The chapter starts with an overview of the water supply and sanitation (WSS) services in Peru, recent government policies and goals for the sector, and a description of the structure of the water industry. It then turns to the legislative framework and allocation of regulatory functions before looking in more detail at the governance and performance of Peru’s independent water regulator, the Superintendencia Nacional de Servicios de Saneamiento (SUNASS). The chapter concludes with a series of policy recommendations to support the policy goals of universal coverage of WSS services.
Water Governance in Peru
OECD Studies on Water
4. Regulatory framework for water supply and sanitation services in Peru
Abstract
Peru’s water supply and sanitation (WSS) services
There are significant gaps in access to WSS services in Peru, with rural areas particularly affected. Peru is below the Latin America and the Caribbean (LAC) regional standards for access to safely managed drinking water services (Figure 4.1): 9.2% of the population (3 million people) lack access to public water supply networks and 25.2% (8.2 million people) lack access to public sewerage services (INEI, 2019[1]). Furthermore, when looking at subjective measures, only 61% of individuals in Peru report that they are satisfied with the quality of the water (Figure 4.2) (OECD, 2015[2]). Access to WSS services in rural areas is significantly lower than in urban areas. Key statistics include (INEI, 2019[1]):
24.8% of the rural population and 4.9% of the urban population do not have access to public water supply networks (i.e. water is supplied by water tanker trucks, wells, rivers, springs, canals or other sources).
Only 37.1% of the population consumes water from public networks with appropriate disinfection concentration; in rural areas, the figure is just 2.4%.
Only 55.6% of the population (54.9% of the urban population and 58.1% of the rural population) has 24-hour access to a water supply.
24.5% of the population lacks access to public sewage networks (10.2% of the urban population and 80.8% of the rural population).
8.7% of the population lacks any kind of sewage system (4.4% of the urban population and 24.0% of the rural population).
Figure 4.1. Access to safely managed drinking water services is low in Peru compared to the LAC region
Percentage of the population, 2017
Note: The percentage of the population using drinking water from an improved source that is accessible on premises, available when needed and free from faecal and priority chemical contamination. Improved water sources include piped water, boreholes or tubewells, protected dug wells, protected springs and packaged or delivered water.
Source: World Bank (2019[3]), World Development Indicators, World Bank, Washington, DC.
Figure 4.2. Satisfaction rates with the quality of water in Peru
Source: Gallup Organisation (2015[4]), Gallup World Monitor (database), in OECD (2015[2]), Multi-dimensional Review of Peru: Volume 1. Initial Assessment, https://dx.doi.org/10.1787/9789264243279-en.
The OECD Principles on Water Governance (2015[5]) recommend that countries “ensure that sound water management regulatory frameworks are effectively implemented and enforced in pursuit of the public interest”. In line with common practice in OECD countries and internationally, this chapter uses the term WSS services, which can be considered equivalent to the term sanitation (saneamiento) used commonly in Peru and which refers to the full range of water supply, disposal of human excreta and sewage, and wastewater treatment services, as defined in Title I, Article 2 of Legislative Decree No. 1280. In Peru, there are still significant gaps in access to WSS services, especially in rural areas, and the sector remains highly fragmented. While the role of WSS sector policy lead (ente rector) of the Ministry of Housing, Construction and Sanitation (Ministerio de Vivienda Construcción y Saneamiento, MVCS) and the role of economic regulator for the supervision and monitoring of WSS service provision of SUNASS are clearly defined in legislation,1 a lack of co-ordination and capacity, as well as potentially overlapping or unclear mandates of a number of public bodies and levels of government, undermine role clarity and the effective achievement of policy goals. In order to overcome these gaps, these policy goals must be approached from a perspective of unity and a high-level pact for ownership and support of all stakeholders for their achievement. Along the same line, responsible institutions should co-ordinate and streamline data collection for measuring progress and impact.
Sector structure
The water supply and sanitation (WSS) sector is highly fragmented in Peru, with different modes of market organisation in urban and rural areas (Figure 4.3). In urban areas (cities above 15 000 inhabitants), 50 water and sanitation service providers (Empresas Prestadoras del Servicio de Saneamiento, EPs) provide drinking water to 18.4 million people, who represent 57% of the national population, 72% of the total urban population and 90% of the population within the EPs’ scope of responsibility (the geographical area in which the EPs should provide WSS services, defined under contract) (SUNASS, 2020[6]). The 50 EPs, all publicly-owned, are categorised by size: SEDAPAL, the EP that serves Lima is in a category of its own with over 1 million connections; 4 “Large 1” companies with 100 000-1 million connections; 14 “Large 2” companies with 40 000-100 000 connections; 15 medium-sized companies with 15 000-40 000 connections; and 16 small companies with less than 15 000 connections (SUNASS, 2018[7]). This fragmentation of the urban market limits economies of scale, with a consequent loss of efficiency in WSS services delivery.
Outside of urban areas, WSS services are provided by thousands of diverse providers, adding to the fragmentation of the sector and potentially hindering efficient service delivery. Providers include community organisations, municipal management units and specialised operators. In smaller cities (<15 000 inhabitants), there are around 450 operators. In rural areas (populations less than 2 000), around 25 000 Sanitation Services Administrative Boards (Juntas Administradoras de Servicios de Saneamiento, JASS) and municipal operators manage rural WSS services (Sanitation and Water for All, 2019[8]). JASS are community-based, volunteer water committees whose members are responsible for maintaining WSS systems as well as charging household fees, the levels of which are guided by a methodology provided by SUNASS. The National Rural Sanitation Programme (Programa Nacional de Saneamiento Rural, PNSR), in co‑ordination with subnational governments, supports 1 458 municipalities to form JASS. In particular, the PNSR promotes the creation of Municipal Technical Areas (Areas Tecnicas Municipales, ATMs) within municipalities, administrative units that give support to JASS. The fragmentation of the sector creates problems in terms of loss of scale economies and additional sources of inefficiency, challenges for sound regulation by SUNASS (see the section below on SUNASS) and potential political capture.
Figure 4.3. Market structure of WSS services providers in Peru
Source: SUNASS (2019[9]), “Presentation summarising the classification of service providers, as per Supreme Decree No. 019-2017-VIVIENDA”, at OECD workshop, Santo Domingo, September 2019.
Moving towards a more consolidated water industry faces resistance at the local level. The merging of EPs could enable WSS service provision at a regional (or larger) scale – encompassing rural, urban and peri-urban areas – that would facilitate EPs to reap economies of scale. Local authorities currently have decision-making authority on whether to integrate WSS providers but there is generally resistance to this process which can stand in the way of achieving economies of scale within EPs. Any public policies to address the fragmentation of the WSS sector will need to take into account such political economy considerations.
The financial sustainability of WSS operators is a serious concern in Peru, with many urban EPs operating at a loss and many rural operators failing to meet basic financial sustainability. Water utilities in Peru tend to be small public agencies with low business income, often leading to shortcomings in terms of financial feasibility. Inefficient management (e.g. high leakage rates) can compound these challenges. In urban areas, many EPs are undergoing reforms to improve services. The EPs are supported by the Technical Agency for the Administration of Sanitation Services (Organismo Técnico de la Administración de los Servicios de Saneamiento, OTASS). Currently, 19 EPs are under the Transitional Support Scheme (Régimen de Apoyo Transitorio, RAT) due to insolvency or poor business performance and are undergoing bailout procedures overseen by OTASS, responsible for improving their management. In rural areas, poorly determined tariffs also result in income that does not cover costs (Ministerio de Vivienda, Construcción y Saneamiento, 2016[10]). Furthermore, investment in physical infrastructure in rural areas has often not been complemented by sufficient resourcing for the development of local capacity for operation and management, or adequate social awareness by users on the costs of WSS provision (Oblitas de Ruiz, 2010[11]).
Institutional framework
The Ministry of Housing, Construction and Sanitation (MVCS) sets the overall public policy goals that provide the framework for the development of sector regulation. The MVCS is the governing body for sanitation and has exclusive power over the development, planning, co‑ordination, implementation and overseeing of national specific and related policies within its legal powers, issuing guidance and technical standards, planning and funding of sanitation services as a public service. The MVCS leads, manages and administers the Water and Sanitation Information System (Sistema de información en agua y saneamiento, SIAS).2 OTASS, attached to the MVCS,3 promotes and implements the policy of the MVCS regarding the management, administration and provision of sanitation services. In particular, it executes the policy of the governing body regarding administration for the provision of sanitation services and takes control of public EPs under municipal ownership in the event of financial and operational insolvency so as to improve their performance (Chapter 1). The Ministry of Health (MINSA), through the Directorate-General for Environmental Health and Food Safety (Dirección General de Salud Ambiental e Inocuidad Alimentaria, DIGESA), regulates and monitors the compliance in terms of quality parameters of water for human consumption. The Ministry of Development and Social Inclusion (Ministerio de Desarrollo e Inclusión Social, MIDIS) is also responsible for interventions in terms of investments in sanitation services in rural areas and for the maintenance and rehabilitation of water and sanitation systems, as per Supreme Decree No. 18-2017-VIVIENDA.
