1. SUSTAINABLE DRINKING WATER TARIFFS IN PERU
SIDE EVENT
“TOWARDS SUSTAINABLE WATER TARIFFS IN LATIN AMERICA”
THE NATURE CONSERVANCY (TNC) IN COLLABORATION WITH THE ASSOCIATION OF WATER AND SANITATION REGULATORY ENTITIES OF THE AMERICAS (ADERASA)
“5th WORLD WATER FORUM”
FESHANE/FESHANE 4
José SALAZAR
President, SUNASS
Istambul, Turkey March 19th 2009 1 1 1 1

2. COVERAGE OF DRINKING WATER – SANITATION SUPPLY IN PERU
MILLENIUM GOALS
Goal 7: Ensure environmental sustainability
By 2015, reduce by half the proportion of people without sustainable access to safe drinking water
NATIONAL AGREEMENT
COMMITMENTS
GOVERNMENT POLICY
Expantion of the coverage of drinking water and sanitation supply.
13 C
Improve the drinking water and sanitation infraestructure
21 C
PERU
26,8 MMHab
2006
With drinking water service
20,0 MMHab
With sanitation service
15,3 MMHab
Without drinking water service
6,8 MMHab
Without sanitation service
11,5 MMHab
Las inequidades son más evidentes en el área rural donde un 38% de la población no tiene acceso al agua potable y el 70% no cuenta con un sistema digno de disposición sanitaria de excretas (letrina u otro sistema). Otro segmento postergado en términos de inversiones son los servicios atendidos directamente por los municipios (298 servicios a nivel nacional), en este segmento un 41% de la población no cuenta con el servicio de agua potable y un 62% con sistemas de alcantarillado. La situación de coberturas de servicios es menos desfavorable en Lima Metropolitana y en el ámbito de atención de las EPS municipales. En este panorama, para disminuir las inequidades de atención se debe privilegiar al medio rural y a los municipios que por su tamaño de mercado no están integradas a una EPS. Los subsidios a la demanda de estos segmentos deben estar en orden preferente de atención con los escasos recursos del Tesoro Público. 2 2 2 2

3. THE PERUVIAN WATER TREE
Governability based in social, environmental and economic benefits: social inclusion, poverty reduction, social peace, public health, cleaner growth, changes in human behavior, better water-allocation, among others …
Demand: Cultural education, saver equipments, houses eco-efficient, cleaner production, among others.
Funds, donations, loans, guarantees, subsides, etc.
Supply: Conservation of watersheds, forestation, desalination, dams for regulation, re-use of waste waters.
TARIFFS
Investment management shock
Private-Public -Partnership, Identification of new opportunities
Re-defining governability from water approach
Objectives, policies, tools, actors
Enterprises, city council, regions
Political view:
The government is due to citizens 3

4. CHANGING WITH ACCOUNTABILITY IN PERU: WATER FOR EVERYONE INITIATIVE
POLITICAL APPROACH
TECHNICAL APPROACH
SUSTAINABLE DRINKING WATER TARIFFS
CHANGING WITH ACCOUNTABILITY
WATER FOR EVERYONE
DRINKING WATER-SANITATION SECTOR
CONSERVATION SECTOR
2006
2011
INVESTMENT GRADE
CLEANER ECONOMIC GROWTH
REGIONAL
SUSTAINABLE TARIFFS
SUSTAINABLE DEVELOPMENT
WATER FOR EVERYONE
POVERTY REDUCTION
SOCIAL JUSTICE/EQUITY
Without drinking water access there is no growth, no social justice, no social peace, no democracy, no governability. 4

5. WATER FOR EVERYONE INITIATIVE: the Peruvian approach
PUBLIC POLICIES
POSITIVE IMPACTS IN THE COUNTRY DEVEOPMENT
SOCIAL PEACE, SOCIAL JUSTICE, DEMOCRACY
Health for more Peruvians
Less government expenses in health attention related to drinking water and sanitation service access
Investment in drinking water-sanitation service universal access
Poverty reduction and equity
Investment in drinking water-sanitation service expansion
Families included in society, now they are citizen with rights.
Opportunities for poor people
Sanitation projects that generate jobs for people
Generation of jobs in Lima and other cities, this help to maintain the value of the new infrastructure investment
Sustainable country
Sustainable tariffs : watersheds conservation
Integration of the water value chain (water generation and waste water treatment). Less costs for water enterprises.
Cleaner energy
Investment in watershed conservation to improve water regulation
Water insure for the clean energy operation, reduce its operation costs and release water for cities in the watershed.

