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Gordon;L ;u,ge:' ';>': ''~ ' '' it-7~~~~~~~~~~~~~~~~~~~~~~~- ,f'MartinGambrille .-d.. '_: ;- :.''~ ~ - ';;.i - f ', . Luiz'G,abrie,l TIAzevedo; I - Recent World Bank Technical Papers No. 429 Gary McMahon, Jose l,uis Evia, Alberto lPasc6-Font, and Josc Miguel Shinchez. An Environmental Stuzdy oJ Artisanal, Small, and M'Iediumn Ainin?g in Bolivia, Chile, and Peri- No. 430 Maria Dakolias, Coutrt Performance arounid the fIorld: A Comparative Perspective No. 431 Severini Kodderitzscih, Reformlis inl Albaniialn Agriculture: Assessing a Sectol in Transition No. 432 Luiz Gabriel Azcvedo, Musa Asad, ancl Lal rry D. 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Grouindiwatel in Ruiral Development: Facing the Challenges of Supplv and Resouilrce Sustainability (1List contilues on tile inside back cover) Brazil: Managing Water Quality Mainstreaming the environment in the water sector Sergio Margulis Gordon Hughes Martin Gambrill Luiz Gabriel T Azevedo Brazil Country Department THE WORLD BANK December 2002 © 2002 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 All rights reserved. 1 2 3 4 04 03 02 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts n1o responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed here are those of the author(s) and do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the governments they represent. The World Bank cannot guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply on the part of the World Bank anyjudgment of the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750- 8400, fax 978-750-4470, www.copyright.com. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522- 2422, e-mail pubrights(worldbank.org. ISBN: 0-8213-5347-0 ISSN: 0253-7494 Sergio Margulis is a Senior Environmental Economist at the World bank. Gordon Hughes is a Consultant at the World Bank. Martin Gambrill is a Senior Water Engineer at the World Bank. Luis Gabriel T. Azevedo is a Sector Leader at the World Bank. Library of Congress Cataloging-in-Publication Data has been applied for. ii Contents Note on the English version ........................................................... . iv Foreword ................ v Abstract ....... vii Acknowledgements .... viii Acronyms & Abbreviations .ix 1. Introduction ........1. I Study context and background. 1 Some critical issues ....................... 3 2. Water resources management ....................... 7 Decentralization and river basin institutions ....................... 10 Making better use of existing infrastructure ....................... 13 Investing in new infrastructure ......................... 15 3. Water supply and sanitation ....................... 19 Needs and priorities ......................... 20 Investing in sewers ...................... ...... 22 Wastewater treatment .27 Improving operational performance ...................................... 30 4. Environmental management in the water sector ........................................ 35 Managing water qualityu.36ity............................ ....... ........ 36 The institutional framework for water quality management .......................... 38 Integrating programs and projects .39 5. An integrated approach to water quality ........................................... . 45 An agenda for water quality management ........................................... 48 ANNEX: Summary description of projects reviewed ...... ............................ 51 Tables and Figures Figure 1: Managing water quality ................................................. . 2 Table 1: Households without access to water or sanitation ........................... 50 iii Note on the English version The English version of this report was published following discussions of the Portuguese version with various Brazilian counterparts. The authors thought that while it would not be appropriate to incorporate changes which would make the Portuguese and English versions different, it would be nonetheless appropriate to introduce the following two paragraphs which provide a summary description of the recent evolution of the water sector in the country. This may be helpful to those readers less familiar with the details of the sector in Brazil. Brazil's recent accomplishments in the water sector are significant. Over the last 40 years Brazil has expanded water supply to an additional 100 million people, and sanitation services to 50 million. Today, 77 percent of the population has access to potable water and 47 percent to some kind of sewerage service. The area under irrigation has grown from 0.5 million hectares in 1970 to 3.5 million hectares in 2002. Inland navigation has also increased steadily and has been integrated into a multi-modal transport system. These accomplishments have relied heavily on large investments in water infrastructure. The contribution of many of these investments to the country's development are unquestionable, but the overall return on that infrastructure has not been consistently positive. Brazil's national water resources management system was promulgated with the 1988 Constitution. The Constitution divided the country's water resources between the States and the Federal Government. In 1991 Sao Paulo became the first State to implement its own water resources management system. Since then, 18 other States and the Federal District have adopted legislation to modernize water resources management. After six years of negotiation, Congress adopted a national water policy (Federal Law 9433) in January 1997, incorporating most modem water resources management principles and instruments, including management by river basins, creation of basin committees and agencies, and introduction of abstraction and pollution charges. The National Water Agency ANA was created in 2000 with a mandate to implement the National Water Resources Policy. These recent achievements have placed Brazil internationally as an innovator and an emerging leader in water resources management. Such progress in the development of legal framework and policy instruments, however, has not been followed by equivalent progress in effective implementation . iv Foreword This report presents a comprehensive approach to alternatives for Brazilian society to improve the quality of life of present and future generations, in what concerns those matters related to water. Three complementary dimensions are examined: (a) Water resources - with regard to water resources, the issue of concern is how to implement an integrated river basin management system, specified in the Brazilian Water Law (9433/97), il order to achieve the sustainable use of rivers and lakes for present and future generations. This management system seeks to balance the interests of different sector users (hydropower, water supply and sanitation, irrigation, navigation, etc.). Presently there is a lack of reliable supplies of bulk water in the Brazilian Northeast, for industry, agriculture and domestic conisumilptiOnl. This scares away potential investments that would bring jobs and wealth to the region. Also, water in the rivers around Brazilian cities is heavily polluted because wastewater is not properly collected and treated. As a consequence the population has to live with high levels of water borne diseases and high costs of water supply, as the water intakes periodically have to be moved further away to still uncontaminated rivers. (b) Environment - water in rivers and lakes is a natural asset. Most infrastructure, like dams, (b) Environment - water in rivers and lakes is a natural asset. Most infrastructure, like dams, navigation locks and wastewater treatment plants, have impacts that alter the environment. The present challenge centers around the question of how to develop an institutional and legal arrangement that provides a clear interface between water resources and environmental systems, particularly after the recent creation of the National Water Agency and the National Water Resources Council. The first system, which is still in its infancy, is currently implementing integrated water resources management in a decentralized and participatory way, using 'economic tools' - like the polluter-user-pays-principle. The second approach has been in use for many years and is based on 'command and control' mechanisms. A great deal of work is still to be done to get the best results from the combination of these two approaches. (c) Water supply and sanitation - like in other developing countries, these services are not universally provided in Brazil partly because the poor cannot always afford to pay the real cost of service and also because government subsidies do not reach all of those in need. Efforts to deal with this question often result in inefficient legal and institutional arrangements that benefit many, but not those most in need. To change this situation, it is necessary to undergo reforn in the water sector which aims at replacing "bad subsidies" with good ones. A good subsidy gives the right economic signal, and results in better services to all, with minimum costs, contrary