The regulatory framework for water supply and sanitation (WSS) services in Peru is organised around the establishment of dedicated agencies with regulatory functions. The National Water Authority (Autoridad Nacional del Agua, ANA) is the regulatory body for the use and management of water resources that include surface and groundwater (and extends to the sea and atmospheric water where applicable). SUNASS is the economic regulator for WWS. Other agencies intervene in the sector as part of their overall responsibilities, including the Agency for Environmental Assessment and Enforcement (Organismo de Evaluación y Fiscalización Ambiental, OEFA) and a public health authority (MINSA via DIGESA). In addition, regional governments have some health regulatory functions (notably monitoring the application of the nationally-defined quality standards) through the Regional Health Directorate (DIRESA)/DIGESA (Table 4.1). Moreover, a number of ministries – the Ministry of Agricultural Development and Irrigation (Ministerio de Desarrollo Agrario y Riego, MIDAGRI), the Ministry of the Environment (Ministerio del Ambiente, MINAM) and the MVCS – have WSS in their portfolios, making governance arrangements around the former authorities complex (Figure 4.4).
Within the context of legal powers of the MVCS, an instrument for the Ecosystem Services Compensation Mechanism (MERESE), which allows for an explicit connection of urban and rural water services delivery and water resources management, has been implemented. Article 27.1 of Legislative Decree No. 1280 establishes that water utilities (EPs) must further agreements to set up an Ecosystem Services Compensation Mechanism and that SUNASS must include in the water and sanitation services tariff the amount the Ecosystem Services Compensation Mechanism that corresponds to each user.
Table 4.1. Regulatory functions for water in Peru
Note: ANA = National Water Authority; CONCYTEC = National Council of Science, Technology and Innovation; DIGESA = General Directorate of Environmental Health (within the Ministry of Health); EPS = Water and sanitation service companies; INDECOPI = National Institute for the Defence of Competition and the Protection of Intellectual Property; MVCS = Ministry of Housing, Construction and Sanitation; MERESE = Ecosystem Services Compensation Mechanism; MINAM = Ministry of the Environment; MINSA = Ministry of Health; OTASS = Technical Agency for the Administration of Sanitation Services; PROINVERSION = Private Investment Promotion Agency; SIAS = Water and Sanitation Information System; SUNASS = Economic regulator for WSS; WSS = Water supply and sanitation.
Source: OECD (2019[12]), OECD Survey on Water Governance in Peru.
Figure 4.4. Responsibilities in the WSS sector in Peru
Note: ANA = National Water Authority; DIGESA = General Directorate of Environmental Health (within the Ministry of Health); EPS = Water and sanitation service companies; MVCS = Ministry of Housing, Construction and Sanitation; MEF = Ministry of Economy and Finance; MIDIS = Ministry of Development and Social Inclusion; MIDAGRI = Ministry of Agricultural Development and Irrigation; MINAM = Ministry of the Environment; MINSA = Ministry of Health; OTASS = Technical Agency for the Administration of Sanitation Services; SUNASS = Economic regulator for WSS.
Source: SUNASS (2019[9]), “Presentation summarising the classification of service providers, as per Supreme Decree No. 019-2017-VIVIENDA”, at OECD workshop, Santo Domingo, September 2019.
MINAM also regulates payments for ecosystem services via– MERESE. Payments for ecosystem services seek to conserve or restore the ecosystem and the services provided by the ecosystems, which enables water users (in this case, the EPs) access to water in sufficient quantity and quality. According to Law No. 30215 and Decree-Law No. 1280, these payments for ecosystem services are included in tariff schemes set by SUNASS for EPs in order to finance investments in natural infrastructure (ecosystems) as water sources. As a matter of fact, the National Sanitation Plan 20174 establishes that SUNASS is responsible for making the necessary provisions aimed at promoting, designing and implementing MERESE. Law No. 30125 on MERESE clearly states that these payments for ecosystem services are voluntarily aimed at the conservation, recovery and sustainable use of aquatic ecosystems, in line with similar systems in other countries. These payments for ecosystem services are included in tariff schemes set by SUNASS for EPs in order to finance investment in natural infrastructure (ecosystems) as water sources. MERESE, albeit a very promising instrument, still faces significant lock‑ins at different levels (social, legal, institutional, operational, analytical, etc.). ANA regulates the use of water resources via water abstraction charges (retribuciones económicas) and the discharge of wastewater, i.e. water users must pay a pollution charge for the wastewater they produce (Box 4.3; see Chapter 3). It emits regulations that classify different types of water resources and determine which water resources can be used for water supply.
The MINAM is responsible for proposing environmental targets and ensuring the protection of the environment and the conservation of natural resources within the framework of the National Environmental Policy. This is done through its main Directorates-General: DG Policies and Regulation on Building and Sanitation (DGPRCS) and the attached Directorate of Sanitation, DG Programmes and Building and Sanitation Projects (DGPPC) and DG Environmental Issues (DGAA). The Directorate-General for Environmental Issues (Dirección General de Asuntos Ambientales, DGAA) is the body responsible for setting environmental objectives, drafting guidance and strategies for the development of the MINAM’s legal powers, ensuring the protection of the environment and the conservation of natural resources within the framework of the National Environmental Policy.
Environmental and public health regulatory functions are primarily the responsibility of MINAM/OEFA and MINSA through DIGESA respectively, although ANA also has environmental regulation functions. OEFA monitors wastewater to ensure quality standards are in line with those set out by MINAM and has the power to sanction. OEFA also contributes to the reduction of contamination of water resources that may occur in the energy, mining, industry, etc. sectors within the scope of its competencies. On the other hand, OEFA, through its supervisory power, issues preventive measures in order to control the affectation of environmental components, including water. Finally, OEFA, as the governing body of National System of Environmental Evaluation and Inspections (Sistema Nacional de Evaluación y Fiscalización Ambiental, SINEFA), can verify the exercise of environmental control in wastewater exercised by the public authorities in charge of environmental inspections and enforcement on certain regulated subjects and/or objects (Entidades de Fiscalización Ambiental -. EFAs). (OECD, 2020[13]) For water resources, a specialised technical body under MINAM – SNACE (Servicio Nacional de Certificación Ambiental para las Inversiones Sostenibles) – is in charge of evaluating environmental impact studies (regulated in Law No. 27446) on public, private or mixed capital investment projects under the competency of the government that involve activities, construction works and other commercial and service activities that may cause significant environmental impact, which may include the use of water resources.
While OEFA is the primary entity for the enforcement of environmental regulation, ANA also carries out some regulatory functions for environmental regulation. In particular, ANA’s favourable opinion is needed for the approval of any Environmental Management Instruments (Instrumentos de Gestión Ambiental, IGAs) related to water resources. Its opinion is binding. ANA also grants a binding opinion in the environmental certification process, in accordance with the provisions of the SEIA Law Regulation, approved by Supreme Decree No. 019-2009-MINAM. The Ministry of Health (MINSA) via DIGESA/DIRESA, in the framework of monitoring the quality of water for human consumption, carries out the characterisation of water (microbiological, physical, chemical analysis) in the water supply system for human consumption (water sources, treatment plant of water, reservoirs, distribution networks, housing, etc.).
SUNASS is independent from the public utility operators, the government and consumers. It was created in 1992 when arms-length economic regulators were created to accompany the liberalisation of Peru’s economy (regulators were also created for e-communications, energy [later energy and mining], and transport infrastructure). This model allows separation of powers between the regulator and the executive and limits potential conflicts between policy formulation and enforcement. In both OECD and non-OECD countries in recent years, the development of dedicated regulatory bodies for WWS stands out as a consistent response to some of the challenges to regulating water services, including the fragmentation of roles and responsibilities in the sector and the difficult political economy of tariff setting (OECD, 2015[14]).
SUNASS is responsible for tariff setting, monitoring and enforcing compliance with quality-of-service levels and prices, and consumer protection (see the section below for a more detailed discussion of SUNASS). It is also charged, since 2020, with defining the geographic area (área de prestación) for WSS service provision. In addition to its responsibilities over WSS, SUNASS has other responsibilities related to the economic regulation of water resources (primarily ANA’s responsibility, as noted above), reflecting its strong technical capacity among Peru’s water-related institutions. In particular, it approves the methodology for determining the tariffs of the groundwater monitoring and management service for non-agricultural users with their own wells.
Legislative and planning tools for WWS services
The legislative framework in Peru provides a strong basis for the provision of WWS services, although there is room for streamlining and improvements. Legislative Decree No. 1280 approved the Framework Law for the Management and Provision of Sanitation Services. It aims to strengthen the efficient management of WSS operators and sets out the roles and responsibilities of water and sanitation authorities with the aim to increase coverage, ensure quality and secure the sustainable provision of services. An example of a potential improvement includes a legal amendment to generate the enabling conditions for further reclaimed wastewater reuse (see discussion below on regulating wastewater services).
National policies set out ambitious targets for improving access to WSS services. The National Sanitation Policy 2017-21 (Supreme Decree No. 007-2017-VIVIENDA) sets out Peru’s objective to achieve sustainable, universal access to sanitation in urban areas by 2021 and in rural areas by 2030, in line with the United Nations (UN) Sustainable Development Goals (SDGs) (Sanitation and Water for All, 2019[8]). The term sanitation in this context refers to the full range of water supply, disposal of human excreta and sewage, and wastewater treatment services. The country’s National Environmental Policy (approved by Supreme Decree No. 012-2009-MINAM) and associated instruments, such as the National Environmental Action Plan (Supreme Decree No. 014-2011-MINAM), are aligned with the 2021 goal to reach 100% wastewater treatment in the urban areas.
