Human Rights and Market Rules in Chile's Water Conflicts: A Call for Structural Changes in Water Policy

Introduction

Chile is a privileged country in terms of water availability due to the immense water reserves in the North and South Ice Camps in the southern regions. However, water is irregularly distributed at the national level: very scarce in the northern Atacama Desert and very abundant in the southern Patagonia, reaching 160,000 m³/habitant/year.

Water access and use in Chile is regulated by the 1981 Water Code, enacted by the military regime1 with “strongly pro-business bias; a code that allowed water property privatization and, for the first time in Chile's history, the separation of land control from water control in order to allow for its unrestrained purchase and sale,”2 transforming it into a market asset. The most critical aspect in the 1981 Water Code is that despite the definition of water as “a national public good,” at the same time it authorized the privatization, granting unlimited water rights for free and in perpetuity. The Code was designed and written by the economic elite and corporations (militars have no skills for it) and approved, with no Congressional discussion, due to closure and the illegality of political parties during the military regime. The legal framework of the Water Code was replicated in the 1982 Mining Code and Electricity Code, both designed by the same economic actors, under the military power. Moreover, the water rights are protected by the 1980 Chilean Political Constitution (Article 24) stating that “the rights of individuals over water, recognized or constituted in accordance with the law, grant their holders their ownership.”

In consequence, once water rights are given to an individual or a company under the Water Code procedures, the State no longer intervenes, and the reallocation of water happens through the “water market,” where private owners of water rights can rent, buy, or sell them, as any other asset. This transaction mechanism favored a high concentration of water ownership in the electric, mining, and agrobusiness export sectors, “the motors of economic national development” in detriment of the majority of the population. Current water conflicts are structurally linked to the application of this Code and the Constitution.

Progressive concentration of water ownership in few hands, the Code rules have resulted in serious water access problems for the population, raising rates and worsening water stress problems and irreversible degradation of watersheds in regions where water is scarce. In the mining sector, water rights are also held by private companies, mostly multinationals, which have accrued rights of surface and ground water in areas of high water scarcity in the north of the country. In the Antofagasta Region for example, mining uses over 1,000 litres per second of surface water and owns almost 100% of the groundwater rights.3 A recent study by the General Water Directorate (DGA)4 concerning the water situation in the country shows an extreme deficit situation in Antofagasta and Atacama. Both regions, according to the DGA, will require optimization of consumption and massive import of water resources. The scarcity situation, affecting the Loa and Copiapo rivers is terminal and will extend to other northern and central watersheds due to the expansion of mining and the foreseen impacts to the area due to climate change.5

Water shortage, water ownership, and water market in northern and central Chile have led to confrontations between indigenous local communities and peasants against mining companies, whose exploitations and ventures are concentrated in arid regions. These conflicts will increase with higher copper prices foreseen and mining expansion is likely to take place, worsening current impacts on the Tarapaca, Antofagasta, and Atacama regions, and perhaps leading to the collapse of the Aymara and Atacameño indigenous communities who have inhabited these fragile areas for centuries. Local tourism in these areas is based on Biodiversity Protected Areas and the notable landscape values of these regions. Likewise, the increased exploitation of surface and ground water resources in central Chile has resulted in the degradation of the most important watersheds, creating a growing tension between the mining and agriculture activity, and between tourism and hydroelectric projects thus causing a shortage of drinking water in rural villages, many of which have to be supplied by water tank trucks in summer and in drought periods. In the south of Chile, the concentration of water ownership by hydroelectric companies in mountain territories has created serious conflicts between power generators and Mapuche/Pehuenche communities. Also, contamination of rivers by pulp and paper plants has severely affected local economies based in tourism, fishing, and marine farming in the coastal areas.

The 1981 Water Code also created a new category of water rights: the consumptive and non-consumptive ones. The legal difference between them is that the consumptive right refers to water consumption without having to return it to the source in order to be then reused by another user.6 This is the case of water rights for irrigation, mining, industrial, and domestic use. The non-consumptive rights are those requested for water use without consumption, as in the case of hydroelectric generation that extracts water and needs to return it to the watershed, without harming existing users downstream. However, legislation is weak in controlling the occurrence of damage to users on the lower parts of the basins and local communities and their economies have been affected.

