Water supply and sanitation in Venezuela

Water supply and sanitation in Venezuela is characterized by insufficient coverage and service quality, despite the country's oil wealth. Increases in coverage in the 1990-2001 period have been limited; more recent coverage figures are not readily available.

Investments in the sector are volatile, mirroring more or less fluctuations in oil prices. The sector is undergoing a process of decentralization since 1991, with uneven progress. A new sector law passed in 2001 has only been partially implemented.

Access

Access to improved water supply and sanitation remains low by regional standards despite substantial oil revenues. While coverage figures vary depending on the source and no recent reliable figures are available, the WHO estimates that in 1998 87% of citizens had access to potable water and 71% had access to sanitation. [ The WHO/UNICEF Joint Monitoring Program's most recent estimates date from 1998 [http://www.wssinfo.org/pdf/country/VEN_wat.pdf JMP Water] and [http://www.wssinfo.org/pdf/country/VEN_san.pdf JMP Sanitation] . The government claims that access to improved sources of water was 90% in 2003. A study for the Corporación Andina de Fomento (CAF), however, estimates based on figures from the 2001 census and HIDROVEN statistics that only 82% of the population had access to an improved source of water in 2001. The same source also quotes a lower coverage figure for sanitation than the WHO (66% vs. 71%).] It has been estimated that in 2001 over 4.2 million people have no access to piped water and 8 million residents did not have access to adequate sanitary facilities. [ CAF 2004, p. 11 ] Rural consumers are particularly under-serviced – only 66% receive potable water and 40% have access to adequate sanitation.

In the period 1990-2001 the share of population with access to water supply and sanitation modestly increased from 81% to 82% for water, and 63% to 66% for sanitation. [ CAF 2004, p. 11 ]

"Source": WHO/UNICEF Joint Monitoring Programme ( [http://www.wssinfo.org/en/welcome.html JMP] /2006). Data for [http://www.wssinfo.org/pdf/country/VEN_wat.pdf water] and [http://www.wssinfo.org/pdf/country/VEN_san.pdf sanitation] based on the Global Water Supply and Sanitation Assessment (2000).

ervice quality

In 2001, the Instituto Nacional de Estadísticas (INE) conducted a study of the quality of water and sanitation services in the country's 335 municipalities and determined that 231 municipalities, approximately 70%, received insufficient water and sanitation services. [ [http://www.ine.gov.ve/ INE] ]

In 2003 about 14% of collected wastewater was treated. [ CAF 2004, p. 14 ]

Water supply is not uniformly continuous and often fails to meet basic drinking water quality standards. As a result many consumers are forced to use alternative and more expensive water sources. For example, it is common in the urban ‘barrios’ in central Venezuela for poor consumers to pay the equivalent of approximately US$1.90 m3 – much more than the tariff for water from the network – for water purchased from a tanker.

Water use

While there are no reliable figures on water use in Venezuela given the low coverage of metering, it has been estimated that average residential water use is about 230 liter/capita/day, [ CAF 2004, p. 15 ] compared to 143 l/c/d in Brazil and 259 l/c/d in Peru.

History and recent developments

Before 1991 a national sate-owned enterprise, the Instituto Nacional de Obras Sanitarias (INOS), was in charge of providing water and sanitation services in Venezuela.

First phase of decentralization (1991-2001)

When INOS was dissolved under the Presidency of Carlos Andrés Pérez the intent was to decentralize service provision to the municipalities that already had the legal responsibility for service provision. However, because of the lack of capacity and resources of most municipalities, service provision in 20 out of the 23 states was temporarily entrusted to the ten regional water companies under the holding company HIDROVEN (see above). In the remaining three states services were provided by the Corporación Venezolana de Guayana (CVG).

The Pérez government also launched a bid for a private concession for the water and sanitation system of Caracas in 1992. However, the bid failed for lack of interested bidders under the proposed conditions.

Beginning in 1993 some states began to play a more active role in the sector. Until 1999 five decentralized water companies were created with a strong presence of the state governments (see above under service provision). This process began in Monagas in 1993 with support from the World Bank. [ For an analysis of the case of Monagas see [http://rru.worldbank.org/Documents/PublicPolicyJournal/166marin.pdf Mariño et al.] ] Some of them also signed management contracts with private operators, which led to an improvement in the performance of the water and sanitation companies.

