The Chilean water supply and sanitation sector today are recognized with one of the best coverage and quality levels in Latin America. One of the reasons was a gradual and lasting extension of infrastructure which began in the 1970s. In the 1990s, most utilities improved their economic efficiency and became self-financing companies, some of which have been transferred to the private sector.
Before 1977: A fragmented sector structure Before 1977, urban water and sewer services in Chile were provided by a multitude of public entities. The largest entity was the Sanitation Department (Dirección de Obras Sanitarias, DOS) of the Ministry of Public Works, which was in charge of service provision in towns outside of the two largest cities,
Santiago and
Valparaíso. In these two cities, municipal utilities were responsible for service provision. The
Ministry of Agriculture and the Ministry of Housing and Urban Development also had water and sanitation departments. To guarantee its operation, the service was directly subsidised by the national government.
1977–1988: The National Water Company SENDOS In 1977, the national public water and sanitation company SENDOS (Servicio Nacional de Obras Sanitarias) was created, which had 11 regional branches. The municipal utilities in
Santiago and
Valparaíso were corporatized and modernized. During that time employment in the utilities was significantly reduced. The public utilities for Santiago and Valparaíso, EMOS (Empresa Metropolitana de Obras Sanitarias) and ESVAL (Empresa Sanitaria de Valparaiso) were strengthened through loans from the
World Bank during that period. In parallel, the government of General
Augusto Pinochet privatized the electricity and telecommunications sector. Water coverage during this period increased substantially from 78% in 1976 to 98% in 1988. Sewer coverage increased from 52% in 1976 to 82% in 1988.
1988–1998: Corporatization and regulation In 1988, the Chilean people denied General
Augusto Pinochet a new term in a referendum, thus passing a key step in the country's transition to
democracy. Unlike the privatization and liberalization in other infrastructure sectors, reform of the water and sanitation sector was thus not imposed by the
military government but initiated in a climate of democracy. Between 1988 and 1990, a number of legal reforms and the creation of new institutions had two principal objectives: • The service providers should become self-financing through higher
tariffs which represent the real costs of the services and more efficient performance • Water supply and sanitation coverage and quality should become universal Therefore, in December 1988 The General Water and Sanitation Law (Ley General de Servicios Sanitarios) allowed the granting of 13 regional
concessions to public, private or mixed shareholding companies in each of Chile’s regions. In 1990 the regulatory agency SISS (Superintendencia de Servicios Sanitarios) was created through a separate law. An innovative model of tariff regulation was borrowed from the Chilean electricity and
telecommunications sector: Efficient cost levels were estimated for an imaginary model company and used as a benchmark to set tariffs for the utilities. Means-tested subsidies (i.e. subsidies that are granted only to those that demonstrably have limited means) were also introduced at the same time to cushion the effect of the tariff increase on the poor. The legal framework with some modifications is still in force today. Initially, the regional companies remained public, but the intent was to prepare them for privatization. During that period they achieved financial self-sufficiency, were granted tariff increases, improved their efficiency and increased coverage. The regional companies were also transformed into private law companies (Sociedades Anónimas). Investments increased from less than 80 million
US dollars annually on average during the 1980s to US$ 260m in 1998. Contrary to the case of many other Latin American cities where the private sector was asked to provide services, the Chilean service providers were financially self-sufficient when the private sector took responsibility for them. The public companies had been prepared to gradually improve efficiency and profitability since the legal reforms of 1988-1990. This may explain the stable process of private sector participation compared to other Latin American cases. A factor that explains the continuity of sector policies during various administrations is the fact that all Presidents since Chile's return to democracy in 1990 belonged to the same
Coalition of Parties for Democracy. The
privatization was carried out in stages, beginning with the five largest of the 13 regional water companies serving more than 75% of users. Because of the staging, it is possible to compare the performance of the privatized and public utilities at that time. This comparison shows that from 1998 to 2001 private companies invested substantially more than public companies and - unlike the
public companies - increased their labor productivity significantly. Tariffs increased for both types of companies, but more so for the privatized ones. However, according to one study, "in Chile a social consensus emerged that has made the higher water rates acceptable given the improvements in service quality and the addition of new services such as wastewater treatment." The participation of the private sector occurred in two different ways. From 1998 to 2001, when the biggest companies were privatized, the majority of their shares were sold to private actors. The government then decided to not continue to sell parts of the companies, but to transfer the operation rights of the companies to private actors for 30 years between 2001 and 2004. This latter way of private sector participation, also known as a
concession, differs substantially from selling shares of the companies because the infrastructure remains the property of the Chilean state. All seven companies which were privatized in the second way merged in 2005, assuming the name ESSAN. The Socialist Presidents
Ricardo Lagos (2000–2006) and
Michelle Bachelet (2006-2010, 2014-2018) maintained the basic institutional structure of the sector established under previous governments based on private service provision, means-targeted subsidies and regulation by a public, autonomous regulator.
Further changes in ownership In 2011, the state-holding company
Corfo sold its stakes in the three largest water companies—
Aguas Andinas,
Esval and
Esbio—on the stock exchange, primarily to individual local and foreign shareholders. The sale of the 30% stake in Aguas Andinas alone brought the state revenues of USD 984 million. The sale of the stakes in the two other companies brought USD 564 million in revenues. However, the planned sale of shares in a fourth water company, Essal, was suspended because of low prices offered. In 2015, Antofagasta plc, which had won the concession for the local water supply in
Antofagasta in 2003, sold its shares to the publicly owned Colombian multi-utility
Empresas Públicas de Medellín (EPM)for USD 965 million. == Responsibility for water supply and sanitation ==