20/12/19Safe drinking Water 

Water infrastructure renewal is the real issue in Spain – not pointless public vs private debates

Water infrastructure renewal is the real issue in Spain – not pointless public vs private debates

 

While some people in Spain want to have pointless ideological public vs private debates about water provision, thankfully there are others who focused on the issues that really matter.

 

Last week, the Spanish Association of Water Supply and Sanitation (AEAS), and the Spanish Association of Urban Water Services Management Companies (AGA), presented two fascinating studies that reveal the extent of the challenge ahead and crucially, the potential costs.

 

The details are worth reading – the reports give clear figures on the amount of investment required. And the messages are clear – Spain needs to act now and invest, otherwise it is just piling on even more problems that will be even more expensive in the future. The country’s investment lags way behind others in the EU – despite Spain’s bigger vulnerability to the effects of climate change.

 

The first study is called: "Investment needs in the renewal of the infrastructures of the urban water cycle in Spain”.

 

It was carried out by engineers from AEAS and professors and researchers from the Polytechnic University of Catalonia (UPC), the Polytechnic University of Valencia (UPV) and the Nacional Distance Education University (UNED). The document quantifies and assesses, at a national level, the infrastructures that support urban supply and sanitation services. It assesses the annual investment required to achieve sustainable management of these services and meet future challenges resulting from climate change.

 

In Spain there are currently large and powerful infrastructures assets. Only around €585M per year from tariff revenues are invested in maintenance, along with another €80M from public budgets. The study estimates annual investment needs in infrastructure renovation in € 2,221 M - about €48 per capita per year.

 

These figures underscore the urgent need for sustained investment, given that the current investment in the renewal of urban water cycle infrastructures is around 70% below what is necessary.

 

It is also very important to bear in mind that investment needs in supply and sanitation systems are included as a fundamental element in the strategic plans of the different administrations responsible for, or involved in their conservation. The investment needs must be quantifiable in all areas of management: municipal, supra-municipal, autonomous and national.

 

To reach this conclusion, the study includes an exhaustive and complete inventory of the networks and infrastructures that make up the integral urban water cycle and obtains the current value of this infrastructure as new, i.e. assessing the replacement cost, or what it would mean to install all this set of assets or infrastructures at the current time.

 

In this regard, the global national inventory data proves that Spain currently holds a vast amount of infrastructure assets related to the urban water cycle, with:

 

  • 23,789 km of adduction network (pipes designed to carry water from the point of collection to the treatment plant)
  • 248,245 km of supply network
  • 189,203 km of sanitation network
  • 1,640 drinking water treatment plants (DWTP)
  • 29,305 tanks; 456 storm tanks
  • 2,232 waste water treatment plants (WWTP).

 

These infrastructures show a theoretical value from installation to new of:

  • €5,138M for the abduction network
  • €36,059M for the supply network
  • €128,917M for the sewage network
  • €7,454M for the DWTPs
  • €12,188M for the tanks
  • €1,413M for the storm tanks
  • €14,466M for the WWTPs.

 

These values, added to the €1,856M of the pumping stations, give a total theoretical asset value of €207,492M in the urban water cycle in Spain. This is €4,500 euros per capita.

 

The second study is called "Towards more efficient financing of urban water cycle infrastructures in Spain".

 

Written by PwC at the request and with the collaboration of AEAS and AGA, this document analyses the possible mechanisms for increasing the financing of urban water cycle infrastructures in Spain. In addition, it aims to reach a consensus on an action plan to promote the long-term sustainability of the system, to ensure the Human Right to Water now and for future generations.

 

Since the financial crisis, the levels of investment in water infrastructures in Spain have decreased drastically. Compared to other European countries, Spain’s current investment grade is very low, almost less than half of other EU Member States. Just as other countries are increasing it, in Spain there is a very strong reduction (2.5 times less in the period 2014-2017 compared to 2007-2009).

 

But Spain is the European country most vulnerable to the effects of climate change, given that it already has high levels of water stress and the risk of desertification. In addition, key activities for the Spanish economy, such as agriculture or tourism, are water-intensive.

 

The need for investment in the renewal of infrastructures would amount to a minimum of €2,221M per year. In relation to the new work, the necessary investment for the construction of new hydraulic infrastructures related to the water cycle amounts to €45,192M until 2033. All these needs are planned and programmed in the different Basin Hydrological Plans, approved in 2015, and which are being adjusted and optimised in the so-called DSEAR Plan, launched by the Ministry for Ecological Transition.