6. WATER FOR EVERYONE INITIATIVE: the Peruvian case
PUBLIC POLICIES
POSITIVE IMPACTS IN THE COUNTRY DEVEOPMENT
SOCIAL PEACE, SOCIAL JUSTICE, DEMOCRACY
Water conservation, food security
Ecosystem system compensation or environmental payment scheme
Water source conservation for the agriculture, energy, industry and city development
Home energy and water savings
Investment in home water saver equipments
Drinking water savings that it is reflected in the bill, release flow of the familiar budget and water for other families
Cleaner growth
Investment in cleaner technology for industries (producing with less water)
Drinking water savings in the industrial sector, that it is reflected in the bill, release industrial cash flow.
Generate social consciousness about the water resource economic importance in the country, new generation of responsible citizens
Saving culture
Environmental education for the future
Tourist capital conservation
Watershed conservation, with participation of tourist enterprises
Insure the natural capital “water”, source of biodiversity.

7. SUSTAINABLE TARIFFS: The Peruvian setting
To achieve the millennium water goals, it is required US$ 5 billions to cope with increasing population demand.
To sustain the industrial growth it is required US$ 5 billions (mining, oil, agriculture, industry, etc.) in water generation and eco-efficient technology.
Public drinking water utility companies require investments and eco-efficient management, through public-private partnerships.
Reducing the drinking water gap: The water sources are declining (because of climate change, pollution) while the drinking water demand is increasing (cities-industrial expansion).
A new approach: sustainable drinking water tariffs are integrating the water value chain under a watershed approach with economic driven tariff-modeling. 7

8. Water companies value-creation from environmental management
Problems
Consequences for the water utility company 1
Reduction of water sources due to climate change (ice melting, etc.).
A new budget for a new water catch (or a new source of water) + the old water catch infrastructure was not repaid to the creditors yet + conflict with other water users (e.g. hydropower). 2
Increase of sediments due to river basin erosion (upstream)
The regulation-dam life-span is reduced + the storage capacity is reduced + expenses for cleaning the dam + more OPEX. 3
Increase of floods due to river basin deforestation
Increased expenses to deal with natural disasters (prevention, mitigation) require money + the disruption of services have public-health impact. 4
Pollution
Reducing the life-span of pipelines + more OPEX.
From a cost benefit analysis, it makes business sense to invest in water source regulation rather than mitigation.

9. SUSTAINABLE DRINKING WATER TARIFF
NEW APPROACH: Linking the watershed regulator (country-side) with the drinking water regulator (urban)
Conservation
WATERSHED APPROACH
REGULATOR
REGULATOR
GOVERNMENT
Public goods
REGULATOR
MARKET private goods
ECOSYSTEMIC APPROACH
Water service $
SUSTAINABLE DRINKING WATER TARIFF
Drinking water provision is a monopoly, so the regulator has become the interface among government bodies and the private sector, through PPP. 9

10. INTEGRATING THE COUNTRY-SIDE WITH THE CITY : Introducing the drinking water value chain within the water bill
ECOSYSTEMIC SERVICE
DRINKING WATER-SANITATION UTILITY COMPANY
WATER TREATMENT
DISTRIBUTION
WASTE WATER TREATMENT
WATER GENERATION
COLLECTION
STORAGE
DRAINAGE
WATER SOURCES CONSERVATION
Investment in conservation in highlands.
Search and development of new technologies
Investment in waste water
treatment plants
Investment in desalination, regulation dams, etc.
Search of new water sources
Re-use of waste water
SUSTAINABLE DRINKING WATER TARIFFS 10 10 10 10