The Concentration of Water Ownership

In Chile most of the water rights are in the hands of the mining, agribusiness, and energy sectors, all oriented to export activities. While in the northern Arica region, with no mining exploitation until now, there still exists a fragile balance between domestic, mining, industry, and agriculture activities. In the Antofagasta and Atacama regions water use for mining predominates, from the Coquimbo to the Araucania regions, irrigation and hydroelectricity usage dominates, and in Aysen and Magallanes mining also has a relevant usage.7 Water consumption in the different economic sectors experienced a growth of nearly 160% between 1990 and 2002, a trend that continues today.

The mining sector, that concentrates its activities in the arid north with severe water stress, consumed 3.5 million mt³ of water per year at the beginning of the decade, and has continued to increase water extraction thus aggravating the environmental impact, such as drying watersheds, ponds, wetlands, and salt flats deteriorating ecosystems, and generating more desertification. This has affected local and indigenous communities, destroying their agriculture, livestock, and local economies, and causing mass migration to the cities.8 Water consumption by the mining activity in the past has also been a source of border disputes with Bolivia, as in the case of the Silala River.

In the next 25 years, a significant increase (from 66% to 72%) in mining and water consumption is projected and a decrease (4% to 3%) in drinkable water consumption and rural irrigation (14% to 8%) is estimated in Antofagasta. In Atacama, the increase in water consumption by the mining industry is foreseen from 9.8% to 25.4% in the next 25 years, and a decrease (74% to 53%) in drinkable water consumption and 73.7% to 53% in the irrigation activity over the same period.9 A recent study by the Chilean Copper Corporation (COCHILCO), stressed that the Antofagasta and Atacama regions are likely to go through an extreme water deficit by 2025, forcing the mining industry to optimize production processes, use sea water, or import water from other regions of the country.10

COCHILCO has identified eight critical watersheds, concerning water resources where the major mining projects in these regions also operate: Salar del Huasco, Michincha and Coposa water systems in Iquique;11 the Loa River and the Salar de Atacama in Antofagasta;12 the Copiapo and the Huasco rivers in Atacama,13 and the Choapa and Limari rivers14 in the Coquimbo region.15 In those watersheds the major water conflicts in northern Chile also take place. However, no forthcoming solutions to this situation are seen, either coming from public policies or from business management, and mining expansion in the coming years will worsen conflicts those regions. 16

The agriculture sector consumes nearly 85% of all water granted nationwide, accounting for 18.5% of Chilean exports. The agrobusiness exporters come from the private sectors, and their main impacts on water are water pollution by intensive use of pesticides, herbicides, and fertilizers;17 overexploitation of groundwater, with serious impacts on catchment wells that supply rural water associations, which, then, have no access to drinking water, due to the refilling crisis this overexploitation causes.18

In the case of electricity generation, water ownership has been concentrated in large multinational companies such as the Spain/Italy Endesa,19 the U.S. based AES Gener, and the Chilean Colbun (see Table 1). According to DGA, Endesa is the largest holder of water rights in Chile, with 80.4% of the total national water ownership for non-consumption use (equivalent to 6,256 m3/s). This disproportionate concentration of water rights has been proven by the Free Competition Defence Court, which has stated that 90% of such assets is in the hands of only three companies.20 This imbalance needs to be corrected.

Endesa water rights were originally state-owned property, but transferred to the private sector during the military regime. Today, Endesa Interconnected System (SIE) for power generation is the main holder of the Central Interconnected System (SIC), which supplies electricity to 92.4% of the national population. This monopoly in power generation is possible and closely linked to the monopoly of water rights.

