda, Esteban Echeverría, Ezeiza, Hurlingham, Ituzaingó, La Matanza, Lanús, Lomas de Zamora, Morón, Quilmes, San Fernando, San Isidro, San Martín, Tigre, Tres de Febrero, Vicente López). Between 2016 and 2018, following an agreement between the national government and the government of the province of Buenos Aires, AySA incorporated into its concession area municipalities that were previously supplied mainly by Aguas Bonaerenses S.A. (ABSA) – a company owned by the province – and to a lesser extent by some municipalities (Belén de Escobar, Florencio Varela, José C. Paz, Malvinas Argentinas, Merlo, Moreno, Pilar, Presidente Perón, San Miguel). At present, AySA provides water and sanitation services to the city of Buenos Aires and 26 municipalities of the Buenos Aires conurbation (Figure 4.A.4), through a 20-year concession which may be extended by mutual agreement between the parties. AySA’s capital belongs 90% to the national government and 10% to the workers, through a share participation programme.
AySA provides drinking water to about 10.7 million inhabitants and sanitation service to approximately 8.5 million inhabitants, representing a coverage of 74% and 59% respectively (AySA, 2018). Overall, it serves 3.7 million customers and counts 7 841 employees (Table 4.A.2). Water consumption averages 338 litres per inhabitant per day (AySA, 2017). The level of metering remains low, with only 17% of customers with a metre (AySA, 2018). More than 304 000 customers benefit from social tariffs, which represents 8% of the customer base (Box 4.A.2). AySA’s central laboratory produces approximately 133 500 analyses per year to monitor the quality along different stages of water and sanitation systems. In 2018, AySA collected 18 631 million of Argentinian pesos of revenues and generated a net negative operational result of 18 723 million of Argentinian pesos. Investments represented 20 149 million of Argentinian pesos.
Figure 4.A.4. AySA’s service area
Source: AySA (2018), Informe anual 2018, Agua y Saneamientos Argentinos S.A. https://www.aysa.com.ar/media-library/usuarios/informacion_util/informes_anuales/Informe_Anual_2018.pdf
Table 4.A.2. Selected reporting indicators for AySA
Source: AySA (2018), Informe anual 2018, Agua y Saneamientos Argentinos S.A. https://www.aysa.com.ar/media-library/usuarios/informacion_util/informes_anuales/Informe_Anual_2018.pdf
Box 4.A.2. AySA’s social tariffs
In 2018, 304 943 users were benefiting from one of AySA’s three social schemes, which represented subsidies equal to 478.7 million of Argentinian pesos. The Water and Sanitation Regulatory Entity (ERAS) is responsible for authorising and implementing these three social schemes described below.
Table 4.A.3. AySA’s social schemes
Social rate for households
This social scheme is based on income (subject to verification by ERAS), and encompasses three different types of social support. First, it supports connection to the water or sewer service by providing a 50% discount on the connection fee for households that are not yet connected to the water or sewer service. Second, it allows variable discounts for households that cannot afford to pay their water bills due to low incomes. Third, it provides debt cancellation when households are unable to pay back their arrears due to low incomes.
Social case
This social support is targeted towards households that are in a critical social situation and cannot pay the social rate payment described above. For these households, the connection charge to the service is free, water and wastewater services are provided for free, and all past debts are entirely cancelled.
Community rate
This social scheme is targeted towards non-residential customers such as civil or non-profit associations or organisations, universities, public schools, public hospitals, community sports clubs, theatres, food charities, and any other institution upon agreement by ERAS. These institutions benefit from a 50% discount on the connection fee for their first connection to the water or sewer service. They also get a 30% discount on the tariff for metered customers and a 25% discount on the general daily rate of the variable charge when they are non-metered. They are entitled to 50% debt cancellation when they are unable to pay their arrears due to economic issues.
Source: AySA (2019), “Tarifa Social”, https://www.aysa.com.ar/usuarios/Tarifa-Social, (accessed in June 2019)
In the AMBA, in locations where AySA is not delivering services, other operators are in charge of service provision. The largest one is Aguas Bonaerenses (ABSA), created in 2002, after the termination of the concession contract to the private company Azurix S.A. ABSA serves 79 localities within the province of Buenos Aires, representing 2.5 million inhabitants, while small or municipal providers operate in other areas of the province.
ERAS is a self-governing public body, created in 2006 by a tripartite agreement between the National state, the province of Buenos Aires and the government of the Autonomous City of Buenos Aires. It is in charge of controlling AySA’s compliance with its legal obligations as a service provider with regard to the concession contract, including water pollution control of AySA´s discharges. The tariff structure and levels are set by the Secretariat of Infrastructure and Water Policy with the previous review of ERAS and APLA. For instance, the SIPH passed yearly tariff increases since 2016, and in May 2018, the coefficient K rose by 26% inducing a general growth of the tariff regime. Likewise, in May 2017, the SIPH modified the tariff structure by means of Resolution SSRH No. 19/17. In 2019, the tariff increased by 17% in January and 27% in May.
Since 2016, there has been a significant cost recovery improvement due to tariff increases decided by the SIPH. This evolution mechanically allowed improving the financial autonomy of ERAS and APLA that until 2015 depended on contributions from the National Treasury to finance their operations. As both ERAS and APLA are funded through a rate of 1.79% perceived on services (water and sanitation) invoices (prior to 1 July 2019 this rate was 2.67%), successive tariff increases resulted in an increase in the revenues they collected, which in turn terminated their financial dependency towards the National state.
With regard to stakeholder participation and customer protection, ERAS is responsible for the Users’ Syndicate, which is composed of representatives of users associations and aims to protect the interests of users. The Users’ Syndicate meets at least once a month and analyses issues related to AySA’s and ERAS’s activity. Finally, it issues opinions related to the provision of the service that must be considered by the directorate/board of ERAS. ERAS is also hosting a Users’ Ombudsman, which institutionally represents users’ interests and rights during public hearings for issues related to litigations or administrative procedures. In addition, ERAS must resolve disputes that arise between users or between users and the concessionaire in relation to service provision, and in this respect must issue a well‑founded resolution under the procedural principles of economy, simplicity, speed and efficiency.
APLA is a self-governing public body, in charge of reviewing and co-ordinating the expansion and improvement works made by AySA. It has competence over the evaluation, planning, execution and control of investments in the area of the concessionaire. Moreover, it liaises regularly with the municipalities and the concessionaire through its Advisory Committee, which is composed of representatives of municipalities, the province and the city of Buenos Aires, as well as representatives from AySA, ERAS and the SIPH. It reviews and approves the work plan proposed by AySA. In 2018, the “Methodological bases for the implementation of a project management system within the framework of the AySA concession” (APLA Resolution 13/2018) were approved. The consolidation of a common methodology for the implementation of the system is to be achieved by end of 2019.
Key water and sanitation services challenges
Service coverage
AySA’s Plan for Improvement, Operation, Expansion and Maintenance of Services (Plan de Mejoras, Operación, Expansión y Mantenimiento de los Servicios, PMOEM) is prepared by the concessionaire and approved by the SIPH after review by APLA. Its implementation is subject to annual budget availability, and it is revised every five years. The objectives of the PMOEM 2014-18 were not met mainly because of budgetary constraints. Moreover, the unplanned incorporation of nine municipalities in AySA’s provision area between 2016 and 2018 (Figure 4.A.5) increased operational expenditures, further reducing its capacity to invest and fulfil the PMOEM’s targets. The new PMOEM 2019-23 that, consistently with the NWSSP, targets universal access to water and a 75% coverage for sewerage has been reviewed by APLA through a resolution (i.e. RESOL-2019-15-E) before approval by the SIPH.