to the v current situation. In order to implement the necessary reform, it is first essential to conclude the discussion and pass the legislation concerning the water supply and sanitation regulatory framework, which should be enforced regardless of whetlher the service provider is a public or a private company. Unfortunately the discussion has been obscured by a political dispute in Congress around which level of government, either city or state, would play the leading role for granting concessions of these services in metropolitan regions. Brazil is presently undergoing an important change of government administration at the Federal and state levels. This is therefore a perfect time for this report to be released because an outside view may be helpful in the transition. New administrators will get clear and critical analysis of what is going well in the sector, and should not be changed, and of what could be improved or modified. The World Bank has good credentials to perform thisjob: it accumulates worldwide experience but also first-hand knowledge of Brazilian realities, gained through many years of cooperation Jerson Kelman President, National WaterAgency Abstract T-lhis study reviews how environmental issues have been addressed in the water sector in Brazil, withiIn ithe context of activities of the Federal Government, generally, and those implemented under Bank sector operations more specifically. The core focus of the study lies in the management of water quality, as it affects both the users of raw water and those who are primarily concerned with the disposal of wastewater. The report considers the following three sectoral areas concomitantly - water resources management, water supply and sanitation, and the environment - thus limiting its review and focus to those thilmes whicih are key to the over-arching issue of water quality. The management of water resources in Brazil, as in many other developing countries, has relied upOIn heavy investments in medium and large scale projects and programs to provide basic infrastructure for the different services related to water use. Historically, there has been a strong tendency to favour large, highly visible projects, which have shown disappointing overall returns, have resulted in little improvemenits in water quality, and have produced questionable impacts in terms of reducing poverty and inequality. One of the key reasons for such results has been the poor management of the installed infrastructure, the importance of whichi has been largely underestimated. Improving the utilization of existing infrastructure is therefore seen as being critical to achieving significant and rapid progress throughout the water sector. This needs to be complemented by adequate incentives to both service providers and water users to make more efficient use of the infrastructure and the resource itself. The low economic, environmenital and social returns generated by investments in the water sector also reflect the systematic tendency to pay insufficient attention to overall objectives in the design and iimplementation of programs and projects. If the improvement of water quality in Brazil is an issue that is to be taken seriously, then a first step should be to undertake a proper assessment of water quality goals for each river basin in the country. The current classification of these goals seems to be arbitrary, and should, instead, be based on a systematic evaluation of the costs and benefits of setting and reaching alternative standards, as well as on explicit social objectives such as expanding service provision and service quality to the poor. vii Acknowledgements T he report was prepared by a large team (Rio de Janeiro State Water Company - CEDAE), consisting of the following people: Sergio Luis Paulo Correa da Rocha (Former State Vice- Margulis (Task Manager), Gordon Hughes Govemor of Rio de Janeiro), Rui Brasil Assis, (main report), Luiz Gabriel T. Azevedo, Luiz Carlos da Costa and Dirceu Rioji Yamazaki Alexandre Baltar and Musa Asad (Water (Sao Paulo State Secretariat for Water Resources, Reources Management), Martin Gambrill and Sanitation and Works), Ricardo Araujo (Sao Abel Mejia (Water Supply and Sanitation), and Paulo State Water Company - SABESP), Alceu David Hanrahan (Environment). The report Bittencourt (consultant), Renato Tagnin, Silvio reflects the views of the entire team. Leifert and Stela Goldenstein (Sao Paulo Municipality Secretariat for the Environment), This report also partly relies on three background Neusa Marcondes (Sao Paulo State papers which will be made available in electronic Environmental Agency - CETESB) and Jose format on the World Bank's Web Site. The Claudio Junqueira (former President of Minas papers (all in Portuguese) are: 1) "Water Gerais State Environmental Agency - FEAM). Resources Management", prepared byAnt6nio The authors would also like to thank all those Eduardo Lanna; 2) "The Brown Environmental from federal, state and municipal government Agenda and the Water Supply and Sanitation institutions, from academia and from the private Sector in Brazil: the Problems of Supply to the sector, who participated in, and provided rich Urban Poor and of Water Pollution Control", contributions to, the day-long workshop held in prepared by Alceu Guerios Bittencourt and Sao Paulo on June 4, 2002, to discuss a draft Ricardo Araujo; and 3) Brazil: Environmental version of the aforementioned report, 'The Brown Issues in the Water Sector, prepared by Sergio Environmental Agenda and the Water Supply and Margulis, David Hanrahan, Elizabeth Lima and Sanitation Sector in Brazil: the Problems of Francisco Lobato. Supply to the Urban Poor and of Water Pollution Control'. The authors wish to additionally thank The authors wish to thank various institutions and John Penney for his editorial contributions, and individuals interviewed: Jerson Kelman, Dilma Karen Ravenelle-Smith f and Juliana Garrido or Seli Pereira, Benedito Braga and Gisela Foratini putting together the document for printing. (National Water Agency - ANA), Marcos Thadeu Abicalil (Second Water Sector Modernization Finally, the entire team wishes to thank the Project - PMSS2), Paulo Canedo Magalhaes Government of the Netherlands which partly (Federal University of Rio de Janeiro - UFRJ), financed the study through the Bank-Netherlands Luis Edmundo (Former State Sanitation Secretary Partnership Program's Environmental Window for Rio de Janeiro), Evandro Rodrigues de Britto with the World Bank. viii Acronyms and Abbreviations ANA Agencia Nacional de Aguas ANEEL Agencia Nacional de Energia Eletrica AOM Administration, Operation and Maintenanice BOD Bioclhemical Oxygen Demand BR Brazil CEDAE Companhiia Estadual de Aguas e Esgotos (Rio de Janeiro) CEPT Cheemically Enhlaniced Primary Treatimenit CETESB Companiiia de Tecnologia de Saneamenlto Ambiental (Sao Paulo) COMPESA Companhia Pernambucania de Saneamlienito CONAMA Consellio Nacional do Meio Ambiente COPASA Companiiia de Saneamenito de Minas Gerais FEAM FuLnda,co Estadual do Meio Ambiente (Minas Gerais) FEEMA FuLnda9ao Estadual de Engenllaria do Meio Ambiente (Rio de Janeiro) TBAMA Instituto Brasileiro do Meio Ambienite e dos Recursos Naturais Renovaveis [BGE InstitLto Brasileiro de Geografia e Estatistica ICR Implementation Completion Report IDB Inter-Americani Development Bank PDBG Programa de Despolui,co da Baia de Guanabara PLANASA Plano Nacional de Saneamento PMSS Programa de Moderniza,co do Setor de Saneamiienito PNAD Pesquisa Nacional por Amostra de Domicilios PRODES Programa Nacional de Despoluicao de Bacias HidrogrAficas OECD Organisation for Economic Co-Operation and Development SABESP Companiiia de Saneamento Basico do Estado de Sao Paulo SISNAMA SistemaNacional do MeioAmbienite SNIS Sistena Nacional de Informa,coes sobre Saneamento US United States WRM Water Resources Management WSS Water Supply and Sanitation WWTP Wastewater Treatment Plant ix I Introduction Study context and background perspective of identifying the most efficient options for improvinig environmental quality. S ince the Bank became more involved with Neither is sufficient on its own, but experience projects in the Brazilian Amazon region in suggests that too mucIh of a focus Ol SolLitiOlIs the early 1980's, it hias placed much of the leads to the adoption of expensive programs for emphiasis of its environment work in Brazil in the reducilng pollution whichi generate on1ly lilitecd area of natural resources managemeit. Even benefits. today, the environmenlt portfolio and the main dialogue with the Federal Government focus Anecdotal evidence from several sectoral primarily upon the 'green agenda'. Issues of air projects in Brazil with substantial environimenital and water pollution as well as water resources managemiient components indicated that their maniagemenit have not been neglected, but they environimenital benefits have fallen short of wvhat have been addressed mainly in the context of the had been expected. This matters because the concerils of particular sectors - urbani attempt to design sector-based projects whichi