The National Sanitation Policy builds on several programmes and initiatives in the sector over the past two decades. Successive administrations have made improving access to WSS services a political priority. In 2007, the Water for All programme (created through Supreme Decree No. 006-2007-VIVIENDA) aimed to provide poorer populations with potable water and sewerage services. In 2012, the National Rural Sanitation Programme (PNSR) was created through Supreme Decree No. 002-2012-VIVIENDA, with the purpose of providing rural populations most in need of comprehensive, quality and sustainable WSS services. In the framework of the PNSR, the MVCS works with regional and local levels and has supported the development of action plans for intervention in rural areas, including diagnosis on WSS. Bilateral co-operation partners have also significantly supported the rural sanitation sector in Peru. For example, the current SABA+ programme is the fourth generation of rural sanitation programmes supported by the Swiss Development Co-operation (SDC/COSUDE). To date, rural providers have focused on improving water supply, with relatively less attention to and progress made on the disposal of human excreta and sewage, which requires significant investment and can also encounter cultural barriers to implementation. Furthermore, much emphasis has been placed on bridging gaps in access rather than sustaining the level of service.
Ways forward to strengthen the regulatory framework
A number of policy recommendations, based on international practices, are proposed below. They aim to strengthen and modernise the regulatory framework.
Assess legislative framework and capacity for implementation
While Peru has the necessary legislation to a large extent, implementation is lagging due to a lack of capacity as well as significant differences in capacity between institutions. The economic regulator for WSS, SUNASS, is among the strongest institutions in the sector but overall institutional capacity in the sector is still developing. Fundamentally, there appears to be a mismatch between the sophisticated legal framework and the capacity of Peru’s institutions to implement it. In this context, the absence of policy action to tackle an existing or emerging problem can lead to an institution favouring action and outcomes over the defined distribution of roles and responsibilities. An assessment of the current sectoral capacities combined with a prioritisation exercise of goals for the sector over the short, medium and long terms could help translate the aspirations of the laws into realistic and workable objectives that evolve as institutional capacity develops. The necessary degree of improvements in administrative, technical and financial capacity will need to be supported by strong political will over time at the national, regional and local political levels.
The lack of capacity contributes to and is compounded by a lack of clarity around roles and responsibilities, undermining the road to the achievement of Peru’s ambitious WSS goals. Role clarity is the bedrock of a well-functioning regulatory framework with different actors knowing their role and purpose that is complementary and not duplicative or detrimental towards each other (OECD, 2014[15]). The role of all actors should be clearly defined in legislation in terms of their objectives, functions and co-ordination with other entities. These should be clear to all relevant authorities and the regulated bodies, but also for citizens and other stakeholders. In Peru, relationships between national institutions and subnational levels of government are very complex (see chapter on multi-level governance). Furthermore, mandates and perimeters of activity are not always clearly defined. For example, both the MVCS and MIDIS have roles in rural sanitation: while the MVCS leads on policy-setting and investment in the sector, MIDIS works through its International Co-operation Fund for Social Development (Fondo de Cooperación para el Desarrollo Social, FONCODES) to channel development assistance funds to programmes targeting poor rural populations, including supporting local governments with basic WSS services (MIDIS, 2019[16]).
There is a need for an assessment led by the centre of government of implementation capacities and the level to which they match requirements set in law. This can support a prioritisation exercise of goals for the sector over the short, medium and long terms and helps translate the aspirations of the law into realistic and workable objectives that evolve as institutional capacity develops. Such a prioritisation exercise can support the important aim of managing expectations across public administration and in relation to citizens. The exercise should also seek to clearly define the role of all actors in terms of their objectives, functions and co-ordination with other entities. While some areas of overlap will always inevitably exist, roles should be as clear as possible to all relevant authorities and regulated bodies, but also citizens and other stakeholders.
In sum, the PCM (Presidencia del Consejo de Ministros, Presidency of the Council of Ministers), the MVCS, MINAM, ANA, SUNASS, OTASS could consider the following actions:
Signal strong, lasting political commitment to delivering affordable and good quality WSS by political leaders at the national, regional and local levels including the promotion of infrastructure investment.
Identify and advocate for opportunities to update and streamline legislation, for example in order to generate the enabling conditions for further reclaimed wastewater reuse.
Assess current capacities to implement laws and carry out a prioritisation exercise of goals for the sector over the short, medium and long terms. This could help translate the aspirations of the laws into realistic and workable objectives that evolve as institutional capacity develops.
Clearly define the role of all actors in terms of their objectives, functions and co-ordination with other entities (e.g. the MVCS, SUNASS, OTASS). These should be clear to all relevant authorities and the regulated bodies, but also for citizens and other stakeholders.
Box 4.1. Portugal’s 20-year “Strategic Cycle of Public Water Policy”
In Portugal, the provision of water and sanitation services is a shared responsibility between the 308 municipalities and the national, public holding company Águas de Portugal (AdP) and its subsidiaries.
In 1993, Portugal adopted Law No. 372 which established a Strategic Cycle of Public Water Policy, a clear roadmap for the sector with a 20-year horizon that included significant flexibility to adapt to different realities in the country. This reform introduced the adoption of the corporate management model, opened up the sector to the private sector, aggregated and merged several regional systems, actively promoted multi-municipal companies, created Águas de Portugal as the overarching corporate structure of the water sector and saw the establishment of the economic regulator ERSAR.
Since 1993, Portugal experienced a growth in the private sector participation in the water sector, both as a unique shareholder through public service concessions and as a minority shareholder, through institutional PPPs.
For the past 20 years, the implementation of WSS sector reforms in Portugal has been guided by 3 successive strategic plans: PEAASAR 2000–06 (PEAASAR I) focused on the restructuring of the sector and defining objectives and policies to guide social, environmental and economically sustainable solutions; PEAASAR 2007–13 (PEAASAR II), emphasising the rational use of public expenses; and PENSAAR 2020 – A New Strategy for the Water Supply and Wastewater Sector, still under implementation.
Today, 26 years since the approval of the 1993 sector policy reform, Portugal has witnessed remarkable progress in the provision of drinking WSS public services while substantially increasing social well-being, public health and environmental standards.
Source: Godinho, R. (2013[17]), “A brief approach to water sector in Portugal”, APDA, May 2013, https://www.apda.pt/site/upload/A%20Brief%20Approach%20to%20Water%20Sector%20in%20Portugal_EU2_RG.pdf; Francisco da Silva Costa, F. (2018[18]), “Water policy(ies) in Portugal”, https://doi.org/10.4000/mediterranee.10078; World Bank (2019[19]), Outline for a New Strategic Plan: Potential Option, http://documents1.worldbank.org/curated/en/633581580714106097/pdf/Outline-for-a-New-Strategic-Plan-Potential-Options-Deliverable-C-1.pdf; LIS Water (n.d.[20]), Lessons Learned from Water Reform in Portugal.
Implement a high-level pact between all actors involved in the Peruvian WSS sector
On many aspects, efforts to improve co-ordination between actors need to continue, along the line of a high-level pact between all actors involved in the Peruvian WSS sector. For example, WSS sector plans drawn up at different levels (national, subnational) are not always coherent with each other. This risks sending mixed investment signals and hindering an optimal allocation of resources. The MVCS has been carrying out actions to better co-ordinate investments in the sector, in particular the coherence between plans at the subnational level (Regional Sanitation Plans) and the National Sanitation Plan.
In addition, a high-level agreement between all actors involved in WSS policy design and implementation, regulation and its delivery, based on legal attributions and complementarities would complete these efforts and present a unified implementation plan for the country’s 2021 and 2030 policy goals. The achievement of this crucial objective must begin with the signalling of strong, lasting political commitment to delivering affordable and good quality WSS by political leaders at the national, regional and local levels, through the creation of a high-level pact supported by all actors, including line ministries and arms-length agencies.
Box 4.2. Examples of co-ordination among regulatory agencies
The challenges faced by regulators often transcend sectoral and geographical boundaries; hence, greater co-ordination and collaboration are needed. There are a number of experiences with co‑ordination among regulatory agencies domestically, including:
Australia: The Utility Regulators Forum aims to facilitate the exchange of information, understanding of the issues faced by regulators, consistency in the application of regulatory functions and the review of new ideas about regulatory practices. The newsletter of the forum is published quarterly and contains articles on common challenges, summaries of recent journal articles on regulatory matters, and updates on regulatory decisions.
France: The Club des Régulateurs provides a forum for both established and new economic regulators to share common problems with a few thematic meetings every year, most recently on issues of data privacy and data handling. A third party, currently an academic institution, hosts it.
United Kingdom (Scotland): As part of the Strategic Review of Charges for 2021-27, stakeholders in Scotland meet on a monthly basis to ensure collective buy-in and collaborative working around the key issues faced by the water and wastewater sectors. The meetings involve high-level representatives from the water operator (Scottish Water), economic regulator (Water Industry Commission for Scotland, WICS), the quality regulator (Drinking Water Quality Regulator for Scotland, DWQR) and the environment regulator (Scottish Environment Protection Agency, SEPA), as well as the Customer Forum and the consumer association. More granular analysis from the working groups feeds into those high-level discussions.
