Latin Finance - May/June 2009 - 38

peru water Peru Cleans Up by Lucien Chauvin nadequate water and sewage disposal is generally considered a social issue, but Peru’s government has come to recognize that remedying the problem makes good financial sense. A World Bank environmental study in Peru found that widespread lack of water supply and sanitation services cost the country the equivalent of 1% of GDP, or approximately $1.5 billion annually. Environmental minister Antonio Brack estimates that at least $2 billion is needed to fix this. “It makes sense considering that the social and financial costs of deficient water and sewage systems will amount to more than $10 billion over the next decade,” Brack says. A report released mid-March by the Peruvian Research Institute and Oxfam International on water resources in Bolivia, Ecuador and Peru states that 45 of Peru’s 72 principal rivers were polluted. The Association to Promote National Infrastructure (AFIN) reports that the infrastructure gap for water and sanitation services nationwide tops $4 billion. The government has drawn up a list of 1,600 projects to address the issue, but it needs to carefully evaluate each because water issues in Peru, as in the rest of Latin America, are politically sensitive. The administration’s major outlays so far have been in Lima, home to one-third of Peru’s 28 million people. Approximately 70% of Lima residents have access, although not 24 hours daily, to indoor piped water. The government has offered in concession a water transfer system that will tap lakes in the highlands above Lima to feed into the city’s water system. Brazil’s OAS won the bidding in late 2008 to build the $79 million interconnection system. Also in the final quarter of last year, another Brazilian group, Camargo Correa, was contracted to build a new water treatment plant and install piping to Lima’s northern districts. The project will cost $270 million. I A recently granted $350 million concession to develop the Taboada sewage treatment plant raises hopes that Peru is ready to deal with the politically charged issue of water. Ideological Bent Gonzalo Priale, president of AFIN, which brings together private companies operating public services, says such projects are possible because the government is investing in water. He says the reaction would have been much different if there had been a move to privatize it. “The issue of water is not technical or economic, but ideological. There are groups that say water is a right, which is fine, but they do not consider the fact that sources need to be identified and water needs to treated, transported and paid for,” Priale tells LatinFinance. The 2001-2006 Toledo administration attempted to privatize several water companies but was blocked by local opposition. The privatization process moved furthest in the cities of Huancayo and Piura/Paita, but ended mid-way through the decade. The privately operated water company in Tumbes, on the border with Ecuador, is small, but managers say it could serve as an example. Argentine-Peruvian consortium Aguas de Tumbes aims to increase water service to nearly 90% of households and raise sewage treatment to 90% from 30% in the next two years, bringing investment since 2006 to $28 million. Investment for the coming decade will be around $50 million. Private-public associations are a model that government should follow,” says Santiago Alvarado, general manager of Aguas de Tumbes. Priale agrees, saying that “publicprivate associations, if planned and led properly, are the best way to go.” He cautions, however, that this requires political commitment and leadership. However, minister for housing, construction and sanitation Nidia Vílchez says even public-private associations, the process for which was recently redesigned to make them easier, would be a tough sell. “We need to look at different options, which could include public-private associations and maybe public-public projects, with the central government partnering with local governments,” says Vílchez. “We are going to have a problem, however, because we are moving to elections again, and the issue of water is always controversial.” The administration and business associations are, nevertheless, convinced that Peru’s stable economic and political climate will help attract private investment in water and sanitation. Priale says an extremely positive sign was the lateFebruary concession of a new sewage treatment plant for Lima. Spain’s ACS Servicios, Comunicaciones y Energía won a 25-year concession in late February to build Lima’s first modern sewage treatment plant, known as Taboada. The company has 30 months starting in May to build the plant, which will treat 60% of wastewater. Investment will top $350 million. Lima is currently dumping waste into the Bay of Callao. There were three bidders to build Taboada and Priale says the process should encourage others to bid for a second plant, La Chira. The agency in charge of promoting private investment, ProInversión, will auction La Chira in the third quarter of this year. The cost will be approximately $150 million and the contract will also be for 25 years. Brack says that if the process works as planned, clean up of the bay would be well underway by 2012. The government has series of investment plans to turn the longneglected and polluted beaches along the bay into a Rio de Janeiro-like attraction. LF 38 LATINFINANCE May/June 2009
Latin Finance - May/June 2009

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