will development, water supply and sanitation, energy, also generate substantial environilimenital benefits - transport, etc. Hence, this study was prompted usually referred to "mainstreaminig environimilenital by the recognitioni that it would be useful to issues" - is an important aspect of the Bank's review envirolimental issues linked to water approacih to linking better environmental quality from a cross-sectoral perspective. managemilenit with traditional instrulimenits for lending. The goal is to go beyond the minimiiumii One important issue for the Bank is requiremenit to carry out an environimenital impact whether the practice of addressing environmental assessment in order to incorporate the goal of problems withini the framework of sectoral better environmenital quality as an integral aspect projects and other activities produces satisfactory of project conceptioni and design. results. The advantage is that it ensures that efforts to tackle particular problems are, or Thus, the Bank decided to review how should be, fully integrated with sectoral policies environimilenital issues have been addressec Hi and priorities. The disadvantage is that ther-e is a Bank sector operations and more broadly withli tendency to promote environmenital improvements the Federal Governmeit, and it was decided to that are within the compass of the standard start with the water sector. The reason for this activities of a particular sector. In effect, this choice is that, across the country as a whiole, leads to an approach that addresses water quality is perhaps the most important environmental problems in terms of the solutions environmenital problem in Brazil. Withini the that are available to the sector - e.g. wastewater broad thieme of the managemenit of water quality, collection and treatment - rather than from the water supply and sanitationi is the sector with the 2 Brazil. Managing Water Quality most obvious links with the environmental quality. This is obvious from a physical point of agenda. However, as Figure 1 illustrates, looking view because the flows of water consumed or at water and sanitation alone, disconnected from redistributed over time by irrigation or hydro- broader issues of water resources management, power affect the absorptive capacity of rivers and would simply repeat the one-sided perspective of thus the impact of discharges of industrial or sector-based activities. Water and sanitation is municipal effluent on water quality. But, equally 'only' one user of water resources for both important, the creation of Agencia Nacional de abstraction and discharges, though it may be the Aguas (ANA) with responsibility for oversight of most important one in terms of its social and both water quantity and quality highlights the environmental impacts. The role of water and importance of developing policies and sanitation policies and investments must, institutional arrangements that go beyond the therefore, be viewed in the large context of specific concerns of irrigation, hydro-power, or strategies for water management within river water and sanitation. ANA, together with basins, coastal zones, etc. complementary institutions at State levels, can fill an institutional gap and provide a basis for Water resources management is a crucial developing an integrated approach to the starting point for policies that impinge upon water management of water quality. Figure 1: Managing water quality g006torin9 / Enforcerne ENVIRONMENT ba WATER SUPPLY AND SANITATION WATER QUALITY 0 o 0 .WATER RESOURC u-J.. MANAGEMENTa Brozil: Managing Water Quality 3 Hence, this study has considered the three If problems of water quality and pol lution sectors together - water resources management, are to be addressed effectively, the starting point water supply and sanitation, and the environment. should be a framework that encourages the Three separate reports (in Portuguese) on each of various agencies to develop a strategic vision for the sectors were prepared by three sectoral teams water management within a river basin or similar and will be available in electronic formiat oni the geographical unit. Investment priorities, World Bank website. Each of the three sectors abstraction policies, water managemenit regimes, reviewed has its onVI1 characteristics and faces and environmental licenses should all be specific problems. But the core focus of this consistent with that strategic vision. Hence, the study lies in the management of water quality as structure of river basin institutions and it affects the users of raw water and those who management that is being developed following the are primarily concerined with the disposal of passage of legislation in 1997 and the creation of wastewater. ANA in 2000 is absolutely fundamenital to the prospects for better managemilent of water quality. For too long in Brazil policies and institutions witih responsibilities in the sphere of Finally, in a limiited study it is necessary to water resources managemenit have operated be selective in concentrating on a limited number largely independently of policies and institutions of themes whiclh are relevant to the over-archinig that address issues concerning urban and/or issue of water quality. For this reason we have industrial water supply and wastewater not attempted to address many of the broad management. This divorce between the upstream linkages between water, land use, and urbani and downstream water sectors has severely development which are important determinants of hindered the development and implementation of the level and distribution of sources of water coherent policies for the management of water pollution. Issues suchi as erosion, sedimentation, quality. and agricultiral run-off that are linked to agricultural land use or solid waste, flood control, In response to this situation, the and urban land use are extremely complex and go environmental authorities have responded to their well beyond the scope of this study. relative lack of influence over any stage of the 'water cycle' by adopting a licensing regime whicil concenitrates almost entirely on point Some critical issues sources of pollutioni but ignores the broader Brazil's fresh water resources represent strategic issues affecting environmental quality. approximately 12% of the world's total, but tihese This pattern is not iunique to Brazil. A focus on are very Linevelnly distributed since 80% of the point sources is all too common among OECD total is concentrated in the Amazon basin. The environimental policies with respect to water semi-arid Northeast region, including most of the pollution, even thoughi non-poinit sources are Sao Francisco river basin, has only 4% of the variously estimated to account for 50-80% of the country's water resources but 35% of the organic and nutrient loads in major rivers. In population and a much highier proportion ofthe Brazil, the effects of this bias are made worse by poor. The huliLid South and Southeast regions the fact that many point sources, particularly with 60% of the population used to have ample existing sewer outfalls and wastewater treatment water resources. Now, they face a prospect of plants controlled by public water companies, are increasing local or generalized water scarcities as not subject to any effective system of monitoring a result of rapid urbanization and economic and control. growth unless both the quantity and the quality of water resources are better managed. 4 Brazil: Managing Water Quality Historically, the management of water intermittent droughts and water shortages. There resources has relied upon heavy investments in have been limited or no improvements in key medium and large scale programs and projects to indicators of water quality. provide basic infrastructure for irrigation, hydro- electricity, water supply, sanitation, flood control, Similarly, there are doubts about the and navigation. The total level of government extent to which investments have contributed investment in water infrastructure is difficult to to reducing poverty and inequality. Small assess because it is spread across the budgets of scale expenditures on improving access to water many Ministries and State Governments. resources can have a large impact on the quality Nonetheless, even partial figures suggest that the of life of poor households, especially in semi-arid average investment has exceeded R$5 billion per regions. The link between larger projects and year, while estimates of the 'needs' for new poverty reduction is not so direct. For example, investmenit in the water sector over the next 5-10 it does not make economic sense to use most of years start at R$20 billion per year and could be the land irrigated by large schemes for much larger. subsistence agriculture. The benefits to poor households of such schemes are associated with These sums are not particularly large in opportunities to shift from subsistence to cash relation to the size of the Brazilian economy and crops, the creation of employment by medium and the broad range of activities affected by the water large farmers, and the broader