Although there has been important efforts to increase water services coverages, challenges remain within the municipalities in the peri-urban area. According to the latest census (2010), in the AMBA, 76% of total households were connected to piped water and 57% to sewage. By disaggregating data geographically, it is possible to observe a great disparity of access levels between the Autonomous City of Buenos Aires and the 26 municipalities of the province of Buenos Aires. While the city of Buenos Aires enjoys levels of coverage close to universal access (99.6% for water and 98% for sewers), the 26 municipalities present values well below the regional average (67% and 41% respectively). Likewise, the coverage levels within the 26 municipalities appear heterogeneous, with municipalities furthest from the city with the highest service deficits.
In addition to this geographical disparity that characterises the expansion of services, a socio-economic differentiation can also be observed, since the most vulnerable economic and social sectors are the most exposed to the deficit of drinking water and sanitation. This is observed by jointly analysing poverty variables (measured by the Unsatisfied Basic Needs Index, NBI) and water and sanitation coverage (as showed in the previous NBI figures and in the following coverage). The absence of access to services is accentuated in the peripheral zones, in the interstices and in the barrios populares.4
Although in the AMBA many of these disfavoured neighbourhoods are within what is defined as a served area (i.e. an area with existing networks in the vicinity of the neighbourhoods), they lack formal piped services. Therefore, the inhabitants of these neighbourhoods must find alternative ways to access water and sanitation. Most water and sewer networks in these neighbourhoods were financed and carried out by residents themselves, precariously and without any technical support or advice. Therefore, the existing infrastructure in these neighbourhoods is both deficient and insufficient, as it was not planned taking into account the important population growth.
The growth of disfavoured neighbourhoods is not only observed in the AMBA, but is a nationwide problem. According to the National Registry of Disfavoured Neighbourhoods (Registro Nacional de Barrios Populares, RENABAP), there are 4 416 such neighbourhoods in Argentina, representing approximately 4 million people. Of the total disfavoured neighbourhoods registered, more than 1 000 belong to AySA’s concession area. This poses specific and significant challenges for the company to increase connections to water and sanitation services, as almost none of the inhabitants of these neighbourhoods have a formal connection to piped services.
In recent years, the issues associated with water and sanitation provision in disfavoured neighbourhoods have gained attention on the policy agenda, especially with Decree 358/17 ratified by Law 27.453, stating that residents from those neighbourhoods were entitled to access to public services such as water, sanitation, electricity or gas in their dwelling, even if they did not have a formal property right.
In this regard, in September 2017, APLA approved by Resolution No. 26 the “Criteria for Intervention in Construction of Infrastructure and Operation of the Water and Sanitation Service in Disfavoured Neighbourhoods/Emerging Urbanizations” to be applied in AySA’s provision area. This resolution, which introduces flexibility with regard to the technical requirements for the construction of water and sewage systems, aims at increasing the development of piped services in these neighbourhoods. Prior to this resolution, AySA did not provide services in streets that were not registered or that did not comply with the width established by the regulations (ten metres). Following the revision of the technical criteria, AySA must deliver services in streets of public use with double access and that have a minimum width of four metres. As a result of these developments, AySA is legally able to provide services in some disfavoured neighbourhoods and must work jointly with other state agencies such as the Secretariat of Housing of the Nation, the Secretariat of Urban Infrastructure of the Nation and the Matanza Riachuelo Basin Authority. Taking stock of this legal evolution, AySA has developed the “Disfavoured Neighbourhoods Master Plan” as an integral part its PMOEM 2019-23. This plan contemplates the execution of network connections to dwellings in disfavoured neighbourhoods where legal technical requirements can be fulfilled.
Figure 4.A.5. New public road criteria adopted by AySA following the APLA resolution
Source: APLA (2017), “Resolución 26/17”, Agencia de Planificación, http://apla.gov.ar.vxct22007.avnam.net/files/pdf/2017/10/Resolucion_N_26_17.pdf
However, when the space between dwellings is less than the required minimum (Figure 4.A.5), AySA can build infrastructure, but is not entitled to provide service. An operator will then be appointed in each particular situation (a consortium of neighbours, a neighbourhood board, a local co-operative, among other options) that will be financially supported by the state. AySA will provide technical assistance, training and water quality sampling.
Regulatory framework and co-ordination
Since the creation of ERAS in 2006, its three directors have been appointed by the national government (with one of them being recommended by the CABA and one by the province of Buenos Aires) without public competition based on professional merit and without consultation. Thus, the degree of autonomy of the directors of the regulator has been fairly compromised from the start. ERAS has the legal possibility of imposing penalties on AySA when the operator fails to comply with its legal obligations. Nevertheless, ERAS has little enforcement capacity to implement these fines. Tariff setting is decided by the Secretariat of Infrastructure and Water Policy and formally reviewed by ERAS, the Users’ Syndicate and the Users’ Ombudsman of ERAS. Public hearings were held for the last three tariff modifications, although they are not mandatory by law.
APLA’s board is chaired by the Secretary of Infrastructure and Water Policy, which undermines its independence. The two other board members are designated by the national government and nominated by the government of the CABA and the province of Buenos Aires. Planning strategy is decided by the Ministry of Interior, Public Works, and Housing and the SIPH, and submitted to APLA for formal review. With a view to increase efficiency, the SIPH tried to make progress in the reunification of the two entities. Although the cumbersome legislative process did not allow this reform, it was possible to move forward in adjusting the entities' budgets, which are presently financed through a rate perceived on services (water and sanitation) invoices. As a consequence of recent tariff increases, ERAS and APLA went from a situation of underfunding to a situation of resource surplus, as shown by their 2016-2018 budgets.
This institutional set-up comprising multiple regulatory institutions produces a fragmented regulatory framework, co-ordination issues between the various stakeholders and weakens decision making among the responsible organisms. Some overlaps and competition between government bodies and regulatory agencies weaken both institutions’ competencies. In addition, the vague delimitation of the agencies’ competences weakens further their capacities and powers.
Financial and environmental sustainability
AySA charges customers according to two tariff regimes depending on whether customers are metered or not. As 83% of customers are not metered, tariffs are unable to promote rational use of water. In 2017, some improvements were introduced in the tariff formula for metered customers following an instruction from the SIPH, and the development of a new tariff regime is still underway. In addition, three social schemes managed by ERAS are in place and benefit 8% of AySA’s customers, both residential and non-residential.
Since the nationalisation in 2006, tariffs remained frozen until 2016. As a result, by the end of 2015, the national government was subsidising 88% of AySA’s total expenses (opex and capex). Since then, tariffs have been increased by 629% (through the K coefficient from the price revision formula; in addition, subsidies were reduced for an important set of users), which helped reduce the huge operating deficit of the concessionaire. As of December 2015, according to the financial statements, AySA’s revenues covered 42% of its operating costs, while for 2018, the operating cost coverage reached 81%. Nevertheless, and despite important efforts, this situation jeopardises the long-term financial sustainability of AySA, especially in difficult macroeconomic periods.