Ownership of Water Services

In the field of potable water and sewage, the process of privatization and transnationalization were designed in the military regime and implemented during the Eduardo Frei (1994–1999) and Ricardo Lagos (1999–2005) governments, and include the privatization of water and water companies. This is one of the reasons why drinking water services in Chile are the most expensive water services in Latin America.21

The planning of Chile's water services privatization began, upon the liberalizing recommendations introduced by the World Bank on the basis of two arguments: that water access and coverage problems would be more efficiently faced by the private sector, and that regulation changes and barriers for transnational investments need to be removed to promote competiveness in water services. In this context, after the creation of 13 independent public companies, which supply water and sewage services to 92% of the national population,22 in 1998 Eduardo Frei's government sold 40% of Empresa Sanitaria de Valparaiso (ESVAL) to Anglian Water/Endesa Spain consortium, for US$410 million. In 1999, Frei transferred 43% of the Empresa Metropolitana de Obras Sanitarias (EMOS), and finally 42% of the Empresa Sanitaria del Bio Bio (ESSBIO) to Thames Water in 2000.EscucharLeer fonéticamente With the privatization of these four companies, 73% of Chilean potable water and sewage systems became property of private transnationals. This process was carried without any citizenship consultation and despite the massive rejection to such transfers, specially in the Bio Bio region, where 99.09% of the 136,783 ESSBIO users spoke out against privatization.

The transfer of State water services to private companies (due it for profit goals) immediately caused conflicts due to the increasing rate hikes of water services. According to Consumers' Organization (ODECU), privatization, in its first stage, caused an increase of up to 400% in water rates throughout the country, and a reduction from 25m³ to 17m³ on water consumption (between 1999 and 2002), because households did not have sufficient income to meet rising potable water rates. National Federation of Water Service Workers (FENATRAOS) studies, based on figures from the government Superintendence of Sanitary Services (SISS), show that before privatization (in ten years between 1989 and 1998), rates for drinking water and sewage rose from US$0.18 to US$0.78 per cubic meter.23 And after privatization, the rise for drinking water and sewage rates has reached US$1.10 per cubic meter in Santiago, US$1.60 in La Serena, US$2.07 in Punta Arenas, and US$2.60 in Antofagasta.24 By transferring total investment costs to users, the transnational water companies' profitability kept a steady rise in pace between 14% to 16% return on utility assets, and some of them reaching more than 25% return on their assets in the last few years.25 To solve the problem of water access in low-income sectors after the privatization, the State gave a direct subsidy to families to pay the service, which, in fact, constituted a subsidy to the water companies. In addition to rate increases the privatization of water services provoked 30% jobs loss in the water companies in 1999 and 60% in 2002,26 as a result of massive layoffs. Later in 2004, the Ricardo Lagos Administration ended the first step of public water company privatization, under agreements of 30 to 35 year concessions of public water companies.27 The only exception was the municipal company EMAPA in Maipu, next to Santiago in the Metropolitan Region, and the small rural water associations, which are regulated by a special legal framework which is currently under review.

Recently, as part of a new cycle of private investment in the context of free trade agreements (FTAs), and particularly between Chile and Canada, the large water companies ESBBIO, Aguas del Valle, ESSAM, and ESVAL, have been purchased by the Ontario Teachers Pensions Plan (OTPP), a Canadian teachers pension plan (see Table 2).28 As it is usually the case in the speculative financial sector, the sale of these companies was carried out with huge gains “for the move,” without considering original grant conditions. The worst example is National Financial Consortium, who pocketed three times the value it had paid for ESVAL and Aguas Del Valle, after having been less than five years in the sector.29 In 2009, three companies, Aguas Altiplano, Aguas Araucania, and Aguas Magallanes, were sold by the Solari Group to the international Santander Investments.

The Eduardo Frei Administration (1994–2000) argument to privatize public water services, was the need to integrate private capital into the sector, given the projected increase in water supply and sanitation service needs. But today official data evidence that water services privatization has not improved water access by the population. The government Superintendence of Sanitary Services (SISS) analysis on the 1998–2008 decade shows that with the exception of wastewater treatment, no substantial changes have happened in coverage, neither in water supply nor in the sewage systems, which maintained the high levels achieved in the past by the public water companies (Table 3).

But while private companies appear to be making large investments in wastewater treatment, those who actually finance and support this new infrastructure are the consumers, through a steady rise in rates, and with an additional item for sewage treatment charge in their monthly water and sewer bills. In fact, people pay 100% of wastewater treatment. This case shows clearly that privatization of public water benefit for profit investment funds and private corporations at the expense of the Chilean population. Official data on water company revenues (Table 4) evidence the level of profit private sector obtain from water services rates.