growth in service sector, provided that they are properly spent and and other activities in surrounding areas that the resulting infrastructure is well managed. depend upon agricultural prosperity. However, Unfortunately, neither of these conditions have only a small number of projects seem to have been met in the past. The overall return on achieved such benefits on a significant scale. water infrastructure has to a great extent been Even in these cases, the lag between investmenit disappointing. Projects have been abandoned or and benefits has been of the order of 10-15 years have taken so long to complete that the original rather than 5 years. goals were overtaken by new circumstances. Even where projects have stimulated regional An important underlying reason for the economic growth or met the demands of growing poor performance of many infrastructure projects cities, the lags between investment and is a culture of investment which focuses on downstream benefits have greatly reduced the engineering and finance. Consideration of project present value of those benefits.' Equally, the objectives and of their relationship to project management of the existing water design has been neglected. Equally, little infrastructure has been poor at best. attention has been paid to the design of incentives for the efficient management of infrastructure. The impact of past investments on water Managers and planners firmly believe that the quality and even water scarcity has been mixed. sector has been and remains perennially short of Progress in addressing water pollution and resources for investmenit relative to its needs. meeting water demands in some areas must be This can easily lead to the assumption that any balanced against evidence of increasing salinity investment is better than none, so that priority is of irrigated land, greater vulnerability to given to the development and implementation of new investment projects that can be justified to This Is widely acknowledged for irrigation projects, buti potential sources of finance. cqually a problem for large investment programs in water supply & sanitation such as the Tiete River or Guanabara This type of attitude was also common in Bay Programs in Sao Paulo and Rio de Janeiro, respectively. the formerly socialist countries of Eastern Europe Brazil: Managing Water Quality 5 and the former Soviet Union. New investment objectives for future investments in the water was seen as being critical to the extension and sector. This includes the issue of poverty improvement of services, while getting the most reductioll. Many types of water infrastructure out of the existing capital stock was a minor have an impact on the standard or quality of life concern. In both the formerly Socialist counltries of poor households. But, with limited resources, and in many Brazilian projects the capital stock more attention must be paid to the efficiency of has often been used at a fraction of its potential different investments in contributing to the goal of capacity. poverty reductioni and/or to improving environment al quality. The failure to ensure that new infrastructure delivers the performance expected In order to maintain, let alone improve, the and promised is only possible because the level of service and the proctection of the performance of programs is rarely evaluated environimenit, it will be necessary to increase against a clear and monitorable set of objectives. investment in water infrastructure over the next 5 The assumption that any investmc-nt will years. To achieve this, it is important (a) to contribute to narrowilg the gap between the identify ways in which the economic, social and existing stock of infrastructure and what is environmental returns on future investmienits can needed relieves project sponsors of the be improved, and (b) to draw up a set of priorities requirement to define concrete targets for their as the basis for the assessment of projects and particular projects. Instead, projects tend to be policies. In this study we undertake two limited justified on the basis that sewer coverage in a but crucial tasks: particular city is x% (far slhort of 100%) and the to review the results of Bank and other work project will raise it to x+y% (but still less than in the water sector in BraziI in order to draw 100%). No-one tends to ask (a) whetlher the lessons about ways in which past and new population of the area where the sewers are to be investments in water infrastructure can be built are willing and able to pay for wastewater directed and managed so as to yield a better collection, (b) whether priority should be given to return in terms of their economic, social and investments in sewers rather than to the expansion environmental benefits; and of water supply networks in other areas, and (c) whetlher investnent in other forms of water * to help to identify a core set of issues whichi, pollutioll control would bring greater benefits than in our understanding, should be regarded as the investments proposed. priorities for the new Government which will take office at the beginning of 2003. The low economic and social returns generated by investments in the water sector over Our work does not attempt to be the last two decades reflect the systematic comprehensive either in its coverage of the sector tendency to pay insufficient attention to project or in the nature of the policy reforms that will be objectives in the design and implementation of proposed. Instead, we identify a set of critical projects. Hence, the following sections of the questions and assess the broad implications and study focus on identifying priorities and benefits of new approaches to old problems. 2 Water resources management Jt is generally agreed that the inanagement of Recent legislative and adminiistrative water resources over the past two decades has initiatives, focusing particularly on the creation Lsuffered from basic weaknesses. These and development of ANA, attempt to address include: (i) a fragmented and often incoherenit some of the problems whichl have been identified. institutional approach to water management; (ii) The creation of a new regulatory frameework for an over-emphasis oin new investment programs the sector is an important step in the direction of combinied with limited attentioni to ensurinig developing more colherent policies. At the same effective administration, operation and time, ANA is being asked to find administrative mailtenanice (A, 0 & M) of existing solutionis withini a framework of incenitives and infrastructure; (iii) poor integration of legal provisions, much of which remains largely environmental considerationis; and (iv) allocation unaltered. This raises questions about of resources on an ad hoc basis rather than in expectations concerning the role of regulatory accordance with sound priorities identified agencies and other branches of government in througlh assessments of benefits and costs or developing both policies and institutionial through explicit schemes aiming to privilege the arrangements for water infrastructure. poor. The experience of thle crisis in tile power The combination of centralized and sector in 2001 should provide a warning of the decentralized management of water resources has dangers of attempting to rely UpoIn regulatory led to very uneven development. Large sums intervention to tackle major issues withinl a have been invested in major hydro and irrigation flawed structure. The actions of the Agencia projects, whiile poor and/or remote populations- Nacional de Energia El6trica (ANEEL) in the 2-3 particularly those in the North and Northeast - years preceding the crisis may be criticized for have been neglected or remain under-served. In failing to provide the degree of regulatory periods of drought, maniy rural inhiabitants of the certainty required to stimulate new entry and Northeast must walk several miles to obtain low- investnent in generation. Still, at worst, quality water, while others await the arrival of ANEEL's performance may have marginally public water trucks.2 The costs of supplying worsened the severity of the crisis, whose root water in drouglht-pronie areas during emergencies causes are to be found in the structLre of the are substantial, but these funlds have not been energy sector and the incentives facing currenit effectively mobilized to finance investments in suppliers, potential investors, and otlher fi r ms in long term security of supply. the sector. The consequences of structural weaknesses and poor incenitives were masked for 2 World Bank, Brazil-Federal Water Resources Management a time by the lack of progress in addressinig the Project, Report 17541, pg. 3. problems of the large public generators. These 7 8 Brazil: Managing Water Quality became the residual holders of many of the ANA can provide the focus for initiatives market and physical risks as well as contractual in developing new incentives and demonstrating liabilities created by the partial liberalization of good practice in water management. Equally, the sector. however, it must be remembered