This low financial sustainability associated with budgetary restrictions affecting the appropriate implementation of the PMOEM lower AySA’s capacity to implement a performant asset management policy for its 23 668 km of water pipes and 16 178 km of sewers. It also prevents the operator from developing investment targeted towards pollution reduction. As such, a low financial sustainability may have environmental consequences, especially in a context of increasing urbanisation and absence of effective urban planning. The SIPH and consequently AySA are under mounting pressure to take a more active role in the management of the metropolitan river basins that are now heavily polluted. A ruling by the National Supreme Court passed in 2008 has ordered the government to take the necessary measures to clean up the highly polluted Matanza-Riachuelo basin (Box 4.A.3), which raises the cost of water management substantially in the AMBA. This decision came after long-standing mobilisation of citizen organisations, water users, non-governmental organisations, local governments and environmental groups, and contributed to raise the profile of urban water issues in Argentina (Tobías M., 2018).
Box 4.A.3. The judicialisation of the Matanza Riachuelo case
The Matanza Riachuelo Basin, located in the Metropolitan Area of Buenos Aires, is the largest most polluted basin in Argentina. It covers the southern part of the Autonomous City of Buenos Aires and 14 municipalities of the province of Buenos Aires (see Figure 3.2). Although the pollution issue dates back to the industrial development of the Metropolitan Area of Buenos Aires, it was in the last decades that it gained political and media visibility.
In 2004, residents of the neighbourhood of Avellaneda filed a lawsuit about the environmental deterioration of the basin, based on the right to a healthy environment established in Article 41 of the national Constitution. The claim took legal-institutional viability when, in 2006, the Supreme Court of Justice of the Nation declared its competence in the matter. The court dictated that the state has the obligation to restore the environmental damage caused to the ecosystems as well as to prevent future damage. The three administrations with jurisdiction in the area (national government, province of Buenos Aires and the Autonomous City of Buenos Aires) were thus required to design an Integral Plan for Environmental Sanitation of the basin. The Matanza Riachuelo Basin Authority (ACUMAR) was created to design such a plan. Since 2008, several advances have been achieved (cleaning of margins and waste dumps, eliminating towpaths, controlling industrial pollution, etc.), although serious challenges still persist to achieve the full environmental recovery of the basin.
Since 2008, various progress has been made in the sanitation of the Riachuelo (cleaning borders, release of the towpath, cleaning of landfills, control of pollutants from industries and enterprises), although serious challenges to achieve the environmental restoration of the basin still persist. AySA is currently executing some important sewage structural works formed by the Left Margin Collector, Deviation of the Collector of the Baja Costanera, Riachuelo Water Treatment Plant and a subfluvial emissary that extends 12 km in the Río de la Plata, that will benefit more than 4 million inhabitants.
Source: ACUMAR (2019), “Institucional”, http://www.acumar.gob.ar/institucional/ (accessed in June 2019).
Efficiency
On average, AySA’s overall staff efficiency amounts to 2.1 employees per 1 000 connections (water and sanitation) and 3.51 employees for 1 000 water connections. AySA’s workforce has steadily increased, from 4 058 employees in 2006 to 4 596 in 2009 and 7 841 in 2018. According to AySA, the latest staff increase was the consequence of the incorporation of Aguas Bonaerenses SA staff following the expansion of AySA’s provision territory to include nine municipalities that were previously served by the ABSA and the municipalities. Nevertheless, this increase happened in a context of slow coverage improvement (an additional 1.8 million people for water and 1.9 million for sewers between 2006 and 2018, representing a 53% increase) compared to the increase in staff (93% increase from 2006 to 2018), thus lowering further the staff efficiency level, especially for water. The metering level of customers remains low, at 17%, which prevents the operator from setting up a tariff based on actual consumption, and thus to provide incentives to rationalise water use. Instead, the “canilla libre” system – a “free tap” system under which a fixed rate is charged regardless of the water volume consumed – applies to a vast majority of customers, leading to a high average level of water consumption which is estimated at 338 litres per capita per day (AySA, 2017). In its PMOEM 2019-23, AySA targets to reach a metering level of 30% within 5 years, which represents an increase of 70% with respect to current metering levels. Water losses are also high, at about 41%5 (AySA, 2017) (Figure 4.A.6) due to poor asset management policy and poor macro‑metering to improve leakage control. The PMOEM 2019-23 contemplates an ambitious network renewal plan (target of 1.5% per year compared to actual rate of 0.3% for water and 1.11% for sewers), the sectorisation of networks and the installation of regulation systems to reduce the level of physical losses (target of 3% per year).
Figure 4.A.6. Evolution of efficiency performance indicators for AySA
Source: ERAS (2018), “Informes anuales de benchmarking”, http://www.eras.gov.ar/informacion-tecnica/bechmarking/
The operating cost coverage of AySA was very low, at 42% in 2015, and the operational result remains chronically negative. As such, the operator is dependent on national financial transfers to cover part of its operating costs. Nevertheless, this dependency has clearly been declining since 2016 and the tariff has been increasing. As a result, operating cost coverage rose to 85% in 2017, and 81% in 2018. This is partly linked with the incapacity of the operator to modify its tariff structure to reflect real service costs. Moreover, due to the flat topography of the provision area, a large number of pumps are required to operate the service, which generates important electricity costs. At the end of 2015, electricity tariffs went up, affecting AySA’s production costs and making AySA the fourth largest consumer of electricity in the country. As a result, AySA has planned a series of actions to be implemented to achieve efficiencies in the use of electric power and to reduce costs in its PMOEM 2019-23.
Stakeholder engagement
Stakeholder engagement is limited to consultations organised through the “Users’ Syndicate” and the “Users’ Ombudsman”, both under the responsibility of ERAS.
The “Users’ Ombudsman” was created to represent users in public hearings and judicial or administrative procedures. The appointment of its chair, through public competition based on professional credentials, only started in late 2010. The current chair was nominated in 2016 by the current government. Until recently, users had little opportunity to participate in decisions such as tariff setting or infrastructure planning. The regulatory framework for AySA does not institute a mandatory procedure for tariff review. Nevertheless, stakeholder engagement has been set up through the Users’ Syndicate and the Users’ Ombudsman, in accordance with Article 42 of the National Constitution on the right of users to participate through their associations. Furthermore, in order to strengthen the relationship between the state and civil society, stakeholder engagement and their access to information, since 2016, a public hearing has been convened for all tariff revisions requested by AySA.
Moreover, resources dedicated to stakeholder engagement remained very limited for a long time, which further slowed down the process.
Policy recommendations
The fragmented regulatory framework for water supply and sanitation in the AMBA generates a lack of clear regulatory logic and strategy. Clarifying the regulatory model that presently mixes characteristics of self‑regulation and regulation by agency will help clarify the allocation of regulatory powers and functions, thus avoiding overlaps and making regulation more effective. It will also help reduce political interference with the regulatory entities, thus strengthening the entire regulatory framework. Moreover, the appointment process of ERAS’ directors and of APLA’s board members should be reviewed and made based on public competition and professional merit to strengthen the independence of the regulatory entities, and limit political interference.
The fragmented regulatory framework also generates co-ordination issues between national and local stakeholders involved in the water and sanitation services policy in the AMBA. To overcome these co-ordination issues between national and local levels, a co-ordinating institution like the Metropolitan Board for Water should be re-installed and sustained (see Box 4.4 in chapter 4). Its purpose was to articulate common policies on water and sanitation between multi-level stakeholders and to overcome the lack of urban planning that characterises the AMBA. Once the goals set to the MMA were achieved, namely the transfer of service areas from the outskirts into AySA provision area, the implication of participants (particularly AySA, ABSA, DIPAC, ENOHSA and ACUMAR) decreased.