The deregulation and significant transnationalization of water and water services in Chile also resulted in loss of public control over water sources, and over it environmental and economic management giving rise to a governance crisis over this resource. The 2005 partial Water Code reform was insufficient to reverse environmental and social impacts of the Code application. As a consequence of this, today the Chilean State has limited power to deal with the increasing scarcity of water, the severe impacts of it on communities, agriculture, and ecosystems, and insufficient power to manage growing local and regional conflicts on water use and access.

To solve this critical situation, almost ten legislative proposals were presented from 1992 to 2010 to Escucharchange the Water Code and reform article 24 of the Constitution; this reflects the importance and urgency for citizens and their political representatives to solve the problems generated by the Pinochet Constitution and Water Code.30 The large number of bills, and the great diversity of political sectors that have presented them, clearly demonstrate an objective consensus as to the existing problems to water access and water management in Chile, and the limited powers of the State and public policy to meet the challenges of democratic and sustainable management of this resource. But due to the distortions of the binominal system on political representation at Congress, (powerful minority sectors oppose any reform on water policies) and the high quota of votes required for Constitutional changes or property rights reforms, Chilean society only achieved cosmetic amendment on the Water Code in 2005. This reform did not stop watersheds over-use and degradation; did not establish priority uses of water, or environmental conditions for fixing environmental flows and restoring watersheds; and did not include mechanisms to recover the rent of public goods and solve serious water governance conflicts.

Even though the political legitimacy on the reforms proposals, a recent constitutional reform presented to Congress by the Bachelet government in January 2010 (to solve water ungovernance), was frozen in mid March 2010 by the elected government of Sebastian Piñera, a strong supporter of private systems and defender of the military regime legal framework. The political context under this new government nullifies any possibility to achieve political reforms on water management. Moreover, there is a risk for a new agenda for liberalization and deregulation. In fact in June and July 2011, the Piñera government sold Chilean State minority participation on Aguas Andinas, ESVAL, and ESBBIO water services, and is planning to sell its participation in ESSAL next October.

Within this context, Chilean citizens' organizations at local and national levels, have confronted water privatization policies based on four arguments:

1) Water is a common heritage of mankind and nature. Therefore it should be maintained as a common good, and its access and use should be under public management.

From these postulates, citizen organizations have criticized financial sector proposals focused on ownership and management models that transfer water control to business and market whims; that prioritize productive and industrial uses in detriment of local communities subsistence rights and ecosystem protection.31 The Coordinadora de Defensa del Agua y de la Vida, consisting of social, indigenous, unions, church, farmers, consumers, environmental nongovernmental organizations (NGOs) and local community organizations (affected by water overexploitation, shortage, or contamination), was created in 2009 32; and has developed a process of citizen training, discussion, and formulation of water access and watershed protection policies in order to strengthen citizen demands and advance in political influence. Today water recovery for public domain, public education, plus political system reforms, are the main Chilean society demands for a Plesbicite and an Assembly for constitutional changes.

Conclusions

Privatization of water by the application of the 1981 Water Code, in which the Chilean State granted for free and in perpetuity water rights to mining, forestry, agro-industrial, and hydropower companies, actually meant a huge subsidy from all Chileans to those private productive sectors. This award also produced an extreme concentration of water rights ownership and the deprivation of peasant and indigenous communities of this essential component of their territories and local economies. It also meant the loss of water rights for most Chileans, to whom that resource belongs, defined as “a national public good.”

After 30 years of the military regime 1981 Water Code application, and in the context of great imbalance of power existing in Chilean society, the weaknesses in the political binominal representation system have resulted in great difficulty in making legal changes to water access and management laws. Notwithstanding, the diverse reform proposals put forth by Chilean Congress and society in recent decades illustrate the urgent and necessary changes in water policies in Chile.

A human rights focus, in order to democratically solve water conflicts in Chile is needed: this means a legal status of water as a common good, as a human right, and as a basic resource for life that needs to be managed in a public and participatory manner. This implies an extension of the concept of public good (towards co-responsibility and social control), today restricted to the State's responsibility regarding access, quality, and water management. Access to water, its sustainable management, and water security will increasingly drive social demands and political priorities in Chile in the coming years. This will happen within a scenario of increased water conflict and more water restrictions as a result of climate change.