that the beneficiaries of the existing structure, however The lesson for the water sector is that ANA inefficient it may be, are numerous and well- may have neither the mandate nor the capacity to entrenched, so that resistance to change has been resolve some of the fundamental issues which and will remain substantial. Experience in other underpin the poor performance of water resources countries demonstrates that reforms wh ich management. The agency can help to promote threaten the 'rights' and position of existing users informed debate of these issues and, even, to have little prospect of success unless these push the Government and the sector to adopt 'rights' are effectively recognized and necessary legal and structural reforms. Even so, grandfathered. its role should be a limited one. The regulatory function is important, but it does not extend to The application of concepts of transferable attempting to resolve every conflict in the property rights to water is extremely controversial management of water resources. Some of these on both legal and social grounds in Brazi 13, So conflicts will inevitably require broader political that it is unlikely that legal reforms of the kind negotiations or even judicial resolution. adopted in Chile could be accepted within the foreseeable future. Nonetheless, it is essential to In this respect there is a tension built into find ways forward which allow for the transfer of the powers granted to all Federal regulatory practical usage rights from the beneficiaries of the agencies. They are authorized to act on behalf of existing system to those who are able to make the Federal government in awarding concessions more efficient use of the water. Such transfers of various kinds. This should not be a problem must be accompanied by the actual payment of so long as the agencies are expected to act in a compensation by the new users to existing users technical and advisory role - i.e. preparing in some appropriate form. contracts, managing bidding procedures, etc. - while the key political decisions affecting the There are examples in Brazil, as well as creation or transfer of property rights are made by Mexico and California, of the re-allocation of the President, Ministers, or the Congress. water use accompanied by compensation to However, if the responsibilities of the,-se current users under pressure of water scarcity in regulatory agencies come to be seen as extending severe droughts. To the extent that existing beyond the technical interpretation and resources are sufficient to fulfil current demands implementation of political decisions, then their in periods of normal or plentiful rainfall, this independence and credibility in carrying out their approach may be adequate for the short and regulatory functions may be challenged. Any medium term. Even so, the negotiation of suspicions will be reinforced by the lack of temporary re-allocations places exceptional effective appeal mechanisms regarding their demands on those responsible for water decisions, because the courts are ill-equipped to handle challenges based on the argument that an 3 For example, some lawyers argue that the management of agency has made technical mistakes in reaching a water resources is fundamentally a public function, so the decision. For these reasons, ANA and its sister right to use water cannot be alienated (in the Common Law agenicies must be very careful in the way in wbich sense of being transferred permanently to a new owner). Even if this line of reasoning is accepted, it is not inconsistent with it exercises its power with respect to the creation the creation of limited property rights for the use of water for of new property rights, concessions, etc. a specific period via licenses, leases, concessions, etc. Brazil: Managing Water Quality 9 management and will usually occur only wheni the capacity or other measures to manage flows discrepancy between the value of water in would be justified. In other cases, they may competillg uses is very large. Thus, it is, at best, provide a basis for assessing the benefits of a stopgap measure that sIhould be accompanied adjusting despatch rules and other provisions by experiments whlich set out to develop either which affect the management of storage capacity quasi-markets or transfer-compensationi schemes for reservoirs. in basins facing longer term scarcity of resources - e.g. the Piracicaba in Sao Paulo. Similarly, water righits must be viewed as being continigent on the amount of rainfall during Thus, it is important to uLiderstanid the the rainy season or some other relevant measule existing system of water rights so as to identify of the availability of water, perhaps suliimed over the direction and natire of chaniges that may be a sequence of years. The power sector uses required in order to improve water resources sophisticated programming models to control the managemenit. This need hiave no implication that use of the water stored in key reservoirs whiichi water rights should be subject to market take account of variations in weather conditions arrangemenits whicih may be thought to be and attempt to value the probabilistic benefits of inequitable, inefficienit, or otherwise ulidesirable. storing water rather thall usinlg within the current Rathei; thinking about property rights provides an season or year. As the crisis in 2001 showed, essential framliework for analyzinlg the these models may have techinical lhimitatiois - at implications of alternative approaches to least in the manner in whichi they are linked to managinig water resources. In particular, it helps operatiig practice - but they do recognize the to uliderstanid the incentives created by present contingent value of stored water. arrangements as well as by proposals for the fiinancing and management of major new projects. There are mechaniisms by which this Hence, this section employs the framework of continigent value can be signalled to other users, water rights as a prism to examine the various but they are not being used in Brazil, in particular elements of water resources managemenit in in agriculture4. As an illustration of what is Brazil. possible, following a rull of droughlts in the early 1 990s water utilities in Southierin California have There are, however, some crucial adopted a structure of seasonal tariffs includinig dimenisionls that must not be neglected in thiliking provisions for fixed percentage increases when about property rights for the use of water in reservoir levels fall below certain thresholds Brazil. At present, water is not a scarce resource associated with drought conditionis. These are, in in most river basins in normal and wet years in tuiri, linked to offers of higher prices to farmiers the sense that the total quantity of water available for diverting water whicih they have been is sufficient to meet demand from the agricultural, allocated for irrigation use. electricity, industrial, and residential sectors as well as to protect environimental resources. But, Location is a third dimensionl whicih is not the time profile of these demands over the adequately represented in the way water rights seasons may not be consistent with preserving are managed. This is particularly important in the adequate flows for downstream users and considerationi of water transfer schemes. The environmenital protections. As a consequenice, any analysis must take account of the seasonal An exception has been with rice producers in the State of diienision to the (iiplicit) value of water rights. Ceari wilere, with the intervention ol ANA, a compromilise In some cases, seasonal variations in water values betweein different water users was reached basedi on their may provide a signal that investment in storage opportunity costs of using water. 