Clarification and improvement of the regulatory framework should also provide the opportunity to enhance stakeholder engagement. Existing engagement mechanisms with consumers should be strengthened and embedded in routine processes. Stakeholders should be involved especially in discussions regarding the coverage extension in disfavoured neighbourhoods as promoted to a certain extent by the legal provisions of APLA Resolution 26/2017. Strengthening the specialisation of the users’ representative entities is also recommended. Evidence from case studies regarding pro-poor utility policies shows that service provision must be designed carefully to take into consideration preferences and water-use habits of poor urban populations. The operator Manila Water in the Philippines worked with “street leaders” designated by the community, and who are in charge of managing, maintaining and administrating the connections. This neighbourhood policy recorded a 100% rate of revenue collection (Box 4.A.4). The professionalisation and reinforcement of users’ representative organisations are also a key asset that should be explored.
Box 4.A.4. Pro-poor policy of the Manila Water Company, Philippines
Manila Water (MWCI) is one of two concessionaires created after privatisation of the Metropolitan Waterworks and Sewerage System in 1997, and is charged with water provision for Manila’s East Zone. It is considered a success story, particularly in comparison with the other concessionaire, Maynilad, that serves the remaining part of the city. The MWCI estimates 98% coverage of its service area with a water supply 24 hours a day and its 600 projects targeting low-income neighbourhoods are estimated to have reached over 1 million people out of 5.3 million users within the service area. However, a lack of data makes it difficult to assess the proportion of the poor population within the service area that is yet to benefit from this success.
Measures to improve efficiency and performance: Structural reorganisation/streamlining, tariff reform, fiscal discipline, cost-effectiveness measures, employee reorientation and education, reduction of unaccounted-for water.
Pro-poor and accountability features:
Creation in 1998 of Tubig Para sa Barangay (“Water for the Urban Poor”) Programme.
Decentralised service management and responsibility to Barangay (lowest political unit) level and formation of user-utility partnerships to enhance accountability and programme buy-in, design and implementation through public consultations, pre‑implementation meetings and discussions during the planning stages.
Service differentiation: Poor people in urban neighbourhoods are given service options (individual/multi-household connection or community “mother metre”), matching service level to consumers’ needs and catalysing service extension.
From 2005, connection of unauthorised slums using small piped-water networks. “Mother” metres managed by the MWCI (bypassing land tenure restrictions to household water connections), and connections are managed, maintained and administered by community nominated “street leaders”. Connection fees can be paid over one to three years.
Creation of Kabuhayan Para sa Barangay (“Livelihood Programme”), engaging community based co-operatives to provide services and products to the MWCI (e.g. workshops to produce parts).
Certain issues of concern have been highlighted in the literature reviewed, such as a lack of consultation during privatisation, a general need for institutional mechanisms for consumer representation, the absence of independent regulation, changes made to the concession contracts after privatisation and a lack of independent auditing.
Source: WaterAid (2009), Water Utilities that Work for Poor People: Increasing Viability through Pro-poor Service Delivery, https://washmatters.wateraid.org/publications/water-utilities-that-work-for-poor-people-increasing-viability-through-pro-poor.
Exploring alternative pathways could offer opportunities to reach policy priorities more efficiently. For instance, in order to expand coverage, moving away from the centralised development model of AySA networks that expend towards the outskirts of Buenos Aires could be considered (Tobías M., 2018). The creation of decentralised and local networks could help increase coverage more efficiently in some cases. However, in these cases, specific provisions should be made to ensure sustainable services and strengthen the control of the service quality. Indeed, in AySA’s concession area, there are presently approximately 600 neighbourhoods with decentralised services operated by small providers. Most of them are experiencing service quality issues related to low efficiency.
Defining alternative and differentiated regulatory objectives and performance assessment adapted to the specific context of disfavoured neighbourhoods and vulnerable urban areas (mainly those recently incorporated into AySA’s service area) should also be explored by regulatory entities as a potential solution to accelerate the achievement of coverage targets. Allowing differentiated levels of service can allow extending coverage for the same amount of available funds – the main provider would then extend service via standpipe or via agreements with alternative providers (Box 4.A.5).
AySA’s low efficiency also underlines the weakness and the ineffectiveness of the actual regulatory framework, which does not provide sufficient incentives for the operator to improve it. AySA should seek efficiency gains as a means to improve its financial sustainability and cost-recovery ratio. This can be achieved through the implementation of an adequate asset management strategy to prioritise rehabilitation works and effectively lower technical losses. It can be achieved by lowering electricity, as the company already initiated with an 11% unit cost reduction from 2017 to 2019; and by improving staff efficiency, especially for water. All these targets (network renewal, loss reduction, energy efficiency) are explicitly mentioned in the PMOEM 2019-23 that has been reviewed by APLA (through the resolution RESOL-2019-15-E) before approval by the SIPH. Despite a significant improvement of processes in recent years, for the purchase of goods and materials, as well as for public works procurement, tendering specifications should be simplified further to allow more competition between bidders. It is worth mentioning that, in a proactive approach to improvement, AySA got a certification audit in 2019 with AquaRating system (IWA-IDB) for its management processes and good practices.
Box 4.A.5. Condominial network in La Paz, Bolivia
Under the concession contract signed in 1997 for the city of La Paz and the poor suburban area of El Alto in the Plurinational State of Bolivia, the operator agreed to take on ambitious service extension targets, with an objective of 100% coverage for water and 90% coverage for sanitation by 2026. Important efforts were made to extend coverage, but customer demand was falling short of expectations due to high connection costs.
A pilot project was designed and implemented with the support of the regulator to reduce connection instalment costs while increasing service coverage. The condominial method, which allows for shorter and less profound networks, was used to install water and sanitation networks. The local community took part in the construction and maintenance of the network. A hygiene education programme was implemented by the operator and microcredit was used to finance the construction of sanitation facilities. Network costs were reduced by 10-20% and excavation costs by 45-75%. The community participation lead to a cost reduction of 40% for sanitation works. Despite a perception of condominial connections as a service for the poor, significant coverage improvements were achieved, and condominial connections were registered by the regulator as a new standard at the national level.
Source: Hunt, C.M. and S.C.M. Tremolet (2006), “Taking account of the poor in water sector regulation”, http://documents.worldbank.org/curated/en/464491468313735847/Taking-account-of-the-poor-in-water-sector-regulation.
The financial sustainability of AySA has to be strengthened to reach at least full operating cost coverage on a routine basis (including maintenance, rehabilitation and depreciation) and reduce dependency with regard to national funding, which may be subject to the country’s macroeconomic situation. To do so, the tariff level needs to better reflect operating and maintenance costs levels. The efforts to increase the metering level (both for production and distribution) should be sustained and amplified (850 additional metres in 2015, 85 000 in 2018) in order to promote an efficient use of the resource, to lower consumption and develop an adequate water quantity management policy.
The politicisation of tariff setting is an important barrier to more effective use of tariffs to promote financial sustainability and efficiency. For instance, making tariff regulation transparent and disclosing information and technical reports on the use of revenues can help to build a more consensual understanding on the link between tariffs and sustainability of service provision.
Several stakeholders have underlined that the lack of regulation regarding connection standards in internal premises hinders connection rate increases as well as quick expansion of metering into residential units of apartment buildings. Before the privatisation period, this competence was under the responsibility of Obras Sanitarias de la Nación. This issue needs to be addressed to provide the operator with a legal framework and updated norms. Likewise, in the expansion zones, there is a low level of real estate connections despite the availability of secondary networks in front of the property, particularly for sewers. According to surveys carried out by AySA, the main reasons are the lack of information of customers, the connection works and cost, and the necessary adaptation of internal facilities to allow the connection. Information and awareness-raising programs, as well as adapted financing mechanisms are key options to consider to face this challenge.
