2006_06_Chilean water industry

Gobierno de ChileGobierno de Chile

SEP SEP (State Enterprises System)(State Enterprises System)

CHILEAN WATER INDUSTRYCHILEAN WATER INDUSTRY

20062006

Carlos Mladinic SEP

The Chilean Water Industry

The Chilean Water Industry

13 Regional State-owned

and -managed entities,

dependent on the

Ministry of Public Works

(MOP)

13Corporation

swholly-

owned by the State

Private capital

allowed to enter into the ownership of

these Corporations

Before 1990 1990 1998History

PRIVATIZATION 0F WATER INDUSTRY

The Government policy is,to get private capital

into water companies ownership, in order to secure the financial resources and experience

which allow to implement the investments program, above all for sewage treatment

GOAL

2006-2010:

US$749.3 millions

2001-2005:

U$698.6 milions

1999-2000:

US$409.6 millions

INVESTMENT REQUIREMENTS 1999-2010

SEWAGE TREATMENT

INVESTMENT REQUIREMENTS 1999-2010

SEWAGE TREATMENT

Total required Investment

1999-2010: US $ 1.858 Millions.

PRIVATIZATION OF THE WATER INDUSTRY

Get private capital for companiesobtain financial resources for the Stateobtain world class operators to run water businessGet world class know-how and technology in the industryTreat 100% of sewage waters of the country.

SPECIFIC GOALS

MECHANISMS TO INTRODUCE PRIVATE CAPITAL INTO WATER INDUSTRY

SALE OF SHARE

B.O.T.

TRANSFER OF EXPLOTATION

RIGHT OF 30 YEARS

SALE OF

CONCESION

COMPANY

The results

ResultsFocusing State Resources

State Budget

Sectors withbiggersocialneeds

Sectors without privatefinancing

SocialPriorities

The resultsFocusing State Resources

State Budget

Diminish expenditure in SOEs increasing

capacity for social budget

The State concentrates as regulator and watchdog

Is not paying for big investments in SOEs

The resultsTreating sewage, social benefits.

One of the main pollution problem of will be solved.

Improvement of the Public Health, diminishing children mortality and diseases

Opening and consolidation of international markets, complying with ISO 9000 & ISO 14000 norms.

Recuperation of agriculture soils

Increasing water irrigation availability (in an arid country).

Compliance with international treaties

THE RESULTS

Budget has received more than US $ 1.418 millions in the process of introducing private capital in water industry

Individual water companies have received in excess of US $ 577 millions as capital injection.

Privatised utilities have increased their profits, which make that state’s profits’ out of shareholding are also increasing

The calendar of water and sewage supply has been fully accomplished

Sewage treatment calendar is advanced.on schedule.

The resultsIntroducing private management

PRIVATE OWNERSHIP

Specialised Business

Know How

Introducing new

technologies

Essel

ANSM

Essbio

A. de la Araucanía

Essal

A. Patagonia de Aysen

A. de Magallanes

A. del Altiplano

A. de Antofagasta

A. Chañar

A. del Valle

Esval

A. Andinas

II

III

IV

I

V

RM

VI

IX

VII

VIII

XII

XI

X

COMPANY AÑO BUYER % CUSTOMERA. Andinas 1999 Agbar 35,8% 35,8%ANSM 2001 Thames Water 4,7%Essbio-Essel 2000 Thames Water 15,0% 19,7%A. del Valle 2003 Grupo Consorcio 4,1%Esval 1998 Grupo Consorcio 12,7% 16,8%A. del Altiplano 2004 Grupo Solari 3,1%A. de la Araucanía 2004 Grupo Solari 4,4%A. de Magallanes 2004 Grupo Solari 1,1% 8,6%Essal 1999 Iberdrola 3,9% 3,9%A. de Antofagasta 2003 Grupo Luksic 3,2% 3,2%A. Chañar 2003 Icafal-Hidrosan-Vecta 1,9%A. Patagonia de Aysen 2002 Icafal-Hidrosan-Vecta 0,6% 2,5%

Transfer of Explotation of 30 yearsSale of Share

Chilean Water Industry

Regulatory Framework


Modern and stable regulatory framework based on international best practices.

The regulatory structure is established by Law, and the sector is supervised by the “Superintendencia de Servicios Sanitarios” (Superintendence of Water Utilities).

The current framework was implemented in the year 1990 and perfected in 1997.

Water utilities are recognized as natural monopolies and regulated as such.

Companies are granted exclusive open-term concessions by geographic area.

Water utilities are regulated as listed companies by the local “Superintendencia de Valores y Seguros” (the Chilean SEC equivalent).


Water Utility services are regulated by the “Superintendencia de Servicios Sanitarios” (Superintendence of Water Utilities).

Water Utility Industry Regulation

SISS

Studies, proposes and supervises

water utility network design standards, construction and

operation

Determines and sets rates

for each company’s services through a technical process

established in the law

Approves development plans and investments for a 15-year forward-

looking timeframe

Interprets the “Ley de Servicios Sanitarios”

(Water Utility Law) and imposes sanctions for

faults


The tariff system has four key pillars on which it is basedTariff System

Efficiency

Transparency

Self-Financing

Fairness

Regulatory Framework Tariff system established by Law.

Tariffs are recalculated every five years.

Tariffs are based on long-term marginal costs for the four-stage productive process of a “model” company, adjusted to guarantee self-financing.

The four productive stages are:

– Drinking Water Production

– Drinking Water Distribution

– Sewage Collection

– Sewage Treatment and Disposal

Water utility companies’ profitability is set by a cost of capital rate calculated according to the Law. The Law assures a minimum return of 7% for the “model” company .

Tariffs are adjusted for inflation and currency depreciation effects each time such variations imply a change of at least 3% in the tariff.

Tariff System


Tariff Process

2 months

5 months

4 months

1 month

1

1

2

3

3-4

4

5

2-3

Terms of calculation published by SISSCompany files observations to terms

Calculations are compared

Each party independently calculates tariffs

Negotiation period

New tariffs are established

New tariffs take effect

12 Months

2

4

3

5


Who determines tariffs?

SISS Study Company Study

Discrepancies

Negotiation

Tariff Decree

Expert Committee

¿Consensus? YesNo


At the beginning of each tariff process, the Company and the SISS agree on a list of at least three Experts.

If no tariff agreement is reached by the Company and the SISS within the established time frame, a three-member Expert Commission is called upon:

–1 designated by the SISS

–1 designated by the Company

–1 designated by the SISS from the previously-agreed-upon list

A list of discrepancies between the parties is submitted to the Commission; this panel the issues a definitive statement with regard to each of the matters.

A tariff decree is issued by the Ministry of Economics per the decisions of the Commission.

Expert Committee

Regulatory Framework No implicit subsidies exist.

Law 18,778 establishes direct subsidies for water consumption and sewage services.

Municipal agencies are authorized to directly cover up to 80% of low-income clients’ monthly bills (of up to 15 m3).

To be eligible for subsidies clients must be up-to-date in their payments, which aids in reducing non-collectables.

Approximately 600,000 families of Chile have assigned subsidies.

Subsidy System

Economy & Finance

2006_06_Chilean water industry