10 Brazil: Managing Water Quality reasons for the tendency to ignore the locational much less than might have been expected or dimension are clear. It is widely believed that would be desirable. providing access to water, especially for irrigation, is an effective mechanism for poverty The institutional and economic structure alleviation, especially in the semi-arid region of defined in Law 9433/97 is closely modelled on the country. The construction of water the river basin model that has been developed in infrastructure is seen as an investment in France over the last four decades, but there is one redistribution which would be undermined by critical difference. Traditionally, France has a requiring the beneficiaries to contribute to the highly centralized administrative structure and the cost of transport. But, cost-recovery schemes or river basin institutions operate within a development plans which neglect location may framework that is directly subordinate to the lead to very inefficient utilization of the available central government, in particular the Ministries of water resources. They create a strong incentive Environment and Finance. They have overall to promote projects which are much larger thani responsibilty for all water resources management would be efficient in terms of the volume of in their basins, even where this is delegated for water transferred and/or the distance over which it minor rivers. is transferred. In contrast, Brazil's federal constitution In the remainder of this section we wi 11 means that responsibility for water resources focus on (a) the impact of institutional reform in management is unavoidably divided between the the management of water resources, and (b) the Union and the States. Major rivers such as the financing and management of infrastructure Parana, Paraiba do Sul, and Sao Francisco may investments. For each theme we will consider be Federal rivers but almost all of their tributaries how the defacto allocation of water rights are State rivers because they lie entirely withini a shapes the existing use of water resources and single state (up to theirjunction with the Federal what chaniges may be required to improve the river). This greatly increases the difficulty of incentives and structural framework that will establishing and operating river basin institutions. determine future performance. In the classic French model there would be, for example, a single river basin committee and agency for the Sao Francisco, which would then Decentralization and river basin g~ form sub-basin committees for major tributaries. In Brazil this top-down framework must be In parallel with a general shift towards greater replaced or supplemented by a bottom-up decentralization of policy in many areas, the structure reflecting the interests of the maniy reforms embodied in Law 9433/97 represent an states within the Sao Francisco basin. important attempt to move away from central control of water resources management to basin When the number of states involved is approaches. However, the implementation of small and there are no major conflicts over water these reforms has proceeded more slowly than rights, this structure may be just workable. The was anticipated, in part because of the reluctance example of the Paraiba do Sul suggests that the of States and water users to provide adequate costs of co-ordination are likely to be high while resources for the operation of river basin effective institutions may be quite slow to institutions. The continued reliance of much of develop because of a reluctance to devolve the sector upon investments financed either by or responsibility to inter-State bodies. Nonetheless, througlh the Federal Government means that the it is generally agreed that the Paraiba do Sul plus effective extent of decentralization is likely to be a number of State rivers in the South and Brazil: Managing Water Quality 11 Southeast represent the best prospect for the full water use gradually as the actual or potential imlplementation of the classic river basin model. benefits of river basin management became more widely accepted. Following a similar pattern in For large rivers affecting many states, the Brazil would imply extensive involvement of the problems of co-ordination and resource allocation Federal Government in funding river basin are multiplied many times. It may be argued that agencies. However, the implication of such the Sao Francisco and Parana basins are too large fundinlg - greater influence by the Federal to be managed by single committees and Government over management decisions - may agencies. Unfortunately, the creation of multiple not be acceptable. basins (e.g. upstream and downstream) with independent institutions only shifts the focus of The example of the US as a Federal conflict over water rights and scarce resources to counltry in whichi river basin management has the interface between the separate basins. been very slow to develop is instructive. There is a long history of legal disputes between States The complexity of reach ing agreement over water rights which have made inter-state between independent authorities with cooperation in river basin managemenit either substantially different agendas and interests in impossible or ineffective - e.g. the Colorado and order to establish effective river basin institutionis Mississippi Rivers or the Chesapeake Bay has meant that progress has been very slow over system. In some cases, the Federal Governmenit the past 4 years. This is particularly important has stepped in to insist on some degree of joiht with respect to the creation of river basin management as a condition of providing funds for agencies whichl have been the main engine of infrastructure investments in flood control, chanige in France. While attention may focus on irrigation, power generation, or water navigation. the role of river basin committees in attempting to More recently Federal environmental laws reconcile the competing interests of different reinforced by law suits files by environmenital groups of water users, these committees cannot groups have been forcing States and others to act functioni properly without substantial and to protect certain categories of water use. expensive technical support from the agencies. Unfortunately, both infrastructure funding Currently, the development of river basin and environmental regulations are unsatisfactory management is trapped in a vicious cycle. The ways of addressing the complex problems of new institutions must demonistrate their water resources management. The former has competence and future role in order to gather resulted in the construction of severely under- support and establish credibility. To do this they utilized or, sometimes, completely counter- need resources, both humani and financial in order productive infrastructure projects in many parts to unldertake good technical work and to fund new of the US. Reliance upon environmental investments. However, to fund their activities regulations, especially when implemented through they must levy charges on water users whicih will court judgements, gives priority to one set of only be acceptable once they have demonstrated interests at the expense of others without any their competence. balancing of the trade-offs between the costs and benefits of alternative options. In France, the river basin agencies - as arms of the central government-were given Naturally, it is possible to envisage an ample resources for their technical work as well effective framework of river basin management as strong political support. This enabled them to supported by Federal financial incentives and establish their position and to raise charges for environmental/regulatory threats. The experience 12 Brazil: Managing Water Quality of the US and the record to date of Brazil suggest, spheres of responsibility of various public however, that implementing such a system is not agencies, including both river basin authorities really an easy task. Still, Brazil's Constitution and State environmental agencies. Hence, close gives more control over water resources than the co-ordination between water users (utilities, US Constitution with respect to shared rivers and industry, agriculture, etc.) and the various public water controlled by infrastructure funded by the bodies is critical and must be built into the Federal Government as well as in defining general strategic plans of each river basin authority. rules and guidelines for the whole sector. These underpin the key responsibilities of ANA and Initially, it should be possible to achieve allow it the possibility of exercising substantially significant improvements in aspects of water more initiative than any Federal agency in the US. resources management by a combination of Federal support for new institutions and In summary, Brazil's federal structure infrastructure backed up by a certain amount of means that it cannot follow the French model of cajolery and arm-twisting. In the longer term, the strong and centralized river basin management. inherenit weaknesses of a purely consensual This explains the limited progress in developing model are likely to come to the fore. Both the river basin institutions since the passage of Law Federal Government and other agents will need to 9433/97. Equally, the US example suggests that consider hiow far the Federal Government should a purely consensual approach will not work. take reserve powers to adjudicate in situations There are too many reasons why states are where major differences of interest stand in the unwilling to bind themselves to implement the way of adopting and implementing necessary decisions of river basin institLtions, even these solutions to difficult water management issues. may be apparently Pareto-improving in the sense that "everyone" can gain. The problem is that A concrete recommendation for ANA in individual decisions have to be seen in the this respect is that it should (a) prioritize its context of larger strategic games which may system of water rights allocation and involve clear winners and losers. management, and (b) establish a sequence for advancing it. First, it should select priority The way forward must involve a basins (e.g. Paraiba do Sul, Piracicaba, Parana, substantial commitment of finance, technical Sao Francisco) with which they would be directly resources, and political effort by the