AySA’s workers, administrative and managerial personnel are important and strong stakeholders that should not be overlooked. They are grouped into the Union of Gran Buenos Aires Sanitary Workers, who also own 10% of the company shares and are represented on the boards of directors. The union has a strong leadership capacity over the utilities’ personnel; the managers of the operators would strongly support the implementation of institutional reforms and new regulations designed by the national government to face the sector’s future challenges, and in particular, for the implementation of procedures and instruments required to strengthen corporate governance, improve operational efficiency as well as transparency and competitiveness of public purchases.
References
ACUMAR (2019), “Institucional”, http://www.acumar.gob.ar/institucional/ (accessed in June 2019).
APLA (2017), “Resolución 26/17”, Agencia de Planificación, http://apla.gov.ar.vxct22007.avnam.net/files/pdf/2017/10/Resolucion_N_26_17.pdf
APLA (2015), “Resolution 24/15: PMOEM 2014-18 AySA”, http://apla.gov.ar.vxct22007.avnam.net/files/pdf/2016/01/2415.pdf
AySA (2019), “Tarifa Social”, https://www.aysa.com.ar/usuarios/Tarifa-Social , (accessed in June 2019)
AySA (2018), “Informe anual 2018, Agua y Saneamientos Argentinos S.A.”, https://www.aysa.com.ar/media-library/usuarios/informacion_util/informes_anuales/Informe_Anual_2018.pdf
AySA (2017), “Informe anual 2017, Agua y Saneamientos Argentinos S.A.”, https://www.aysa.com.ar/media-library/usuarios/informacion_util/informes_anuales/Informe_Anual_2017.pdf
DINREP (2014), “Necesidades Básicas Insatisfechas (NBI): Información censal del año 2010”, Dirección Nacional de Relaciones Económicas con las Provincias (DINREP), http://www2.mecon.gov.ar/hacienda/dinrep/Informes/archivos/NBIAmpliado.pdf
ERAS (2018), “Informes anuales de benchmarking”, http://www.eras.gov.ar/informacion-tecnica/bechmarking/
Franceys, R. and E. Gerlach (eds.) (2008), Regulating Water and Sanitation for the Poor: Economic Regulation for Public and Private Partnerships, Routledge.
Hunt, C.M. and S.C.M. Tremolet (2006), “Taking account of the poor in water sector regulation”, Water Supply & Sanitation Working Notes, No. 11, World Bank, Washington, DC, http://documents.worldbank.org/curated/en/464491468313735847/Taking-account-of-the-poor-in-water-sector-regulation.
Observatorio del Conurbano Bonaerense (2019), “Mapas”, www.observatorioconurbano.ungs.edu.ar , (accessed in June 2019)
Rojas, Rodolfo (2017), “Estado de Situación de los Servicios de Agua y Saneamiento en Barrios Populares”, Presentación en International Water Association Water and Development Congress & Exhibition, Buenos Aires, 16 de noviembre de 2017,.
WaterAid (2009), Water Utilities that Work for Poor People: Increasing Viability through Pro‑poor Service Delivery, WaterAid, https://washmatters.wateraid.org/publications/water-utilities-that-work-for-poor-people-increasing-viability-through-pro-poor.
Annex 4.B. Case study: Province of Santa Fe
Key facts and features
Box 4.B.1. Key data for the province of Santa Fe
The province of Santa Fe is located in the centre-east of the country, neighbouring the provinces of Buenos Aires, Córdoba, Corrientes, Entre Ríos and Santiago del Estero. Together with Córdoba and Entre Ríos, the province is part of the economic and political association known as the “Centre Region”. Santa Fe’s economy is the fourth most important in the country.
With a surface of 133 007 m² and a population of 3 194 537 inhabitants (2010), Santa Fe is the third most populated province in Argentina.
The main river, and connection to open sea, is the Paraná River. The plain lands tend to be flooded after heavy rains due to the growth of the Paraná and Salado Rivers. Most of the province consists of green flatlands, part of the humid pampean region, bordering to the north with the Gran Chaco region. There are low sierras to the west. Rainfall ranges from 1 200 mm in the northeast to 800 mm in the southwest and extreme northwest. This humid, temperate climate explains why central and southern Santa Fe are among the nation’s richest agricultural regions, with crops such as maize and soybeans, and a very well-developed dairy industry.
The province of Santa Fe is divided into 19 departments, which are divided into districts organised as communes or municipalities (Figure 4.B.1). The communes are smaller towns, generally administered by a local commission. The municipalities have more than 10 000 inhabitants, and have a mayor and a municipal deliberative council. There is a total of 55 municipalities and 308 communes in the province.
The province’s most important cities are Rosario (population 1 193 605), the capital Santa Fe (369 000), Rafaela (100 000), Villa Gobernador Gálvez (74 000), Venado Tuerto (69 000), Reconquista (66 000) and Santo Tomé (58 000). The two main urban centres, Santa Fe and Rosario (the second largest in the country), are located by the Parana River and concentrate 53% of the total population of the province.
The province’s population has steadily grown over the past 30 years, with a decrease in the number of rural inhabitants and an increase in the urban population (Table 4.B.1). The population of the province is projected to reach 4 million by 2040 (INDEC, 2019).
The actual and foreseen increase in urban population, as well as the dynamic economy of the province based on agriculture and manufacturing, put continuing pressure on the improvement in access to quality water and wastewater services.
Figure 4.B.1. Province of Santa Fe and departments
Table 4.B.1. Evolution of the population in the province of Santa Fe
Source: INDEC (2019), “Censo Nacional de Población, Hogares y Viviendas (1980 - 1991-2001-2010)”, oficial website, https://www.indec.gob.ar/indec/web/Nivel3-Tema-2-41 (consulted in May 2019).
Legal and institutional framework
Rationale
The actual legal and institutional setting regarding the provision of water and wastewater services in the province of Santa Fe dates back to the privatisation period. In 1995, when the 30-year concession contract was granted to the private operator Aguas Provinciales de Santa Fe (APSF SA) led by SUEZ, the regulatory entity (Ente Regulador de Servicios Sanitarios, ENRESS) was created (Law 11.220). In 2006, the concession contract was terminated, and the executive power of the province of Santa Fe set up the public limited company Aguas Santafesinas S.A. (ASSA) to take over the water and sanitation services formerly managed by the private operator (Decree 193/06) (Figure 4.B.2). The provincial government is the main shareholder of ASSA, with 51% of the share capital, while municipalities that are part of the concession hold 39% and the employees the remaining 10% through a share participation programme.
Figure 4.B.2. Regulatory framework of ASSA
Regulatory functions in water and sanitation services encompass economic, environmental and social aspects, and can be shared among several institutions. However, they need to be clearly spelt out and allocated to avoid overlaps and incoherence. Table 4.B.2 provides a list of regulatory functions for water and sanitation services and specifies the institution to which they are allocated in the province of Santa Fe.
Table 4.B.2. Regulatory functions for water and sanitation services in the province of Santa Fe
Note: ENRESS: Water and Sanitation Regulatory Entity of the province of Santa Fe; ASSA: Aguas Santafesinas S.A.
Main players and instruments
Since 2006, Aguas Santafesinas S.A. has been in charge of providing water and sewage services in 15 municipalities in the province (Figure 4.B.3). ASSA provides water services to about 2 million inhabitants, representing 60% of the province’s population. The remaining 40% of the population (347 towns) has access to water either through piped networks or tanks. ASSA has also been designated as the provisional operator of the Acueducto Centro Oeste, a system through which it provides bulk water to another 11 municipalities where the distribution of water remains under the responsibility of municipal services or co-operatives. The financial contributions of the provincial government to fund the expenses of the service allowed increasing service quality through the construction of priority works.