Ireland: A new Economic Regulators’ Network is convened around four times a year and hosts discussions on common challenges such as the legal interpretation of new regulations. Participants recognise that further work is needed to address technical regulatory issues across sectors.
Source: Information compiled by the OECD Network of Economic Regulators (NER) (2021[21]) .
Improve clarity in the allocation of regulatory functions
Some gaps exist in the allocation of regulatory functions, including:
1. Regulatory requirements regarding the efficiency of water use apply only to the supply of drinking water for human consumption, regulated by SUNASS but do not apply to water use (or treated wastewater use) for other sectors that consume the largest volumes of water, in particular agriculture. Legislative Decree No. 1280 and its regulation Supreme Decree No. 019-2017-Vivienda establishes that EPs can sell treated (and untreated) wastewater (for example, for use in irrigation), and prices are not regulated. Before tariffs can be introduced, it must be declared that there is no competition, hence justifying the intervention of the regulator; however, it is not clear which is the competent authority to make this decision. This gap in the regulatory framework could result in technical and economic inefficiency in the reuse of treated wastewater in Peru. Regulating the use of treated wastewater, in particular linking it to regulations for the use of water for irrigation purposes, is an option that Peruvian authorities could consider.
2. EPs under RAT: When under this special regime overseen by OTASS, certain regulatory obligations designed to improve the financial sustainability of the EPS may result in reduced access to drinking water service for consumers. Regulations and the framework need to ensure the financial sustainability of EPs after their graduation from RAT status, through good corporate governance as well as appropriate tariff levels.
For all institutions, a large informal sector limits regulatory reach. Informality, at close to 60% of workers, is one of the highest in Latin America (OECD, 2015[2]). Small businesses often opt for informality in order to save significant opportunity costs in the face of complicated administrative procedures. The consequences for the water sector are high levels of non-compliance with water-related and other environmental regulations by the informal sector. As such, regulatory norms and frameworks should be reviewed so as to support the following objectives:
Consolidating the water industry, as fragmentation of the market limits economies of scale, leading to a consequent loss of efficiency in WSS service delivery.
Consider regulating the use of treated wastewater, in particular linking to regulations for the use of water for irrigation.
Regulatory norms and framework need to ensure the financial sustainability of EPs, with a focus on ensuring good corporate governance.
Box 4.3. Paying for water in Peru: Charges, tariffs and family fees
Charges
Charges (retribuciones) are levied for water abstraction (both consumptive and non-consumptive uses, both surface water and groundwater abstraction) and for treated wastewater discharge. For both water abstraction and sewage discharge, all permit holders must pay the state an amount per cubic meter of water withdrawn/sewage discharged (Water Resources Law No. 29338 of 2009), as water is considered a natural resource that is national property. The charges are set by the National Water Authority (ANA) and vary by type of use (municipal, industrial, agricultural): charges applied to the productive sector respond to economic criteria; charges applied to the water used for the general population and the agriculture sector respond to social criteria. The revenue raised is used to finance ANA.
For water abstraction, the rate-setting process (volumetric and flat rates) takes account of water availability in river basins and aquifers. JASS are only subject to flat rates and only for surface water; the rates are progressive (i.e. they increase with the demand for water).
For authorised discharge of wastewater treated in a recipient body, ANA assesses the charge rates (volumetric rates only) according to the quality of the receiving water and the cost of recovery at the affected source. The rates charged for discharges of municipal wastewater are much lower than those applied to the productive sector. The agricultural sector is exempt, given the diffuse nature of agricultural pollution. JASS are an exception because they are subject to a flat rate (very low).
Legislative Decree No. 1285 of 29 December 2016 amends the Water Resources Law No. 29338 to remove the requirement of the favourable prior technical opinion of the Environmental and Health Authorities for the granting of wastewater discharge permits, which remain under ANA’s responsibility. The stated aim is to speed up and simplify licensing procedures and “avoid duplication”. However, this may overwhelm ANA’s existing capacity to assess the quality of the receiving waters and therefore the risk of pollution.
Tariffs
The regulator SUNASS sets tariffs for EPs (operating in urban areas with populations over 15 000) using a methodology that aims to ensure economic and financial viability, taking into account projected demand and cost developments, approved investment plans and payments for ecosystem services (Ter-Minassian, 2018[22]). Tariffs are set for five-year periods, with increases in the last two years contingent upon the EPs meeting performance targets. There are different tariffs according to user type: residential, commercial, industrial, public. Tariffs include a fixed charge and some variable charges based upon consumption levels. Residential tariffs for the poorest households are subsidised, through cross-subsidisation. The Ministry of Development and Social Inclusion (MIDIS) determines the process for identifying the beneficiaries of targeted subsidies. As per Legislative Decree No. 1280, SUNASS also sets tariffs for service providers established based on public-private partnerships, municipal management units, special operators and communal organisations
Household fees
In rural areas and small cities, where WSS provision is carried out by JASS, users are required to pay a “household fee”. On 7 February 2018, SUNASS published a methodology to allow JASS to set a household fee that allows them to cover at least the operation and maintenance (O&M) costs of drinking water supply services and sanitary disposal of excreta in rural population centres (less than 2 000 inhabitants), as well as the replacement of minor equipment and rehabilitation. As provided by Legislative Decree No. 1280, Framework Law for the Management and Provision of Sanitation Services, the role of SUNASS includes guaranteeing the financial sustainability of drinking water and sewerage services in the rural sector. JASS ultimately decide the level of the family fees.
Source: Ter-Minassian, T. (2018[22]), “State-owned enterprises and fiscal risks in Peru”, Discussion Paper No. IDB-DP-575, Inter-American Development Bank (IDB).
Improve data collection and management for the WSS sector
Data on WSS is produced by a number of actors and covers many sector dimensions but is not always shared which may hinder its quality and relevant use. Several actors have responsibility for collecting data but the lack of interoperability between data systems hinders information sharing and creates data silos. Duplication of efforts may also divert resources from producing unified and high-quality data and create unnecessary burdens on service providers. For example, in the field of water quality, MINSA collects data on water quality from testing in the pipe network and homes, MIDIS collects data on the coverage of chlorinated water in rural areas and SUNASS collects information from water utilities on the water quality in drinking water and, in some cases, from wastewater plants although this is not systematic. On the other hand, ANA has an information portal on the quality of water from sources (National Water Resources Management System, Sistema Nacional de Gestión de los Recursos Hídricos, SNIRH) that can be accessed by companies depending on the type of permit they have obtained. Current plans include the standardisation of concepts and units of measurement with respect to potable water supply systems (to code water supply systems) by the Ministry of Housing, Construction and Sanitation (MVCS) and MINSA.
Efforts are ongoing to integrate WSS data into a unified data platform but careful attention should be given to ensuring that data collection and management efforts are not duplicated by different actors. The MVCS leads the management and administration of the Water and Sanitation Information System – SIAS – and its related Rural Water, Sanitation and Hygiene (WASH) Information System (DATASS) platform covering rural areas, that is intended to integrate sanitation information and provide the basis for water risk management. Separately, SUNASS has developed a data capture system called SICAP that collects information on management variables of the 50 EPs. This information is used among others for benchmarking and management indicators. SUNASS also operates the GEOSUNASS platform that displays water and sanitation information and reports to the minister as an input into policymaking, in line with the new Management and Provision of Sanitation Services Law. The platform integrates different kinds of information to support decision-making about the regulation and supervision of water and sanitation services. The regulator is also putting in place structures to give access to this information to other ministries, of Health, Development and Social Inclusion, the Environment, Defence and Education, among others. The interoperability of the systems and databases described above is not yet effective across the board.
SUNASS has put in place two methods for its data collection on WSS service providers depending on location but all data is integrated into a single digital system that SUNASS systemises. The EPs (covering urban areas) submit their data directly to SUNASS and in January 2019, the framework law was modified to give municipalities (ATM) the responsibility of reporting information to SUNASS for supervision and oversight of community organisations. To date, around 80% of municipalities report performance data to the ATM web system (SUNASS, 2021[23]) . Additionally, as part of its supervision activities, SUNASS collects primary information from community organizations in the field and places it in a database, as well as verifying the information from the ATM web system, if applicable. This information serves as the basis for the benchmarking of community organization and too for supervising the quality of the service. .
There are concerns about the quality of data submitted by water utilities to SUNASS due to inconsistency in data management practices and capacity constraints, undermining the capacity to monitor the achievement of sector goals. In particular, there is a lack of reliable, standardised and timely data. SUNASS requires EPs to submit data in a specific format to its data system that has been in place since 2004. The regulator uses this data to calculate the management indicators for utilities. Information requested by SUNASS includes data on infrastructure, such as reservoirs and the number of drinking water connections. However, not all EPs gather this information and those that do have different practices for managing, processing and saving data, making comparability a challenge. Furthermore, water utilities often miss deadlines for submitting information and data can be unreliable, despite being submitted as an affidavit. SUNASS trains the water utility personnel responsible for processing and submitting the information; however, the high turnover of staff in water utilities means that this capacity is frequently lost and the regulator must regularly invest in training new personnel.
