Water Charge Instruments for Environmental Management in Latin America: from Theoretical to Practical Issues Mexico Country Case Lilian SAADE HAZIN and Antonio SAADE HAZIN lassade@iname.com January 2003 7 INTER-AMERICAN DEVELOPMENT BANK REGIONAL POLICY DIALOGUE

Water problems Unequal geographical distribution of water resources. 76 per cent of the population lives in the northern and upland regions. Growing overexploitation and pollution

Institutional Framework Major water bodies in Mexico are federal responsibility. Creation of the National Water Commission (CNA) in 1989. CNA is attached to the Ministry of Environment and Natural Resources.

Administrative divisions 13 administrative regions, following hydrographic criteria. 26 Basin Councils (25 already set up). 32 States in the Federation 2,400+ municipalities in charge of water, sewerage services and wastewater collection and disposal.

Legal Framework 1992 National Water Law. Other related health and ecological laws exist. Charges renewed yearly (Federal Law of Charges). 1982 Program of National Waters: first important planning instrument (integrated approach). Proposals for a new Basin and National Water Law being discussed.

Charges for water use - 1986 In 1986 a two-part charge came into place: A fixed price per cubic meter varying depending on the water supply zone. An increasing block rate structure. Different rates to irrigation, hydroelectric generation, urban (potable) and industrial uses.

The new charge for water use - 1997 Depends on availability zone and use. Change from 4 to 9 availability zones. Charge level updated yearly and sometimes a region can change from one availability zone to another

Water Charges ($US/1000 m3)

Exemptions to the charge Localities with less than 2,500 inhabitants. Agricultural use. Wastewater. Water with high concentrations of salt in interior water bodies. Users holding a certificate issued by the CNA indicating that the water was returned to its source without change. Special discount when the user treats the water and returns it to the source.

Wastewater charges Wastewater quality control in the 70s called for a basic treatment for every discharge. 1991 wastewater charge in operation as an incentive to polluters to comply with pollution control standards. These are part of a wider set of standards, the Mexican Official Standards (NOMs).

The 1991 charge The 1991 charge was a non-compliance charge applied when the pollutant concentration exceeded the established standard. The fee was calculated on the base of the concentration of Chemical Oxygen Demand (COD) and Total Suspended Solids (TSS) and the type of zone, depending on water “availability”.

Subsequent revisions In 1996 criteria changed from “Availability Zones” to “assimilative capacity of the water bodies”. In 1997 different rates for a larger number of pollutants and review of the official quality standards.

The wastewater charge today Additional pollution indicators are now considered in a more complex formula. Since 2002, revenues destined to improving efficiency and water related infrastructure.

Gradual goals for wastewater standards compliance

Exemptions to the charge Users who comply with the effluent standards; Water returned to its source without change; Municipalities of less than 2,500 inhabitants; Irrigation; and, Approved program to reduce emissions. Polluters with a monthly discharge volume of less than 3000 m3 have the option of a flat rate.

Water use implementation issues The system still does not reflect the real costs of water and is highly subsidized. The Federal Government has absorbed the necessary infrastructure costs to provide water services, and revenues have made little contribution to financing. Traditionally, important cross-subsidies among sectors.

Wastewater charge issues Wastewater charges not effective to alter conduct. Emphasis on standard compliance. Users simply do not pay.

Lack of monitoring capacity Not enough equipment or personnel. The CNA has more than 20,000 employees. Only ~125 working on inspection and metering activities. Complex and long administrative process.

Lack of investment Reduction in investments by one-third from 1991 to 2001. Private participation scarce and unstable. With respect to wastewater treatment, the situation is even worse (out of the 41 contracts signed since 1991, only 11 were still in operation in 1999).

Recommendations 1. Improve monitoring. 2. Eliminate most exemptions. 3. Consider reducing subsidies. 4. Charges should be based on real costs. 5. Improve local capacity and interest in water management.