Figure 4.B.3. ASSA’s service area
Source: ASSA (2019), “Área de Servicio”, https://www.aguassantafesinas.com.ar/portal (accessed on June 2019)
Apart from ASSA, 347 other water and sanitation operators provide services to the rest of the population of the province of Santa Fe, including 24 municipal operators, 124 co‑operatives and 197 communes (Table 4.B.3).
Table 4.B.3. Small operators in the province of Santa Fe
Source: ENRESS (2019a), Jurisdicción, http://www.enress.gov.ar (accessed on June 2019).
In order to secure quality water provision, the province designed and funds a Provincial Strategic Plan (PEP) that foresees the development of a series of aqueducts to direct water from the Paraná River to the west of the province, and thus guarantee access to safe surface drinking water as underground resources face several quality issues across the province, including arsenic, total salts, nitrates, iron, manganese, hardness, sodium (Figure 4.B.4 and Table 4.B.4).
Figure 4.B.4. Aqueducts as planned in the Provincial Strategic Plan 2030
Source: Province of Santa Fe (2012), “Plan Estratégico Provincial: Visión 2030”, https://www.santafe.gov.ar/index.php/plan_estrategico_provincial
The planning of the provincial aqueduct system, which aims to bring water in block to 100% of the population of the province, was completed in 2019 with the work of the Reconquest Aqueduct, that covers an area of 12 200 km² (representing approximately 9% of the provincial territory). It is delimited to the east by the Paraná River, to the south by an imaginary line that passes 10 km from the cities of Calchaquí and San Javier, to the west by a second line that passes close to the towns of La Gallareta and Fortín Olmos, and to the north on the third line that passes through the towns of Lanteri and Las Garzas. The population from this area represents 200 000 inhabitants, and is estimated to reach 275 000 within 30 years.
Table 4.B.4. Planning of aqueducts in Santa Fe
Source: Province of Santa Fe (2012), “Plan Estratégico Provincial: Visión 2030”, https://www.santafe.gov.ar/index.php/plan_estrategico_provincial .
In addition to works to expand water coverage, within the PEP the province is carrying out a Master Plan for Sanitation whose main objective is to expand the coverage of the sewage service in all urban areas of the province to improve the living conditions of the population. The Master Plan also seeks to strengthen the technical, operational and management capacity of ASSA and of other service providers. The Master Plan includes the realisation of technical studies, as well as some technical assistance and training. Works will be carried out in the five regions of the province to expand and improve the reliability of wastewater treatment, and to renew and expand existing sewerage networks.
The province has also developed an effluent control programme. The environmental quality of surface courses (streams, rivers, canals, etc.) is directly linked to the discharge of domestic, industrial and agriculture effluents. The objective is to clean up surface water courses by developing comprehensive strategies for monitoring and controlling effluent discharge using a georeferenced system.
ASSA regularly integrates into its assets and operates infrastructure built by urban developers in newly urbanised areas. ASSA was granted a temporary authorisation to operate the Central West Aqueduct, which supplies water in additional municipalities and co-operatives. To improve the access to drinking water, the provincial government is investing in a provincial system of 12 aqueducts designed to match a 30-year demand forecast. As of 2016, six aqueducts were under construction.
ENRESS, the provincial regulatory entity for water and wastewater services, is a self‑governing public body created in 1995 in the context of privatisation of water and wastewater services in the province of Santa Fe. According to the provisions of Law 11.220, ENRESS is responsible for the regulation and control of service provision, for the protection of users’ rights and health. ENRESS approves the improvement and development plans (Art. 98 of Law 11.220), and controls that operators comply with the plans they presented. ENRESS analyses and issues information about mandatory reporting done by operators. Tariff increase requests are submitted by operators either to the provincial Ministry of Infrastructure and Transport (ASSA) or to the municipal council (for municipal services) for validation. Once validated, ENRESS approves them, in accordance with the provisions of Chapter VII of the Regulatory Framework and Applicable Rules, and verifies the appropriateness of the revisions and adjustments requested. The tariff revision procedure is held yearly, and lasts 15-30 days. ASSA tariffs are reviewed due to inflation or because a new asset is being added to the company’s inventory (stemming from new urban developments). ENRESS controls the quality of water supplied to users according to the compliance limits set in the Annex A of Law 11.200 (Figure 4.B.5), as well as the quality of sewage effluents. It should be noted that some operators in the province face water quality issues related to important concentrations of arsenic, total salts, nitrates, iron, manganese or sodium in water resources. Under such circumstances, the regulator can grant exceptional exemption for a specific period during which the utility can operate with lower levels of service.
Figure 4.B.5. Evolution of compliance rate for arsenic for a sample of water services, province of Santa Fe
Source: ENRESS (2019b), “Estado de situación del servicio de agua potable en la provincia de Santa Fe”, http://www.enress.gov.ar/estado-de-situacion-del-servicio-de-agua-potable-en-la-provincia-de-santa-fe-2/. (accessed in September 2019)
ENRESS also provides financial advice with regard to cost analysis and tariff setting to the regulated entities, especially to small services and co-operatives that lack capacity. The regulatory entity is directed and administered by a board of five regular members, appointed by the executive power of the province; one member is proposed by the most representative employee trade union organisation. In all cases, the proposed members must have suitable and relevant experience to fulfil their duties. Directors are appointed for a period of four years. In the event of vacancy or inability to exercise their functions, the executive power will appoint a substitute member, who will serve until the expiration of the original term of the mandate of the replaced director. The substitute member will need legislative agreement in case his/her term of office exceeds the period of one year before expiration. The president and vice-president of the regulator are appointed by the province’s executive power among the members of the Board of Directors, and hold their positions for a period of two years with the possibility of re-election.
The executive power of the province of Santa Fe is in charge of investment planning and funding for the development of water and wastewater services. The province, through its Ministry of Infrastructure and Transport, prepares annually a preliminary budget for the next year and for the coming three years (based on an Improvement and Development Plan), which is discussed by a technical committee at provincial level. When approved, the plan is then funded by the provincial Ministry of Economy (using provincial budget or external funding from donors), with limited additional contributions from municipalities.
Key water and sanitation services challenges
Service coverage
According to the 2010 National Population and Housing Census, with regard to the infrastructure services of households, 84.4% have access to piped water service (the access rate reaches 98% for ASSA); in comparison, sanitation coverage remains low, with 58% of the population being connected to sewers. Most of the population connected to sewage are ASSA customers (80% sewer connection for ASSA only); the rest of the province’s population has more limited access to sanitation facilities, whether collective or individual. This underlines the important difference in service coverage and level between ASSA and the other small operators of the province. In addition to this limited level of sanitation coverage that induces health and environmental risks, it should be noted that Santa Fe is one of the provinces with the lowest effluent treatment coverage (below national average estimated at 36%). None of its large coastal cities has treatment plants.
Taking stock of this situation and of the perspective of population evolution, the provincial government has planned a series of works to expand sewage systems in various locations, including the cities of Santa Fe, Rosario and their respective suburbs. These works have been detailed in the Solidarity and Integrator Programme of Sewage Drains that is co‑financed by the province, municipalities and users of wastewater services.