As part of high-level pact and definition of roles and responsibilities, it would be key to include the collection and management of data and its use for monitoring the implementation of policy and regulation as a priority area of attention. It would also be important to: define specific targets with regard to burden reduction on WSS actors for data submission; better co-ordinate public sector data collection and sharing; the MVCS to work with other ministries and advocate for a clear definition of roles and responsibilities in relation to data collection on sanitation; and continue work to build up a holistic view of the performance of the sector throughout the country, and report this information to all relevant stakeholders.
Governance of SUNASS
Mandate and functions
Peru’s dedicated water regulator, the Superintendencia Nacional de Servicios de Saneamiento (SUNASS) is in charge of regulating, supervising and monitoring the provision of drinking water and sewerage services. Established in 1992 by Decree-Law No. 25965 and subject to the general framework for all Peruvian regulators (Law No. 27332, issued in 2000), SUNASS has built up a solid reputation as a technically sound and credible independent WSS regulator, one of the strongest in the region. The establishment of water regulators is both a recent and consistent trend across OECD and non-OECD countries in the past 25 years (OECD, 2015[14]), although the majority (23 out of 34 surveyed) of regulators covered in the OECD survey are multi-sector, often combined with energy regulation.
SUNASS has the following powers:
1. Regulatory: it can dictate regulations, guidance and standards.
2. Tariff setting: it sets tariffs for the services and activities under its economic regulation.
3. Surveillance: it can verify the compliance of legal, contractual or technical obligations by entities, companies or supervised activities, as well as the power to verify compliance with any provision, mandate or resolution issued by the regulatory body or any other obligation that is in charge of the supervised entity or activities.
4. Sanctioning: it can impose sanctions and corrective measures on EPs for the breach of obligations derived from legal or technical regulations, as well as the obligations of the concessionaires in their respective concession contracts.
5. User claims (solución de reclamos): it can resolve conflicts that arise between water service operators and users through administrative channels.
6. Conflict adjudication (solución de controversias): it can resolve conflicts that arise between companies through administrative channels.
7. Definition of the geographic area for WSS service provision.
8. Additionally, with regard to water resources management, SUNASS has the function of approving the methodology for determining the rate of the groundwater monitoring and management service tariff for non-agricultural users with their own well, as well as its corresponding approval for water utilities qualified according to the relevant regulation.
SUNASS regulates the provision of WSS services based on a long term (30-year) strategic approach and its implementation in the short and medium terms. To support this, each EPs prepares a strategic plan for the provision of WSS services that has a 30-year horizon. SUNASS then establishes the management goals related to performance and quality of the service that the EPs must achieve in each regulatory year and that are established in the tariff review process that is carried out every five years. In addition, SUNASS pursues a long-term water security strategy, notably in Greater Lima but also in other areas of the Pacific Coast.
SUNASS also regulates the WSS services market structure via several powers. It approves the efficient scale for WSS services delivery (updated every five years), sets the service delivery area that EPs should serve, determines whether small cities are of a viable size to incorporate water utilities and must give a favourable opinion before a water utility can be created. Through these powers, SUNASS is attempting to promote market integration in order to reap economies of scale and improve performance.
Situated under the PCM, the contribution of SUNASS to public policy is highly appreciated by the executive although its opinions are not binding. SUNASS, as with all regulators in Peru, is placed under the PCM. It depends on the PCM for approval of several procedures, from changes in organisational structure to international travel of staff. The MVCS is responsible for the design of the regulatory framework for the WSS sector; while the opinions of SUNASS are not binding, it reports that they are taken into account and evaluated.
SUNASS counts with technical and administrative independence as defined in law and has demonstrated a strong culture of independence in its actions. This culture of independence is essential given the context within which the regulator operates, in particular, the attempts at political interference in rate-setting at the local level. SUNASS has demonstrated independence in its regulatory functions in the face of this political pressure. For example, in 2019, the regulator stood firm in its decision on the revised tariffs for the area of Tacna, in the Atacama Desert in the south of Peru, insisting that tariffs would not be suspended, and also ensured that the rates applied in Moquegua were in line with its assessment. This resistance to political pressure followed a case in April 2018 in Moquegua in which the local government announced that the planned rate increases would not go ahead, in defiance of the decision of SUNASS (Gestion, 2019[24]).
The expansion of SUNASS’ functions to smaller towns and rural areas is a major undertaking
The scope of SUNASS’ functions changed dramatically in 2016 as the regulation of WSS services in rural areas was added to its portfolio (El Peruano, 2016[25]) . Previously, the regulator was responsible for supervising WSS services only in cities with a population of over 15 000 inhabitants, which in practice entailed supervising 50 urban EPS. In 2016, its functions were expanded to include the supervision of 26 885 community-organised water and sanitation services boards (JASS) in rural areas5 and 450 operators in smaller urban areas (<15 000 population) to ensure quality of service and financial sustainability. Prior to this, regional offices of the MVCS regulated water services in areas outside of the larger urban areas but the lack of supervision of sanitation services in these areas was recognised as a weakness in the sector.
The expansion of its mandate presents a challenge for SUNASS, as it is now charged with the supervision of a huge number of operators that have different capacities, coverage, types of network connections, and that operate in very different contexts. Few water regulators have responsibility for supervising such a large number of water operators (Figure 4.5). The expansion of functions represents a challenge for the regulator as it demands a different regulatory approach to the one used so far, requires interaction and co-ordination with bodies it did not previously work with (ATM, regional governments…), has implications for the regulator’s financing model and raises important questions about the governance of SUNASS in terms of capacity, competencies and powers, which are evolving in step with this change. Italy’s national water regulator (ARERA) interacts with intermediate regional institutions, which in turn oversee water operators within their respective regions. This approach is to enable the oversight of a large number of operators (more than 2 000).
SUNASS has adapted its governance and approach to take on this new mandate and has made progress in several areas. For example, importantly, SUNASS has created a local presence nationwide through 24 regional offices. Other progress includes, among others: a methodology to determine the areas of service delivery that will be implemented through the 24 local offices of SUNASS; multidisciplinary teams with detailed knowledge in each of the regions; a roadmap for co‑ordinated work among the institutions in a given territory; a strategy for the regulation of sanitation services in rural areas, which seeks to strengthen and complement prevailing institutions; and approval of the Small Cities Service Quality Regulations . Moreover, during 2018, 2019 and part of 2020, SUNASS has begun monitoring service providers in rural areas and small cities in order to assess the provision and quality levels of the services they provide, in the interest of making recommendations for their improvement. This information has been systematised through a web‑based monitoring system that displays six indicators to measure the performance of service provision. In addition, the Regulations on the Quality of Sanitation Services Provided by Community Organisations in Rural Areas (RCOC) and the Regulations on the Monitoring of Sanitation Services have been approved (SUNASS, 2020[26]). In 2020, SUNASS approved the Quality Regulation for the Provision of Sanitation Services in Small Cities with the objective of establishing the measures that regulate the quality conditions for the provision of such services (SUNASS, 2020[27]).
Given the fragmentation of the sector, different regulatory approaches will be used for each of the 3 categories (urban area with a population over 15 000; smaller urban areas between 2 000 and 15 000 population, and rural areas with populations of less than 2 000). SUNASS is in the process of designing and implementing the new regulatory approaches for smaller urban areas cities and rural areas. A modification to the Framework Law made in 2019 endows municipalities with responsibility for building capacity of JASS and reporting on their performance to SUNASS. Newly-created technical support teams (ATMs) within each municipality liaise directly with local operators, creating an intermediary between the operators and SUNASS. In some cases, where capacity at the municipal level is weak, SUNASS will inspect JASS directly and collect benchmarking information through field visits. Regulatory approaches of water regulators in other countries may provide ideas for ways to effectively and efficiently supervise large numbers of WSS operators in rural areas.
Figure 4.5. Number of active water operators in the water and sewerage sector supervised by water regulators
Note: This figure, originally presented in OECD (2015[14]) has been updated to reflect the change in category for Peru. Previously Peru was included in the category ‘Between 10 and 100 active water operators’.
Source: OECD (2015[14]), The Governance of Water Regulators, https://dx.doi.org/10.1787/9789264231092-en.
As well as expanding the scope of SUNASS actions, Legislative Decree No. 1280 establishes new functions for the regulator designed to address weaknesses in the WSS sector. These include: determining the geographical area for which providers would be responsible for delivering WSS services and sanctioning companies in case of non-compliance; evaluating the performance of EPS to determine whether they need to enter the RAT under OTASS; determining and approving the efficient scale of WSS service delivery to determine whether WSS service providers should be merged.
SUNASS also supervises companies’ compliance with legal or technical obligations in relation to corporate governance and that they approve and execute the instruments established by the Framework Law and its Regulations, such as the Code of Good Corporate Governance. This also includes verifying that the powers and responsibilities are correctly assigned between the board of directors, the general management, its shareholders (municipalities), those who temporarily exercise the right of property (mayors or their representatives) and other interested parties; as well as that these relationships are clear, transparent, explicit and objective.