Between 1994 and 2001 water tariffs throughout the country were increased substantially, so that the ratio of cost recovery for operating costs increased from 27% to 87%. [ CAF 2004, p. 18 ] Such a substantial real tariff increase, which apparently did not cause political turmoil, is unusual in developing countries.

However, the increase in tariffs was not paralleled by improvement in services. According to the IDB sector performance even deteriorated in this period. [ IDB, p.2-3 ]

The decentralization process remained very slow. Some municipalities refused to receive the service responsibility unless systems would be modernized, but a mechanism to finance the necessary investments was lacking. About 80% of the population thus continued to be served by HIDROVEN and its subsidiaries, and the slowness of the decentralization process consolidated institutions that were meant to be only temporary. [ CAF 2004, p.3 and p. 9 ]

New sector law and second phase of decentralization (since 2001)

In December 2001 the Government of Hugo Chávez passed a new Water and Sanitation Law (Ley Orgánica para la Prestación de los Servicios de Agua Potable y Saneamiento). [ [http://www.defensoria.gov.ve/detalle.asp?sec=150408&id=312&plantilla=1 Ley Organica] ] This law was not passed by Parliament. Instead, together with 45 other laws it was passed by the Executive based on an Enabling Act that temporarily gave the President powers to enact laws.

The law aimed at reforming the institutional structure of the sector through:

* the actual transfer of the responsibility for service provision to the municipalities through the creation of decentralized service providers - Business Units or Unidades de Gestión (UGs) – each of which would serve several municipalities;
* the creation of a regulatory agency (Superintendencia Nacional de los Servicios de Agua Potable y de Saneamiento - SUNSAPS), to oversee the implementation of the Law, regulate tariffs and subsidies, and develop a monitoring system for the sector;
* the establishment of a policy making and financing body for the sector (Oficina Nacional para el Desarrollo de los Servicios de Agua Potable y Saneamiento, ONDESAPS), whose primary responsibilities would be the management of a funding mechanism for targeted sector investments, policy formulation and facilitation of the provision of technical assistance to decentralized service providers including guidance on the establishment of decentralized service providers;
* the creation of a national bulk water company to operate and expand regional water infrastructure; and
* the establishment of a sector financing fund to channel public resources to the sector under a consistent policy framework.

According to the law HIDROVEN had to complete the transfer within no more than five years from the publication of the law, i.e. until December 2006. However, the transfer has been very slow and the deadline has not been met. Only in a few regions the decentralization to municipalities has advanced, notably in the State of Guárico where HIDROPAEZ, one of the regional utiliteis under the umbrella of HIDROVEN, is in the process of being replaced by five Business Units. The Government has also completed studies on the formation of business units in the states of Cojedes, Carabobo and Aragua.Furthermore, the national institutions foreseen by the law so far have not been created. The Ministry of Environment and HIDROVEN thus continue to undertake the national-level functions that the 2001 law had assigned to the new institutions.

In February 2003 tariffs were frozen at the national level through an executive decree. This is in direct contradiction with the 2001 law that stipulates the principle of cost recovery and assigns the responsibility to set tariffs to the municipalities. [ CAF 2004, p. 30 ]

Responsibility for water supply and sanitation

Policy and regulation

The Ministry of Environment and Natural Resources is in charge of setting water and sanitation policies in Venezuela, in line with overall government policies. There is a Vice-ministry of Water within the Ministry and as of August 2007 the Vice-Minister was Cristóbal Francisco Ortiz.

HIDROVEN is under the authority of this Ministry. The Ministry of Industry and Commerce sets maximum allowable tariffs in the sector.

ervice provision

Water and sanitation services in Venezuela are provided by the national water company HIDROVEN, five state water companies, the Corporación Venezolana de Guayana (CVG), a few municipalities and community-based organizations.

According to the Municipal Law (Ley Orgánica de Régimen Municipal) service provision is a responsibility of the country's 335 municipalities, which own the water and sanitation infrastructure and in principle also set water and sanitation tariffs. However, in practice only few municipalities have the capacity and resources to fulfill these responsibilities.