11. NATURAL AREAS REGULATOR Reduction of storage capacity
SUSTAINABLE DRINKING WATER TARIFF: Moyobamba-Water Utility Company, SM-region
NATURAL AREAS REGULATOR
SUSTAINABLE TARIFFS
WATER REGULATOR
NATURAL AREA
Deforestation
INFORMAL AGRICULTURE
Pollution
High tariffs
Low quality
Erosion
Reduction of storage capacity
Higher treatment cost
COFFEE CROPS
COUNTRY-SIDE
SEDIMENTS
Drinking Water Sanitation Utility Company MOYOBAMBA
THE CITY
WATERSHED
Tariffs increase depends on people trust on its drinking water-sanitation utility company, which is reflected in the willingness to pay (WTP) for a better service and for restoring the linkages between the country side and the city. 11

12. Financial tools for PES in Peru: trust funds created by the regulator
ITEM
DETAIL
FUNDING
The regulator allocate a % in the water bill, paid by the user. The % does not depend on the conservation project pipeline because it is a seed capital fund to be complemented with other funding sources.
TYPE
The trust deals only with water-tariff incomes. It can not receive private funds nor subsidize other sectors (e.g., mining, hydropower, agro).
COLLECTION
Directly by the bank, avoiding the water-company intermediation.
DISBURSEMENT
Output based, for reducing the bad management-project risk.
EARMARKED FOR PROJECTS
Each project has to have a positive impact on water regulation, based on hydro-models. Focus on ecological infrastructure not on expenses.
MONITORING
Outcome indicators verifiable.
LEVERAGE
The tariff is a mandatory funding, which is complemented with government funding (coming from city councils, regional-national government) and private donors (companies, NGOs, others).
INVERSAN
It is the national water-sanitation fund created by law. Under its umbrella, private and public donors can work together but not mixed (e.g., avoiding the scrambled eggs scheme). 12

13. Institutional partnerships for moving forward with sustainable drinking water tariffs
PROCESS IN PERU
Water, mining, hidroelectric, agroindustrial enterprises, banks, industries, within others players in the watershed.
PERUVIAN WATER DONORS
MINISTERIO DEL AMBIENTE
PRIVATE SECTOR
DEVELOPEMENT AGENCIES
PERUVIAN GOVERNMENT
ECLAC /
UNITED NATIONS
GREEN NGO
WATER REGULATORS OF SOUTH AMERICA
Outcomes of Lima Meeting (June 2008): Strategic partnership, discussion of the strategy and action plan for developing Sustainable Water Tariffs in Latin America. 13 13 13

14. VALUE CREATION FOR SUSTAINABLE DRINKING WATER TARIFFS
SYNERGY
Before: = 4 (market economy).
SUSTAINABLE
Tomorrow : = 10 for the creation of social and
environmental value, has a positive impact on governability.
TARIFFS
Strategic alliance
TNC
ECLAC
NATURAL
AREAS
REGULATOR
WATER
REGULATOR
POLITICAL APPROACH changing with accountability 14

15. LESSONS TO BE LEARNED
Regional potential: Peru has created a sustainable development highway based on drinking water access.
Replicable model a regional scale. Each country has to move forward according to its institutional and legal setting.
Political will for changing with accountability (“water for everyone programme”). The government is due to the citizen.
Without drinking water access: No democracy, No social justice, No social peace, No equity, No economic growth, No governability.
Innovation: Partnership between drinking water regulator (city) and natural areas regulator (rural areas) creates long-lasting value for many stakeholders.
New generation of leaders are implementing the change.
New management eco-tools are created and tested.
Harmonization among authorities (ANA, SUNASS, MINAM) and actions TODAY, while the theoretical discussion continues. 15

16. SUSTAINABLE DRINKING WATER TARIFFS IN PERU
SIDE EVENT
“TOWARDS SUSTAINABLE WATER TARIFFS IN LATIN AMERICA”
THE NATURE CONSERVANCY (TNC) IN COLLABORATION WITH THE ASSOCIATION OF WATER AND SANITATION REGULATORY ENTITIES OF THE AMERICAS (ADERASA)
“5th WORLD WATER FORUM”
FESHANE/FESHANE 4
José SALAZAR
President, SUNASS
Istambul, Turkey
March 19 th, 2009 16 16 16 16