The regulator’s strategic framework
SUNASS operates within the framework of an Organisational Strategic Plan (Plan Estratégico Institucional, PEI) 2017‑22 that sets out five strategic objectives and associated goals. The strategic objectives are established by a special working group selected by the board, in line with the Guide for Institutional Planning issued by the National Centre for Strategic Planning (Centro Nacional de Planeamiento Estratégico, CEPLAN). The PEI was approved in December 2017 by a Resolution of the Board of Directors and the extension of the term to the year 2022 was approved by Resolution of the Board of Directors in April 2019. SUNASS revised and modified the PEI for the period 2020-24 in 2019. The strategic objectives are translated into an annual operational plan which lists all operational activities, providing coherence between day-to-day activities and the overarching strategic plan.
The current objectives form a fairly balanced strategic framework with a focus on external impact and outcomes (objectives 1-3 on quality of service, equity and the rational and sustainable use of water) (Table 4.2). Objective 5 (to strengthen disaster risk management) is a requirement set by CEPLAN6 rules and is required in strategic frameworks of all public bodies in Peru. The plan establishes indicators, baselines and measurable targets, and progress is monitored and reported to CEPLAN annually.
Table 4.2. SUNASS strategic objectives, according to the OECD input-process-output-outcome framework
Note: The OECD Framework for Regulatory Policy Evaluation uses an input-process-output-outcome logic, which breaks down the regulatory process into a sequence of discrete EPs. The logic is flexible and can be applied both to evaluate practices to improve regulatory policy in general and to evaluate regulatory policy in specific sectors, based on the identification of relevant strategic objectives.
Source: OECD analysis based on SUNASS’ strategic objectives.
Funding of the regulator
The reform of SUNASS’ mandate dramatically changed the regulator’s financing model, making government budget its majority source of financing. Prior to the expansion of its functions to rural areas, SUNASS was funded solely from the EPs that it regulated, collecting a maximum of 1% of income after sales taxes. While this funding scheme represented a strength that contributed to the independence of the regulator (OECD, 2016[28]), it was already inadequate to carry out its functions fully, as water utilities in Peru tend to be small public agencies with low business income. The regulator is now funded by a mix of fees and government funds, with government funds providing the majority of the budget. In order to cover the expansion of supervision to rural WSS services, in 2019, a Supreme Decree allocated PEN 70 million to SUNASS from the MVCS, after approval by the Ministry of Economy and Finance. The income from regulated entities therefore represents just 30% of its PEN 100 million annual budget. These financing arrangements set SUNASS apart from practice for water regulators internationally (Figure 4.6): data from the OECD Database on the Governance of Sector Regulators show that only 15% of water regulators receive funding from a combination of fees and budget appropriations (Casullo, Durand and Cavassini, 2019[29]).
Figure 4.6. Regulators funded through budget appropriations, fees or both
By sector, percentage of all answers, all countries
Note: The figure reflects the answers of regulators included in the 2018 survey on the governance of sector regulators; Peruvian regulators/SUNASS are not included in the sample.
Source: OECD (2018[30]), Database on the Governance of Sector Regulators, OECD, Paris, in Casullo, L., A. Durand and F. Cavassini (2019[29]). “The 2018 Indicators on the Governance of Sector Regulators - Part of the Product Market Regulation (PMR) Survey”, https://dx.doi.org/10.1787/a0a28908-en.
Co-ordination of SUNASS with other actors
The picture is mixed with regards to co-ordination with public sector actors: some relationships are institutionalised but co-ordination with other regulators in the sector appears weak. SUNASS has signed inter-institutional co‑operation agreements with the Ministry of the Environment (MINAM) and the National Water Authority (ANA), through which it carries out activities and meetings on topics of common interest. In 2020, SUNASS entered an agreement with the Ministry of Development and Social Inclusion (MIDIS), DIGESA, the MVCS and MEF to implement multi-sectoral collaboration through its regional offices with regard to levels of residual chlorine content in reservoirs in small towns. Aside from these formal arrangements, co-ordination with sector agencies, in particular the Vice Ministry of Construction and Sanitation (VMCS) and its national urban and rural programmes, and the Technical Agency for the Administration of Sanitation Services (OTASS), is carried out through meetings to discuss and co-ordinate on specific issues, such as the corporate governance of the EPs. SUNASS generally participates in and contributes to consultations on proposed legislation, legislative amendments or related regulations, but there have been occasions where its opinions have not been sought. For example, a recent modification to Legislative Decree No. 1280 (DU 011-2020) was published without prior consultation with SUNASS.
SUNASS shares relevant information with other regulators and state bodies – sometimes systemically, sometimes ad hoc – but co-ordination does not appear to extend beyond this. For example:
1. SUNASS monitoring information, indicators and evaluations of EPs are sent to OTASS as well as to the General Directorate of the General Office of Statistics and Information.
2. SUNASS monitoring and recommendations reports on water suppliers in small and rural cities are systematically sent to municipalities and copied to the MVCS Citizen Service Centres (CACs), in order to improve the provision of services in the interventions carried out by the CACs.
3. SUNASS sends the results of water samples analysis from its monitoring activities to the National and Regional Health Authority.
4. ANA has requested from SUNASS information on the analysis of water samples taken upstream of drinking water treatment plants and at the exit of wells.
5. MINAM periodically requests information related to wastewater treatment in water companies, which SUNASS provides.
A lack of institutionalised co-ordination is a common shortcoming among water regulators but improvement in this area would increase the clarity and legitimacy of the regulatory framework. Among the 34 water regulators surveyed for The Governance of Water Regulators report (OECD, 2015[14]), co‑ordination with entities with related responsibilities was mainly pursued on an ad hoc basis rather than through systematic and institutionalised mechanisms. Co-ordination will be particularly important as SUNASS expands its functions into rural areas: building relationships and co-ordinating with other public agencies and ministries that are active in the rural sector with whom it has not needed to interact before. For example, the Ministry of Development and Social Inclusion has responsibilities for improving sanitation services in rural areas, alongside the MVCS. The Modernisation of Public Management rule, overseen by the PCM, includes inter-institutional co-ordination as one of its pillars; however, SUNASS reports that this has not had benefitted its role as a regulator.
Good regulatory practices
SUNASS, along with other economic regulators in Peru, has made steady progress on good regulatory practices such as the use of regulatory impact assessments (RIAs) and administrative simplification, and could strengthen its performance in this area through a renewed focus on co-ordinating with other public bodies involved in the regulatory space (e.g. on inspections) and its stakeholder engagement processes. SUNASS is currently designing the process for the systematic use of RIAs. This will improve the evaluation of draft regulation that at present relies primarily on a limited approach to cost-benefit analysis. The practices of Peruvian economic regulators on transparency and accountability are also more advanced compared to obligations in the central government (OECD, 2016[28])), although there are opportunities for further improvement
Regulatory activities, whether for tariff regulation or quality standards enforcement, are confronted with behavioural and cultural barriers in Peru. There is a widespread unwillingness to pay for water in Peru (as in many countries) and the regulator encounters significant resistance within the tariff-setting process. As a result, in general, tariffs are set at levels that are far from full cost recovery. Furthermore, the high level of informality in Peru contributes to a situation whereby people are less likely to pay for water. What constitutes “good quality” water also differs between official standards and the views of local populations. For example, whereas SUNASS tracks the proportion of chlorinated water as an indicator of quality, local populations sometimes oppose treated water on grounds of taste.
In response, SUNASS alongside the international donor community has undertaken activities to educate communities on the necessity of tariffs and the importance of treated drinking water for health. Following good regulatory practices for stakeholder engagement and applying behavioural insights could supplement and reinforce these efforts.
Inspections and enforcement
Operational co-ordination with other public agencies on inspections could be improved. Inspections are an important function of SUNASS that requires effective co-ordination with other public bodies that inspect for different policy objectives, such as environmental inspections by OEFA and the DGAA (the environmental inspection body for WSS) of the MVCS and public health inspections by MINSA through DIGESA. In line with the principles identified in the OECD Regulatory Enforcement and Inspections Toolkit, co-ordination and, where needed, consolidation of inspections can ensure better use of public resources, minimise the burden on regulated entities and improve compliance, but there needs to be a clear authority for co-ordination to remove uncertainty about the legality of any arrangements. Currently, there are no structured mechanisms in place to co-ordinate these functions with other public bodies.
The expansion of SUNASS’ responsibilities to cover rural areas could pose a challenge for its inspections and enforcement function, given the relatively resource-intensive nature of the work in terms of personnel. This further strengthens the need for close co-ordination and co-operation with other public bodies with inspection functions in order to promote efficiency and effectiveness. Furthermore, in a context of financial constraints, strengthening good practices such as prioritisation, using risk-based approaches and outcome-focused inspections would also help to carry out inspection functions efficiently and effectively (see OECD (2018[31])). The regulator is aware of the challenge and has started taking a number of actions including, for example, carrying out over 700 visits to ATMs to provide technical assistance.
Stakeholder engagement
Engagement with regulated entities and other stakeholders is provided for under legislation but the process is not leading to the expected results in terms of quality of relationships. Tariff setting and any reforms of the regulatory framework are subject to stakeholder consultation, with different processes followed for each. SUNASS advertises its public hearings as well as the elections for its user councils through several channels, including traditional media (radio, television, written press, flyers), its website, social media, newsletters, emails and EPs websites. As with other economic regulators in Peru, SUNASS prepares a matrix that assembles stakeholders’ comments. For example, for proposals for changes to regulations, this matrix includes: the regulation under consultation; the proposed modifications; the name of the stakeholders providing comments; the specific comments, opinions or point of view of the stakeholders; and the evaluation of the regulator regarding these comments which includes whether and how the comment will be considered.