 

For the urban area, we can summarize that, for the 2nd Planning Cycle corresponding to six years - theoretically from 2015 to 2021, already exceeded and not fulfilled - the amount allocated to new construction in the urban area is €11,800M and are included in the chapter on Environmental Objectives of the DSEAR Plan.

 

In detail and on an annualised basis, this figure represents an investment requirement of €1.9 billion per year.

 

Likewise, the urban water sector considers that it is necessary to invest, additionally, another €300M per year for new quality requirements and €500M, which are already fulfilled, for the operational improvement of the services.

 

All of this means that a total annual investment of €4,900M - 105 euros "per capita" per year, is required.

 

This needs to be in a sustained manner, to meet the objectives of wastewater treatment, conserve existing heritage and adapt to future requirements such as higher quality, adapt to circular economies and strengthening action against climate change. The top 10 countries, according to the Global Competitiveness Index of the World Economic Fund, invest $140 per capita per year.

 

In previous years, from 2009 to 2015, only €2.4 billion has been invested, 49% of the needs, and the budgetary application has been drastically reduced in recent years to practically derisory figures. This means that, taking into account the pace of investments made in recent years, there is a total investment deficit of around €2.5 billion per year.

 

On the other hand, it is worth noting that Spain has one of the lowest urban water rates -which includes domestic, industrial and commercial use- in Europe. We are 45% below the European average, with a price of €2.2/m3 compared to €3.5 /m3 on average in the EU.

 

Furthermore, if we take as a reference the economic "effort" that the payment of the bill implies for users, Spain would be the second country in the EU with the lowest levels of effort in the payment of its domestic water bill, a situation that contrasts with the expenditure we make on other services or "utilities" such as electricity or telephone.

 

Thus, Spain’s effort is -29% below the European average in water, compared to +23% and +25% above the average in electricity and telephony, respectively. The economic "effort" of the citizen is understood as the relationship between what he pays for water and the income he receives (General Council of Economists).

 

Since everything indicates that the different public administrations are going to continue to have budgetary restrictions and that tariffs are well below the European average, the study points out that the most feasible way of financing would be a staggered increase in tariffs which would make it possible to finance the new infrastructures.

 

This is in line with the principles of the Water Framework Directive (WFD), which sets out the principles of "cost recovery", "adequate user contribution" and "polluter pays", and which are followed by some of the most advanced countries in northern Europe.

 

In this sense, it considers that there should be a controlled and progressive increase in fares in order to move, in less than 10 years, from the current 2.2 euros/m3, to 3.6 euros/m3, which would bring Spain to levels similar to the European average and would allow compliance with the provisions of the WFD.

 

This would mean that, in 10 years' time, the water tariff would have to be increased by 63% if we want to guarantee the sustainability of water services, meet the necessary investments and meet the requirements set by the EU. This forecast does not compromise the UN principle of water affordability of 3% of a household's disposable income, as Spain currently stands at 0.9%.

 

On the other hand, this option of staggered tariff increases is compatible with the different management models of urban water services in Spain - public, private or mixed - existing in our country and would follow the model of most northern European countries where, according to the WFD, the principle of cost recovery through adequate user contribution is the norm.

 

In addition, the study proposes another series of short, medium and long-term measures to address the current lack of investment in urban water cycle infrastructure. Among them, the following measures stand out:

 

  • ensure that the investment fees requested by public authorities in public procurement procedures are purpose driven and are applied exclusively to the water sector
  • encouragement of municipal aggregation models (gathering of small municipalities), to gain economies of scale, and support to municipalities that will have to make separation of activities
  • adjustments to current public procurement rules, such as the adaptation of the financial rate of return, or a relaxation in the revision or updating of tariffs, ensuring public control, all to encourage financing solutions
  • creation of a national public-private fund open to citizen participation, aimed at financing urban water infrastructure projects
  • creation of a public database at technical/operational as well as economic/financial level, which allows a transparent benchmarking
  • transparency in programs and execution of investments
  • establishment of a methodological framework for calculating urban water costs and tariffs, harmoniously throughout the national territory.
  • establishment of a regulatory body.