Federal involved with and provide rapid response: water Government to ensure that a number of river rights requests cannot be denied or their issuance basin agencies are operating within the next 2-3 delayed for months because of a lack of clear years. This will break the vicious cycle outlined procedures or the absence of informationi above. At the same time, linking federal funding databases to cover all river basins in Brazil. for infrastructure projects to the implementation Secondly, it should establish clear and simple of river basin or state water resources plans will procedures that could be improved as the agency encourage all parties to push ahead more rapidly matures. For instance, at first concentrating only with the development and implementation of on quantitative aspects and progressively strategic plans. To a very large extent this is evolving to the integration of quantity and quality precisely the perception of ANA's directorate and issues for the allocation of water rights. Finally, the way they are moving forward. the role of ANA in the allocation of effluent permits should be clear and the interfaces with The setting of in-stream water quality goals the environmental sector (e.g. IBAMA) need to is a responsibility of river basin authorities, while be well defined. effluent discharge standards fall within the Brazil: Managing Water Quality 13 Making better use of existing water. Further, they have access to a flow of infrastructure revenues from their operations which are ample to The focus on new investments at Federal and cover the costs of A, 0 & M. However, for water State levels - a common feature of water operators this will only happen if the institutional resources managemenit around the world - has arrangements are realligned so that suppliers are meant that management systems for existing accountable to users, and charges become a real infrastructure have been inefficient a td tool guiding service provision. ineffective. The limited attention paid to rehabilitation as well as A, 0 & M has led to The real problem lies with irrigation, infrastructure degradation, poor delivery of navigation, flood control, and similar reliable water, and stranded investmenits. Similar infrastructure. The beneficiaries of the problems affect water and wastewater systems infrastructure are more diverse, so that it may be operated by State water companies and more difficult to charge directly for infrastructire municipalities. In particular, the deterioration in services. Much of this infrastructure may be seen water distribution networks has compromised as being redistributive rather than productive in their ability to maintain uninterrupted supplies, character. Henice, those wishing to promote leading to problems of contamination. Equally, particular projects are often more interested in the poor maintenance and operating practices have profits and political benefits that accrue during degraded the performance of many wastewater construction than in the longer terms rewards of treatment plants. mobilizing water as a factor of productioll, particularly since these benefits are often Improving the utilization of existing insignificant, as in the case of irrigation, and infrastructure is critical to achieving significant accrue in the longer term; rent seeking during and rapid progress throughout the water sector. construction accrues up-front. The framework and measures necessary to achieve better utilization are both widely agreed There are, of course, various ways to and familiar to policy makers in Brazil. Hence, remedy the bias in favour of new construction at the failure to implement them can not be ascribed the expense of better use of existing to uncertainty or lack of knowledge about hifrastructure. The most reliable is to require that appropriate policies. It must, instead, be whoever builds the infrastructure shares in a large interpreted as a consequence of conflicting part of the risks associated with the future use of objectives and pressures on those responsible for the water. Unfortunately, this is rarely more than the sector clearly exacerbated by a tendency to a counsel of perfection. If state-owned uinder-estimate the costs of poor management. enterprises act as project sponsors, they are likely to be exempt from any serious financial or market The critical issues are autonomy, fhianice discipline on their investments. For large projects anid accountability by water institutions. The cost it is usually argued that the private sector cannot of A, 0 & M is small in relation to the initial raise the necessary finance and/or will be unable investment in infrastructure, but a failure to to bear the risks of potential cost over-runs or allocate adequate resources for this purpose can uncertainty about future demand. The fact that rapidly reduce the benefits of investment. Power these are good reasons to conclude that some of generators and water companies recognize this these projects are misconceived and uneconomic and, thus, have a strong incentive to operate and g maintain their infrastructure so as to ensure continuity of supply of either power or treated Since it is very difficult to link appropriate incentives for the construction of infrastructure to 14 Brazil: Managing Water Quality those for its subsequent management and projects as well as being responsible for the utilization, it may be best to separate the two operation and maintenance of existing clearly. This implies that, after completion, water infrastructure. There is an obvious appeal to this infrastructure should be transferred to financially structure from the perspective of spreading autonomous and accountable organizations overheads and making good use of scarce ("infrastructure managers") which are responsible technical staff. The disadvantages emerge when for administration, operations, and maintenance the enterprise comes under financial pressure. drawing upon revenues from water charges and The usual response is to shift resources from the other sources. Where there are clear economies operation and maintenance of existing of scope or scale in managing several projects, infrastructure to continue to meet investment there may be a case for allowing a single commitments. infrastructure manager to operate a group of projects which are not inter-linked. In such cases, These problems can be avoided with good it is important to insist on separate accounting in management and, if necessary, tied fundinig order to ensure that any cross-subsidies are arrangements designed to ensure that a significant reasonably transparent. proportion of the revenues generated by within specific project areas are ploughed back ilto For such arrangements to work it will operation and maintenance. However, practical usually be best to award concessions to the experience suggests that separation of infrastructure managers for periods of 10 to 30 responsibilities is often the only way to get the years. Under the concessions of up to 15 years, incentive structure right. the infrastructure manager will be responsible only for A, 0 & M, though it may have a But, again, a structure under which water significant incentive to make minor investments infrastructure is managed by competent specialist which generate additional revenues from water enterprises, either public or private, may be an charges. Under longer concessions, the unrealistic goal under current circumstances. For infrastructure manager may be willing to make example, it assumes a willingness to establish - larger investments in, for example, extending and collect - reasonable charges for water users. irrigation networks or enhancing the time profile Even though there is a gradual acceptance of the of the water yield from the project. principle of charging water users, there is still great reluctance to implement charging systems This framework implies the need for for small and medium farmers. This is independent regulation of infrastructure managers understandable because many of these consider in setting water charges and to resolve disputes that, in effect, they have an established right to about the quality of service. Charges may be set free water though the service may be unreliable at a level to achieve full cost recovery (i.e. or the amounts of water delivered insufficient. including a lease payment that is designed to Thus, generating the resources to pay for better amortize the cost of the investment over its operation and maintenance may depend upon expected life) or merely operational cost improvements in the quality of service or the recovery. This will depend upon the objectives volume of water delivered which will permit the of the project and the nature of any subsidies adoption of a two part tariff with a low charge for which have been provided. an initial allocation supplemented by a much higher charge for extra water. Even in reforming States, public enterprises responsible for water resources management The next best alternative is probably some continue to manage and finance new investment form of radical decentralization of