HIDROVEN

In practice service provision in most urban areas of Venezuela is the responsibility of one of ten regional utilities ( [http://www.hidroven.gov.ve/HIDROLOGICAS.htm| Empresas Hidrologicas Regionales] ) affiliated with the Compañía Anónima Hidrológica de Venezuela (HIDROVEN), a state-owned enterprise. Each regional utility covers between one and three of the country’s 23 states. [ The geographical coverage or the 10 regional utilities does "not" correspond to the country's nine regions. ] The responsibility for setting tariffs within the maximum levels set by the national government is shared between the regional companies and the municipalities.

Some of the bulk water supply infrastructure which provides water to municipal and state water comapnies is owned directly by HIDROVEN and its affiliated regional companies.

Corporación Venezolana de Guayana

In the region of Guayana, covering the states of Bolivar, Amazonas and Delta Amacuro, water and sanitation services in urban areas are provided by the Corporación Venezolana de Guayana (CVG), a conglomerate with its main activities in mining.

State water companies

There are also five decentralized water companies at the state level:

* Aguas de Monagas,
* [http://www.hidrolara.com.ve/index.asp HIDROLARA] in Lara,
* Aguas de Mérida,
* Aguas de Portuguesa, and
* Aguas de Yaracuy.

The population of these five states is almost 20% of the country's total population.

Municipalities

In some municipalities services are provided through municipal utilities, such as in Aguas de Anaco in Anzoátegui state, Aguas de Capitanejo and Aguas de Zamora in Barinas state, Aguas de Ejido in Mérida state, and Sucre in Miranda state. [ [http://www.cepis.ops-oms.org/eswww/eva2000/venezuela/informe/inf-03.htm WHO] ]

Community-based organizations

Rural water systems are managed by community-based organization, including some cooperatives. In 2003 there were also 20 urban cooperatives that provided water services at the neighborhood level.

The Chávez government encourages such "community experiences", which also include so-called "technical water tables" (Mesas Técnicas de Agua). These are associations involved in monitoring neighborhood-level segments of water supply and sanitation networks, including the identification and reduction of leakage and illegal connections. In 2003 there were about 1,500 such technical water tables in Venezuela. [ [http://www.eraecologica.org/revista_04/era_ecologica_4.htm?dossier.htm~mainFrame La Era Ecológica] ]

Economic efficiency

Non-revenue water is currently 62%, far above the regional average of 40% and higher than its historical level of 55% in 1996 and 59% in 1997. [ WHO ] HIDROVEN suggests illegal connections are a major contributor to poor non-revenue water performance in the country. An inadequate record maintenance and rehabilitation likely also contributes to high losses.

Financial aspects

Tariffs and cost recovery

Revenues usually are not sufficient to meet operating costs - the ratio of revenue to operating costs was estimated at 86% in 2002. This was a substantial increase compared to 27% in 1994, 65% in 1997 and 75% in 2000, despite high levels of inflation. [ CAF 2004, p. 18 ]

Tariff levels vary substantially within Venezuela by a factor of almost 1:10 between regional companies, reflecting differences in the cost of service provision. The highest tariffs are found in Caracas and the lowest in Aguas de Yaracuy and Llanos. [ WHO ]

Billing and collection performance is also inadequate as total sector collection in 2003 amounted for merely 73% of the total billing. In 1998 this coefficient stood at only 62%. [ WHO ] In individual companies the ratio varied greatly between 26% in Yaracuy and 80% in Mérida. Metering coverage was estimated at a national average of 14% 2001.

As mentioned above, tariffs were frozen in February 2003 at the national level, leading to tariff declines in real value because of inflation.

Investment

Historical investment levels

There are no recent data on the level of investments in the sector. In the five years between 1997 and 2001 Venezuela invested US$ 637 million in water and sanitation, or about US$ 127 million annually on average. Investment in the sector has historically been volatile. For example, annual investments fluctuated in the 1986-1998 period between less than US$100 million (in 1989) and US$400 million (in 1992). [ [http://www.cepis.ops-oms.org/eswww/eva2000/venezuela/informe/inf-02.htm WHO] ] To a large extent investment levels mirror fluctuation in oil prices. Investment levels declined from 1986-1989 when oil prices were very low. Investments sky-rocketed in 1992 after oil prices had increased. Then they plummeted again when oil prices decreased during the remainder of the 1990s. The volatility in sector financing has made it difficult to initiate a sustainable medium-term investment program needed to rehabilitate infrastructure and extend access to services.