Consultation on regulations: SUNASS carries out public consultations when developing regulations. In the first instance, SUNASS uses public consultation to collect evidence to correctly identify the problem to be solved through the intervention of the regulator. SUNASS then invites comments from stakeholders on any proposed regulations. All comments are published and responded to through the matrix that is available on the SUNASS website.
Consultation on tariffs (tariff approval procedure): Public hearings for tariffs have been carried out in co-ordination with the 50 urban-based EPs since 2005. SUNASS presents the EPs with a proposal of tariffs, management goals and an investment plan for each five-year regulatory period. As part of this tariff approval procedure, the regulator organises public hearings to enable the participation of the EPs, local authorities, professional associations, user councils, the media and civil society representatives, among others. Public hearings aim to provide information on the issues regarding WSS services, the foreseen solutions and their impact on tariffs. The results of consultation with regulated entities and the views of the participants in the consultation process are all made public. Through these hearings, SUNASS collects comments and proposals which inform the tariff levels, the management goals and the investment plan. These are then included in the Final Tariff Study which is intended to explain how the comments and proposals made by civil society were taken into account, or why they were not.
SUNASS does not yet carry out public consultations in smaller urban areas (the regulatory scheme is currently being designed).
SUNASS does not carry out public consultations in rural areas, where household fees are set by the communities.
The SUNASS reports that the organisation of public hearings as part of the tariff approval procedure have resulted in several benefits, including:
Better-informed populations on the situation of their EPs and the proposals for improvements in sanitation services for the subsequent five-year period.
Strengthened EPs-SUNASS-user interaction as a result of communications campaigns around the tariff study projects.
Reduction of negative reactions to or social conflicts in relation to proposals for tariff increases.
However, reports of poor communication around tariff announcements and frequent resistance to tariffs suggest that engagement processes could benefit from some redesign, perhaps informed by behavioural insights SUNASS could try to reach out to those who are usually least represented in the rule-making process, proactively searching to include those who are either “able but unwilling” or “willing but unable” to participate and make every effort to remove any obstacles to their participation (in line with OECD Best Practice Principles on Stakeholder Engagement). Behavioural insights could also be used to support better-informed stakeholder engagement. Surveys and focus groups can provide a broad overview of user trends and some ideas on preferences. However, they can be fraught with biases depending on the framing of the questions, their sequencing and the words chosen. Experiments that control for these biases can provide a better sense of the preferences of users when taking regulatory decisions (OECD, 2018[32]).
Performance monitoring and reporting
Monitoring and reporting on the performance of the sector
SUNASS is making steady progress in building up a holistic view of the performance of the sector; work remains to close the outstanding gaps. SUNASS reports on the performance of utilities and selected community organisations (EPs, community organisations ) using benchmarking tools but it does not report on municipal providers and specialised operators (prestadores municipals, operadores especializados). For the EPs, SUNASS collates indicators in four categories (access to services, quality of service, financial and environmental sustainability, governance and governance and disaster risk management) in order to benchmark operators with the aim of improving the performance of EPs and sharing good practices among them. SUNASS also benchmarks providers of water and sanitation services in rural areas. Different benchmarking indicators are used for community organisations. SUNASS uses the information submitted by ATMs through the online system as a way to identify which community organisations will be monitored. SUNASS may also choose to monitor certain community organisations in cases where it wants to verify that previous recommendations have been implemented or following complaints about service delivery. It publishes the data and reports on the performance of EPs and the performance of selected community organisations on its website.
Table 4.3. Benchmarking indicators to measure utility performance
Source: SUNASS (2018[7]), Benchmarking Regulatorio de las empresas prestadoras, https://cdn.www.gob.pe/uploads/document/file/1098028/Benchmarking_regulatorio_de_las_EPS_2018.pdf; OECD (2019[12]), OECD Survey on Water Governance in Peru. .
The recently introduced system of data collection for WSS operators in rural areas is starting to build up a holistic view of WSS services in the country for the first time. This new, systematic data on the WSS sector should be a valuable input for policymaking and the overall governance of the sector. It can also provide essential information for decisions regarding investments and monitoring their impact on the quality of services. The utility of this information rests on its accuracy and will be defined by the regulator’s approach and effectiveness in collating and verifying the data.
While SUNASS carries out market surveillance (e.g. monitoring inflation rates adjustment, monitoring the use of investment funds and financial reserves), it does not appear to carry out horizon scanning exercises to identify major issues that may affect the sector in the medium to long terms.
Monitoring and reporting on the performance of SUNASS
While SUNASS is not required to so do so by law, it prepares an annual report and reports on its performance to a number of central government entities; these efforts could be continued in favour of accessible and transparent reporting overall. While there is no legislative requirement for the regulator to produce a report on its activities on a regular basis, SUNASS publishes an annual report. The annual report is the public document through which the actions and interventions of the regulator and how they affect the provision of WSS services are reported. SUNASS reports relevant information to different institutions of the central government, according to the regulatory framework (OECD, 2016[28]). For instance, it reports the implementation of recommendations to the General Audit Office of the Republic (Contraloría General de la República), budget execution to the Ministry of Economy and Finance, strategic and operational plans and performance indicators to the PCM, among others. It also responds to information requests and enquiries from Congress on a regular basis. However, there is no obligation to provide performance reports to Congress on a systematic basis. It is important to be accountable to external public powers that could evaluate the regulator’s performance as a whole. Better reporting on SUNASS performance could also go some way to improving understanding of the value of its role (Box 4.4).
Its annual reports contain rich information on outcomes for the sector (e.g. indicators of water quality and quality of service), SUNASS activities (e.g. numbers of people reached through educational campaigns to promote the responsible use of water) and some indicators on the performance of the regulator itself (e.g. on the number of days taken for an appeal to be processed by SUNASS’ dispute resolution mechanism [Tribunal Administrativo de Solución de Reclamos de Usuarios de Servicios de Saneamiento, TRASS] or outcomes of cases where SUNASS’ decisions have been challenged. Other useful indicators of the regulator’s performance could include:
Efficiency and effectiveness of inputs (e.g. organisational and financial performance).
Output from regulatory activity (e.g. effectiveness of regulatory decisions and reaching out to citizens/users).
Direct outcome of regulatory decisions (e.g. compliance with the regulator’s decisions).
Annual reports could be further strengthened by reporting on progress against the objectives set out in the strategic plan (PEI).
Box 4.4. Scotland’s Outputs Monitoring Group
The Outputs Monitoring Group (OMG) is chaired by the Scottish Government and comprises senior (executive level) representatives from the Drinking Water Quality Regulator, the Scottish Environmental Protection Agency, the Water Industry Commission (the economic regulator), Consumer Futures Unit (the customer representative body) and Scottish Water.
The primary function of the group, which meets quarterly, is to oversee the delivery of the investment objectives set by Scottish ministers for the regulatory period. These objectives set out high-level outcomes for the industry: such as meeting defined drinking water quality standards, environmental performance targets and customer service standards.
As part of the regulatory process, these high-level objectives have been translated, prior to the start of the regulatory period, into an agreed set of programme outputs, for example, the “number of water treatment works to be improved” or “environmental performance assessments to be carried out”. In turn, these output programmes are linked to an agreed list of projects – termed the Technical Expression – which details the investment works and studies that will deliver the output programmes. This provides the OMG with clarity on the projects that will deliver the output programmes and the ministerial objectives.
Going into the regulatory period, Scottish Water provides a baseline delivery plan for the regulatory period which details the expected profile of completion of these output programmes. This then allows the OMG to monitor output delivery performance against Scottish Waters’ planned delivery profile.
The OMG owns and maintains this agreed baseline of outputs: ensuring that any changes arising from study outputs or new information during the period are incorporated into the baseline in a controlled and transparent way. This is achieved through a well-defined change mechanism that requires regulatory sign-off of changes.
The preparation of reports and information for the OMG is carried out by the OMG working group (OMGWG) which comprises senior representatives from the same set of stakeholders as OMG. The OMGWG also meets quarterly, a month ahead of the OMG meeting, and focuses on the preparation of accurate reports for the OMG, as well as overseeing the change mechanism.
At the OMG meetings, based on the information provided by the OMGWG, output delivery progress across the investment programme is discussed and any shortfalls against the targets are highlighted. The OMG reviews progress at five key delivery milestones – such as “financial approval” and “regulatory sign-off of output delivery”. Scottish Water is required to provide explanations in respect of any shortfall against a milestone target: highlighting what corrective action is underway. This provides a high degree of transparency in respect of the delivery of the outputs for which customers have paid.
The OMG produces a quarterly report on progress which is published on the Scottish Government website. At the end of the regulatory control period, the group also provides a final report that details progress with the delivery of the agreed set of outputs and the ministerial objectives.
Source: Information provided by the Water Industry Commission of Scotland (October 2016).
Ways forward to enhance the governance and performance of the economic regulator
Monitor the evolving role and objectives of SUNASS
The significant expansion of functions raises important questions about the governance of SUNASS, in terms of capacity, competencies and powers, which will need to evolve in step with this change. For example, it is likely that the regulator will have to take on a stronger capacity-building role, given the fragmented water industry structure in Peru that it now oversees (OECD, 2015[14]). While SUNASS has made important steps in implementing its new role and functions, these efforts will require consistent follow-up, investment and monitoring going forward.