With regard to water, the provincial government has started implementing a new provincial aqueduct system, which includes works and investments over a period of 15-20 years, as set forth in the PEP. Another programme is being implemented in parallel to improve access to drinking water in smaller towns. This programme includes improving existing facilities, installing new water purification plants, expanding distribution networks, and strengthening the capacity to deliver water in trucks during critical periods of intense drought. Most of the funding available is dedicated to aqueducts to provide enhanced water quality to the entire population of Santa Fe. The corresponding works are estimated to be USD 1 500 million.
Investment planning
Water and sanitation investment projects are designed and decided by the provincial government. They are merely prioritised on technical grounds, and there is no explicit process, despite active communication between the authorities, to ensure that they match the priorities set in the National Water Supply and Sanitation Plan (NWSSP) and that they contribute to achieving the plan’s objectives. This can sometimes lead to co-ordination issues between national and subnational water supply and sanitation policies and objectives.
Water and sanitation investment projects are funded predominantly by the province, but some investment projects also receive financial contributions from the National Entity for Sanitation Water Works (ENOHSA) (up to 80% for the Southern Recreation Plant). Some projects are partly financed through commercial loans (Water Treatment Plant of Reconquista) or self‑financed by co-operatives. Nevertheless, there is no systematic, explicit, standardised evaluation process at the provincial level to prioritise projects according to their expected economic, social and environmental benefits to society in the short, medium and long terms.
Financial sustainability
In 2016, the provincial Treasury subsidised 32% of ASSA’s operating costs, which represented a contribution of 570 million of Argentinian pesos. This situation shows that ASSA is not able to cover its operating costs through the water sold and billed. This is due to a combination of low tariff and low efficiency. ASSA’s current metering level only reaches 34.5%, while a five-year plan targets to reach 70%. Thus, a large majority of customers are still billed according to the canilla libre system, which does not reflect the real production costs of water and wastewater services. In addition, non-revenue water is as high as 50%.
In municipal services and co-operatives, the metering level is much higher, thus allowing a tariff structure that promotes a rational use of water. Nevertheless, the tariff level often remains too low to cover the expenses of the service, as reported by ENRESS, which regularly performs cost studies and proposes financial advice to small services.
This weak financial sustainability of operators lowers their capacity to set up a performant asset management policy. It also makes operators dependant on external funding to cover a part of their operational expenditure as well as their investments, which reinforces potential political discretion and interference.
Independence of the regulator
Both tariffs and investment programmes are decided by representatives of the province and/or municipalities. As a result, investment decisions may appear discretionary and funding unpredictable. This situation induces high risks of political interference, especially for tariffs that tend to be set below cost-recovery level.
The president and vice-president of the regulatory directory are appointed by the governor of the province among the members of the Provincial Directorate. This situation can be seen as a threat for the independence of the regulator, besides the fact that other members are appointed by the province’s representatives. In addition, commissioners’ short mandate (two years) and their replacement both at the same time may weaken further the regulator’s independence.
Stakeholder engagement
The Users’ Council is formed by associations that defend the rights of users and consumers under the provisions of the consumer protection law. It is hosted by the regulator. Its purpose is to advise the regulator’s board on health issues, to participate and provide elements to better take into account service users and protect their rights.
Stakeholder engagement is limited to awareness-raising activities conducted by utilities, such as the distribution of booklets, annual public meetings, visits of facilities and educational sessions for pupils.
Co-operatives are gathered into a National Federation of Cooperatives of Drinking Water and other Public Services, where they can share experience and exchange good practices. On the contrary, there is no strict equivalent for municipal services. But the Secretariat of Regions, Municipalities and Communes could possibly be articulated with the National Federation of Cooperatives of Drinking Water and other Public Services to provide the same technical assistance and capacity development activities.
Policy recommendations
Co-ordination problems between national and provincial levels have been identified, especially in a context of high decentralisation of water and sanitation services provision. In order to better align the water and sanitation services policy objectives between the provincial and national levels, the DNAPyS and the provincial departments in charge of water supply and sanitation policies should gather on a regular basis as this would help overcome vertical co-ordination issues. Such regular meetings would offer a place for the definition and co-elaboration of water supply and sanitation policy priorities, thus fostering consensus and diffusing potential conflicts.
In a decentralised and politicised sector such as water and sanitation services, a certain degree of independence of regulator (or distance from political appointees) helps to overcome political interferences in key decisions, such as tariff regulation, for instance. There should be a clearer separation between the provincial executive power and the regulatory commission. The fact that the governor of the province designates the directors reduces considerably the regulator’s independence and increases the risk of highly politicised decisions. In addition, for regulators led by a board, appointments of board members should be staggered to maintain knowledge and expertise in between renewals of appointments. The length of office terms should be designed in a way that ensures that board members’ terms cut across electoral cycles, compatible with each country’s constitutional arrangements. Mandates should be of at least five years to allow for knowledge and expertise development. (Box 4.B.2).
Box 4.B.2. Decision making and government body structure for independent regulators
National Electricity Regulator
The governing body of ENRE has five members, one of which is the president, one the vice-president and the remaining official chairpersons (Article 57 of Law 24.065). The executive power appoints these members according to their technical and professional background for five years organised in staggered periods, which can be renewed indefinitely – two of them proposed by the Federal Council of Electric Energy (Article 58 of Law 24.065). These members, according to Article 59 of Law 24.065, can only work for ENRE, and are banned from other activities. They can only be removed by the executive power, with a well-founded justification. However, the removal order will go to a congressional commission first, which will give an opinion.
National Gas Regulator
According to Article 54 of Law 24.076, the governing body of ENARGAS is composed of five members, one of which is the president, one is the vice-president and the remaining three are chair officials. As with ENRE, members of the governing body are elected according to their technical profile for five years (Article 54). Again, members have staggered periods and are banned from working elsewhere (Article 55). These legal statutes, which seem to be consistent with OECD Principles on the Governance of Regulators, were overturned when the president intervened in ENARGAS.
Source: OECD (2019), Regulatory Policy in Argentina: Tools and Practices for Regulatory Improvement, https://doi.org/10.1787/d835e540-en.
The politicisation of tariff setting is an important barrier to more effective use of tariffs to promote financial sustainability. For instance, disclosing information and technical reports on the use of revenues can help to build a more consensual understanding of the link between tariffs and sustainability of service provision.
In municipal services, corporate governance of utilities should be systematically implemented to ensure a clear separation of functions and responsibilities between utilities and local governments. This would help promote transparency and accountability, and avoid political interference.
Moreover, in the case of state-owned utilities, as for ASSA, the province should act as an informed and active owner, ensuring that the governance of state-owned enterprises is carried out in a transparent and accountable manner, with a high degree of professionalism and effectiveness.
Water and sanitation investment projects should be routinely assessed in a standardised and comprehensive manner. They cannot solely be justified on technical grounds. They should also be prioritised according to their cost-effectiveness and cost-beneficial contribution to the economy and society. This would allow effectively channelling provincial funds to ensure the best use of fiscal resources and external funding.
ASSA’s low efficiency underlines the weakness and ineffectiveness of the actual regulatory framework, which does not provide sufficient incentives for the operator to improve it. ASSA should seek efficiency gains as a means to improve its financial sustainability and cost-recovery ratio. This can be achieved through the implementation of an adequate asset management strategy to prioritise works and effectively lower both commercial and technical losses. This can also be done through better infrastructure management through innovative incentive-based approaches, for instance (Box 4.B.3).