Planned investment levels

In 2002 the Government adopted an ambitious six-year investment plan for the sector. Under that Plan by the end of 2007 access to potable water and sanitation should both reach 99%, non-revenue water should be reduced to 45%, collection efficiency should increase to 95% and the share of treated wastewater should reach 30%. [ [http://www.hidroven.gov.ve/plan%20sexenal/plan%20sexenal.htm HIDROVEN] ] The plan estimates that a total of US$ 4.77 billion will be required between 2003-2015 for the sector, which implies an average "annual" investment of approximately US$ 500 million, or about four times historic investment levels.

Financing

Before the decentralization of the 1990s investments were almost exclusively financed by central government transfers through a number of different programs, including funds borrowed from international financial institutions and passed on as grants to the service providers. In 2000-2001 state governments and municipalities financed almost half of total investments of US$120m and US$190m respectively. [ HIDROVEN data quoted in CAF 2004, p. 19 ] The capital market makes no contribution to sector financing.

Procedures for Investment Financing

The 2001 sector law calls for the creation of a Financial Assistance Fund (Fondo de Asistencia Financiera - FAF) to be administered by a new entity called ONDESAPS which would coordinate and target investments in the sector (see section on the new sector law above). Until 2007 neither FAF nor ONDESAPS have been created. Neither investment subsidies nor recurrent subsidies, whether paid by the national government or state governments, are linked to performance improvements.

External support

The lack in the availability of counterpart funds, which the government has to provide as part of their obligations to execute projects financed by multilateral loans, has paralyzed various large externally financed projects. [ CAF 2004, p. 20 ]

Interamerican Development Bank

The IDB supports the reform of the water and sanitation sector through a decentralization loan of US$100 million approved in 1998. [ [http://www.iadb.org/projects/Project.cfm?project=VE0111&Language=English IDB] ] The loan also aimed at introducing private sector participation, following the model of management contracts in the state of Monagas and Lara.

Andean Development Corporation

The Andean Development Corporation (Corporación Andina de Fomento, CAF supported the water and sanitation sector through various loans, including five loans approved until 2003 for a total of US$292m, of which three for HIDROCAPITAL, the subsidiary of HIDROVEN serving Caracas. In 2004 CAF approved a US$15m loan to improve water and sanitation services in the Peninsula of La Guajira in Zulia state. [ CAF 2004 operations report for Venezuela [http://www.caf.com/attach/11/default/operaciones-venezuela04.pdf] ] In 2005 the CAF reassigned US$25m from a non-disbursing water and sanitation sector modernization and rehabilitation loan to environmental projects. [ CAF 2005 operations report for Venezuela [http://www.caf.com/attach/11/default/OperacionesporpaísVenezuela2005.pdf] ]

At the beginning of 2008, the CAF announced that it has approved a water and sanitaton loan for the Venezuelan states of Amazonas, Anzoátegui, Aragua, Bolívar, Cojedes, Delta Amacuro, Sucre and Trujillo. The program is estimated to have a total cost of US$72.3m, of which CAF will finance US$50m, the remainder being financed by local counterpart funds. The program will be executed by Hidroven. [ [http://buscador.eluniversal.com/2008/01/09/eco_ava_caf-aprueba-prestamo_09A1292479.shtml El Universal Venezuela] ]

Canadian Development Agency

The Canadian Development Agency CIDA finances a sanitation project for Caracas. [ [http://www2.irc.nl/source/lges/item.php/4982 IRC] ]

ources

* [http://www.hidroven.gov.ve/default2.asp HIDROVEN]
* [http://www.iadb.org/projects/Project.cfm?project=VE0111&Language=English IDB]
* [http://www.cepis.ops-oms.org/eswww/eva2000/venezuela/informe/inf-04.htm WHO]
*Corporación Andina de Fomento (CAF): Venezuela. Análisis del Sector Agua Potable y Saneamiento, Marzo de 2004, written by María Elena Corrales [http://www.caf.com/attach/17/default/InformeSectorialAguaVenezuela.pdf CAF Agua y Saneamiento Venezuela] Accessed on October 10, 2007

References