While SUNASS is an independent regulator, its vision and strategic goals should be aligned with the national policy set by the government. SUNASS strategic objectives are designed to be in line with the objectives of the PCM, the MVCS and MINSA. It assesses that there are no overlaps or conflicting objectives with these other actors in the current strategic plan but it remains a perennial challenge to seek coherence with all actors. Some goals in the current framework do not appear to be aligned with national policy goals: for example, the plan includes the goal that 57% of the urban population would have access to chlorinated water (agua segura) by 2019, up from a baseline of 54% in 2015. These targets do not seem to be in line with the ambition of the national policy to achieve universal access to WSS in urban areas by 2021.
The reform of SUNASS objectives and scope of action (to include small cities and rural areas) must be approached through an explicit and proactive strategy of institutional transformation. Such an agenda will include a review of the capacity, competencies and powers of SUNASS and how each of these will need to evolve in step with the expansion of its functions and new objectives. The identification of necessary changes to the resources, structure and ways of working of the agency will need to be accompanied by a new identity, vision and mission for SUNASS, wich provides a common sense of purpose for staff internally and communicates a clear message to external stakeholders. As such, coherence must continue to be sought between SUNASS’ vision and strategic goals and those of other public bodies in the sector through careful co-ordination and consultation (e.g. SUNASS in co-operation with other relevant actors, including CEPLAN) and ensure transparent monitoring and reporting around the strategic plan (PEI), for example through the annual report.
The in-depth review and modernisation of the institution could be reflected in an updated strategic framework (PEI), priority action and performance indicators, which can be used to communicate to government and stakeholders progress in implementing the reform. SUNASS’ new role will also require the institutionalisation of co-ordination with other actors in the sector to increase the clarity and legitimacy of the regulatory framework. Formal co-ordination mechanisms could include memoranda of understanding (MoUs) or similar agreements.
In order to closely monitor the process of expanding SUNASS’ functions to small cities and rural areas and communicate the results to the government, the following would be needed:
Review capacity, competencies and powers, which will need to evolve in step with the expansion of functions. For example, if capacity building becomes a greater focus on work, ensure that SUNASS has the necessary competencies and powers to carry out these tasks.
Adopt a risk-based approach to regulation that recognises that the hands-on supervision of all operators may be impracticable, specifically those operating at a very small scale.
Monitor its performance in carrying out its new functions, in order to provide feedback on the system and whether the new regulatory approach is meeting objectives for the sector: identify what is working well as well as areas that may need adjustment.
Ensure adequate and predictable resourcing of SUNASS
Uncertainty over the sustainability of government funding is an additional challenge that SUNASS must manage. Water regulators’ reliance on funding from government funding can potentially undermine their independence, although there are a number of mechanisms that can be put in place to mitigate this risk. For example, one mechanism to bolster independence can be multi-annual budgeting and Peru follows this good practice of establishing multi-annual budget estimates. However, recent fiscal consolidation efforts have resulted in SUNASS receiving less funding than expected (as is the case for other Peruvian public sector bodies that rely on transfers from the Treasury). This uncertainty in financing risks undermining the regulator’s ability to fully carry out its functions.
Advocating for budget-setting according to an estimation of the costs related to the regulation and supervision of the sector, rather than on available resources, could ensure sufficient resources. This could strengthen the regulator’s case for more resources and flexibility. The Peruvian national administration implements a performance-based budgeting system whereby budgets are to be aligned with the goals and objectives of the institution and budget execution is monitored in parallel with progress in performance indicators. In 2018, the Commission for Consumer Defence and Regulators of Public Utilities (Comisión Defensa del Consumidor y Organismos Reguladores de los Servicios Públicos) discussed and approved raising the cap on fees from regulated entities from 1% to 2% of income after sales taxes but the decision has not passed through Congress.
The review of the impact of the new functions on the capacity and competencies of SUNASS should at least take into account the following aspects: i) internal structure and organisation of technical teams; ii) competencies and professional profiles among technical staff; iii) staffing plan including recruitment and training to existing staff; iv) use of external experts and providers, such as for inspections and supervision activities; v) new financial needs. The review of SUNASS’ funding scheme will ensure that the regulator can carry out its functions and reach its policy objectives effectively, while preserving its independence, in order to:
Advocate for budget-setting according to an estimation of the costs related to the regulation and supervision of the sector, rather than available resources.
Continue the good practice of multi-annual budgeting.
Ensure new financing arrangements with the executive (MEF, PCM) are transparent.
Continue to strengthen good regulatory practices at SUNASS
Peru’s regulators are advanced in the use of good regulatory practices and SUNASS has undertaken significant steps to develop and fully implement the systematic use of regulatory impact assessment (RIA). The regulator can build on this work to continue improving transparency and engagement with all stakeholders. Immediate steps can include the publication of the actual costs of service provision as an initial step to addressing resistance to tariff increases and enhancing the engagement of user councils, building on the experience of other Peruvian economic regulators. Moreover, SUNASS can seek to improve the accessibility and readability of its stakeholder engagement and outreach by using innovative approaches such as behavioural insights in tariff setting and other consultation processes and by using plain language and appropriate communications materials adapted to a range of audiences, especially non-technical ones. Some options to strengthen good regulatory practices are described below:
Continue to develop and fully implement the process for the systematic use of RIA.
Explore ways to better manage stakeholder expectations around tariffs.
Publish the actual costs of service provision as an initial step to addressing resistance to tariff increases.
Review stakeholder engagement processes: explore using innovative approaches such as behavioural insights in tariff setting and other consultation processes.
Enhance engagement with user councils to improve understanding of the issues and foster a willingness to pay the necessary price for water services.
Build on existing strong transparency practices to include the use of plain language and appropriate communications materials adapted to a range of audiences, especially non-technical ones. SUNASS must ensure that the information it publishes can be easily understood by its wide range of stakeholders. This is particularly important for its engagement with new regulated entities and stakeholder groups in rural areas, i.e. JASS, which were not previously under its supervision.
Improve operational co-ordination with other public agencies on inspections: review whether there are opportunities to consolidate inspections to ensure better use of public resources, minimise the burden on regulated entities and improve compliance; ensure that there is clear authority for co‑ordination to remove uncertainty about the legality of any arrangements.
Improve performance monitoring of WSS services provision by SUNASS
The collection and analysis of data are key to improve the performance of the WSS sector. SUNASS could design a staged strategy for data collection and analysis, given the need for building capacity for data collection and reporting by EPs, municipalities and JASS, and for the creation and uptake of digitised data collection systems that are co-ordinated across the public sector. The staged strategy will need to be designed with representatives of decentralised actors and central government bodies, with both short- and medium-term objectives. A staged approach differentiated between regions may be included so as to focus attention on specific geographic zones and learn from this experience before upscaling to cover the entire country. The strategy will aim to keep burden on actors required to submit data as low as possible, by streamlining forms, reducing information requests and digitising submission for a live quality check when submitting data. The draft forms and systems could be designed by working groups that include representatives of EPs, municipalities and JASS, to test feasibility.
Data collected from the sector will be a key ingredient for SUNASS reporting on the performance of the sector and the implementation of the reform. This data and indicators will also need to be complemented with indicators on the performance of the regulator, to be included in the updated PEI, for a comprehensive vision of its performance. Reporting on the regulator’s performance can be further systematised, including through greater engagement with Congress around the annual report.
Options to improve performance monitoring of WSS services provision by SUNASS are described below:
Build capacity for data collection and reporting by EPs, municipalities and JASS.
Carry out horizon scanning exercises to identify major issues that may affect the sector in the medium to long terms.
Systematise reporting on the regulator’s own performance to improve accountability and clarify roles in the sector (e.g. greater engagement with Congress around the annual report). It is important to be accountable to external public powers, which could evaluate the regulator’s performance as a whole. Better reporting on SUNASS’ performance could also go some way to improving understanding of the value of its role.
Use data and indicators to assess and report on SUNASS’ own performance in terms of:
Efficiency and effectiveness of inputs (e.g. organisational and financial performance).
Quality of processes for regulatory activity (e.g. accuracy, timeliness, accessibility of regulatory decisions, use of evidence and data in taking decisions).
Output from regulatory activity (e.g. effectiveness of regulatory decisions and reaching out to citizens/users).
Direct outcome of regulatory decisions (e.g. compliance with the regulator’s decisions).
Build links with other economic regulators in Peru and internationally to exchange on institutional and organisational challenges and share best practice.
References
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Notes
← 1. Articles 6 and 7 of Legislative Decree No. 1280; Articles 5 and 7 of Supreme Decree No. 019-2017-VIVIENDA.
← 2. Legislative Decree No. 1280.
← 3. Supreme Decree No. 006-2019-VIVIENDA.
← 4. Numeral 3, sub-section 7.1 of Article 7 of Supreme Decree No. 019-2017-VIVIENDA on the regulation of the Framework Law of Management and Delivery of Sanitation Services.
← 5. Each JASS is an association that is responsible for the provision of water and sanitation services.
← 6. CEPLAN is a specialised technical agency under the PCM that leads the National Strategic Planning System.