Box 4.B.3. Increasing the operational efficiency of water infrastructure in Brazil
Water infrastructure is not always well utilised and managed. This is particularly true of wastewater infrastructure. In many cases, wastewater plants are built with national subsidies but they fail to treat wastewater – either because the sewage is not delivered to the wastewater treatment plant or because municipalities that own them decide that they cannot afford to operate them. In different aspects of water management, Brazil has introduced innovative incentive-based approaches to achieve cost reductions that rely on paying for proven results rather than for physical works. The River Basin Clean-Up Program has provided incentives for increasing the operational efficiency of wastewater treatment infrastructure. Private actors build and operate the wastewater treatment plants and they are paid a fee for each cubic metre of wastewater treated.
Source: OECD (2013), Making Water Reform Happen in Mexico, https://doi.org/10.1787/9789264187894-en.
Adapted from OECD (2011), “Financing Water Resources Management”, ENV/EPOC/WPWBE(2011)4, OECD, Paris.
In order to increase small operators’ capacities and efficiency, and to expand small utilities’ coverage, policy makers can explore aggregation of water and sanitation services as a potential solution. Under specific conditions and circumstances, aggregation can help utilities to perform better (Box 4.B.4.).
Box 4.B.4. Examples of successful aggregations of small and rural utilities
Austria
Founded in 1946, Upper Austria Water is an autonomous non-profit association of more than 1 700 rural service providers located in the federal state of Upper Austria. Chaired by a board of seven directors, it is in charge of operations and maintenance of small-scale water supply and sewerage systems in rural areas through technical assistance (emergency supply, mobile technical equipment), pooling programmes (for water metre purchase and water analyses, for example) and measurement services (such as leak detection, pipe and valve location, flow rates and pressure, and aquifer tests). It aims to supply sufficient high-quality and cost-efficient drinking water through the construction and operation of autonomous installations. It also provides capacity building and staff training, and supports service providers on legal and financial issues. Similar models exist in other states of Austria.
Brazil
In 1996, when the Integrated System for Rural Sanitation (Sistema Integrado de Saneamento Rural, SISAR) was created in the Brazilian state of Ceará, its main purpose was to bring access to water supply in rural areas where such service was previously not available. These areas had been left aside by state water supply and sanitation companies, which had predominantly focused on urban access to water supply and sanitation services. From 1996 to 2016, SISAR’s coverage expanded dramatically, from 18 to 153 localities, and it reached operational cost recovery in 2012. This success, which has encouraged the replication of the SISAR model in other rural contexts in the Brazilian states of Bahia and Piaui, is mainly based on a gradual improvement strategy and a specific labour arrangement.
Source: World Bank (2017), Joining Forces for Better Services: When, Why, and How Water and Sanitation Utilities Can Benefit from Working Together, https://openknowledge.worldbank.org/handle/10986/28095.
The financial sustainability of operators has to be strengthened to reach at least operating and maintenance cost coverage (including rehabilitation and depreciation costs) and reduce dependency with regard to provincial financial contributions, which are subject to discretionary decisions. To do so, tariff levels need to better reflect operating and maintenance costs levels, especially in those services where the metering level is high. The tariff structure also needs to be revised and the metering level increased (both for production and distribution) in ASSA in order to promote an efficient use of the resource.
Stakeholder engagement could usefully be strengthened. Going beyond the existing awareness-raising activities would help to reinforce accountability between customers and service providers, and thus lower the risk of political interference. There are various possibilities of engagement processes between customers and service providers, ranging from communication to co-decision and co-production (Figure 4.13 in Chapter 4). In order to reinforce stakeholder engagement, different categories of obstacles should be overcome. They include obstacles that hinder the integration of the concept and approaches of stakeholder engagement into water policies and practices, as well as bottlenecks that impede the effective implementation of the engagement processes (Box 4.B.5).
Box 4.B.5. Major obstacles to stakeholder engagement in the water sector
The OECD Survey on Stakeholder Engagement for Effective Water Governance identified two categories of obstacles to stakeholder engagement. The first category includes those obstacles hindering the integration of the concept and approaches of stakeholder engagement into water policies and practices. They relate to political leaders’ resistance to relinquish power over other stakeholders, as well as the absence of legal frameworks to embed stakeholder engagement in institutional practices. These obstacles restrict adopting principles of inclusive decision-making. The second category includes bottlenecks that impede the effective implementation of the engagement processes. They concern the lack of clarity on the use of stakeholders’ inputs, the lack of funding, misaligned objectives as well as the lack of transparency.
Figure 4.B.6. Major obstacles to stakeholder engagement in the water sector
Understanding and overcoming obstacles to stakeholder engagement requires a holistic approach, as challenges facing inclusive decision-making processes are often interrelated and can exacerbate each other. For instance, a context where roles and responsibilities are fragmented across multiple agencies and organisations at different levels of governments may also suffer from the unclear strategy of how to use the inputs from engagement processes between these multiple authorities. Because of unclear objectives, policy makers may not support the engagement process. Therefore, there is a need to understand interdependencies between obstacles and to devise appropriate solutions so that stakeholder engagement processes are anticipatory and resilient.
Figure 4.B.7. Towards anticipatory and resilient stakeholder engagement
Source: OECD (2015), Stakeholder Engagement for Inclusive Water Governance, https://doi.org/10.1787/9789264231122-en.
References
ASSA (2019), “Área de Servicio”, https://www.aguassantafesinas.com.ar/portal (accessed on June 2019)
ENRESS (2019a), “Jurisdicción”, http://www.enress.gov.ar (accessed on June 2019).
ENRESS (2019b), “Estado de situación del servicio de agua potable en la provincia de Santa Fe”, http://www.enress.gov.ar/estado-de-situacion-del-servicio-de-agua-potable-en-la-provincia-de-santa-fe-2/. (accessed in September 2019)
INDEC (2019), “Censo Nacional de Población, Hogares y Viviendas (1980 - 1991-2001-2010)”, oficial website, https://www.indec.gob.ar/indec/web/Nivel3-Tema-2-41 (consulted in May 2019)
OECD (2019), Regulatory Policy in Argentina: Tools and Practices for Regulatory Improvement, OECD Publishing, Paris, https://doi.org/10.1787/d835e540-en.
OECD (2015), Stakeholder Engagement for Inclusive Water Governance, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264231122-en.
OECD (2013), Making Water Reform Happen in Mexico, OECD Studies on Water, OECD Publishing, Paris, https://doi.org/10.1787/9789264187894-en.
Province of Santa Fe (2012), “Plan Estratégico Provincial: Visión 2030”, https://www.santafe.gov.ar/index.php/plan_estrategico_provincial
TOBÍAS, M. (2018), “Política del agua, controversias socio-técnicas y conflictos territoriales en el Área Metropolitana de Buenos Aires (2006-2015)”. Tesis para recibir el título de Doctora en Ciencias Sociales y Geografía, cotutela entre la Universidad de Buenos Aires y la Universidad Paris III Sorbonne Nouvelle.
World Bank (2017), Joining Forces for Better Services?: When, Why, and How Water and Sanitation Utilities Can Benefit from Working Together, World Bank, Washington, DC, https://openknowledge.worldbank.org/handle/10986/28095?locale-attribute=es.
Notes
← 2. This unit is in charge of water supply and sanitation works supervision and prioritisation, and sector strengthening in the northern provinces of the country (Catamarca, Chaco, Corrientes, Formosa, Jujuy, La Rioja, Misiones, Salta, Santiago del Estero and Tucumán).
← 4. Barrios Populares are disfavoured neighbourhoods with informal settlements.
← 5. This leakage estimation could be underestimated as metering remains low. Therefore, it should be taken with caution.