responsibility Brazil: Managing Water Quality 15 for operation and management, givinig a whicih brings the certainty of highier cash substanitial role to local user associations or paymenits combined with less certain promises of similar organizationls. There are examples from better services and highier incomes. various countries whiere this approach has proven effective in improving water management, rehabilitationi and A, 0 & M in the irrigationI sector. In such cases, the level of charges can be For decades water resources management has directly linked to the expenditures oln operation been equated with the constructioni of water and maintenance required to achieve the level of infrastructure. In some cases, water infrastructul-e service and volume of water sought by users. has resulted in major economic, social, or Like maniy othier community-based or co- environmental damage. Nonethieless, this is no operative solutionls the success of this approach reason to stigmatize all water infrastructure as depends on the level of comimiitimlenlt of both the uniecessary or destructive. A balanced approach users and those responsible for the infrastructure. based on a proper evaluationi of the benefits and User groups are most likely to be able to play an potential dangers associated is essential. For effective role wheni they are relatively example, in 1998 and 1999 the Federal homogenieous and well-organized. In large and Government alone spent about R$1.5 billion on even medium-sized irrigation schemiles a emergency measures to alleviate the effects of the substanitial diversity of interests among the users drougIlt in the Northeast. With better water will greatly increase the difficulties of agreeing managemenit and enhaniced capacity to store water on priorities and charging for operations and mucIh of this expenditure could liave been maintenance activities. Furthier, the organizational avoided. Similarly, opportunities to develop and administrative costs of setting up and irrigated agriculture and hydropower in a sustaining an effective system of user groups can sustainiable manner will contribute to poverty be highi, so that this approacih should not be alleviation and economic growth. regarded as a ulliversal palliative. As noted above, there are strong pressures A basic difficulty with most mechanisms to use most of the available resources to funld that are designed to guaranitee adequate resources new investmenit projects which would be serving for A, 0 & M and better utilizationi of existing important social and/or economic needs. This infrastructure is that they are open to the cilarge can lead to a variety of biases in tile way in whici that they discriminate against smal l farmiers and project designs are developed and evaluated. In other poor water users. Many studies have particular: demionistrated that Cuirrenit arranigemenits tenid to * There is a strong tendenicy to favour large, benefit large water users. They are not required visible, projects which can command political to pay for the water that they use but are LIsually sUppOlt from a range of interest groups and able to ensure that they receive better service - areas. greater reliability or Iiigher volumes - thani other users. Thus, large users are likely to have * Projects are too often designed to meet a relatively less to gain from the adoption of variety of needs or demands with the result charging and other arrangemenits designed to that often they become highily complex and sustain better managemilenit, thougil still sufficienit d ifficult to manage. for thiem to support the adoption of a new * As a consequenice, projects that might managemilenit structure. Small users, even where reasonably be considered and funded as quite they should gain over a run of years, may be separate investments are bulidled together in understanidably reluctant to support a change order to gain support as a package, especially 16 Brazil: Managing Water Quality if some components can only be justified by of project for their beneficiaries and the day-to- some internal transfer of benefits or sharing day managemlient of the infrastructLre. of cost withini the package. • Project evaluations are based oni In its current version, the proposed Sao uiiracasSptions about Francisco inter-basin transfer project provides a uonstrea iona otimes, fistice demand for clear example of many of these features. It construction times, future demand for water, complementary investments, etc. so that packages quite distinct projects to transfer water estimated rates of return are likely to be to meet (a) urban demand in the metropolitani much higher thani would be obtained from an region of Recife and in inlanid areas of the state of Paraiba, (b) urban demand in the metropolitan appraisal bast expedieiice. oasupinrelcngregion of Fortaleza, (c) rural residential demand past experience, in various parts of the semi-arid region, (d) the * Further, the evaluations tend to rely UpoIl extension of irrigated agriculture in Pernambuco average outcomes rather than taking proper and Paraiba, and (e) the extension of irrigated account of uncertainty in analyzing the value agriculture in Ceara and Rio Grande do Norte. of the water management services being The value of urban water demand is critical to the proposed. claim that the project is economically viable. * Little thought is given to whetlher the However, more detailed studies of options for beneficiaries of the project are or will be meeting this demand would identify lower cost willing and able to pay for the water or other options relying either on local sources or on the 'benefits' of the project at a level sufficient better management of water currently used for either to ensure full recovery or to generate irrigation. Similarly, the transfer of water from the funds required for operations and the Sao Francisco alone is not sufficient in maintenanice. solving the problems of ensuring adequate water supplies for small towns and villages in the * Despite progress achieved in Brazil regarding Sertao. This is a case in which a potentially social and environmental concerns, project beneficial project falls into a vicious cycle and designs still tend to focus on engineering and becomes a major cause of political and investment studies with much less attention institutional disputes among all levels of being paid to issues of project sustainability government when it could be developed into a after the investment phases are complete. sound proposal through the establishment of clear objectives, comprehensive technical and Many of these problems are systemic and economic analysis, adequate development of the are equally important in the water and sanitationi institutional frameworks for its implementation sector. In both sectors, they are a consequence of and future A, 0 & M, and setting the appropriate the incentives facing project sponsors, public timing for implementation. bodies, and other agents. Attempts to improve the process by which projects are identified and Evaluating the benefits of using water from evaluated will only have a limited impact so long the Sao Francisco to develop irrigation in various as the underlyinig incentives remain in place. parts of the semi-arid region is no simple matter. However, the problems may be particularly acute The balance of the evidence, based on the in water resources management. The scale of experience of irrigation projects in the Sao many projects leads to an almost complete Francisco basin itself, would suggest a need to be divorce between (a) the arrangements for planning rather skeptical about the economic and social and finanicinig water resources infrastructure, and returns from committing huge investment (b) the assessment of the practical consequences resources to such a project or projects. But, Brazil: Managing Water Quality 17 again, a case might be made in future that manager after completion of the project. In both sufficienit experience has been acquired to ensure cases, the operator is compensated on the basis of that the project(s) wi I be better managed and can the performance of the project. produce a reasonable return from additional agricultural production and the alleviation of Even so, difficulties that are familiar to any poverty. What cannot be justified is an attempt to capital-intenisive project remain. Since a failure pusIh the project thirough on the grounds that it is to operate and maintaii inifrastructure does not "essential" to meet urban or rural demands other have immediate visible effects, potential or actual than for irrigation. water users may argue that zero or minimal charges will encourage a rapid take-up of the The biases in the design and appraisal of newly available resources. Public bodies investments in water infrastructure must be responsible for the construction or regulation of addressed and either eliminated or at least the infrastructure will be strongly inclinied to reduced. In one specific issue - project waive charges or set them at a level well below sustainability -ANA hias been asked to whethier the long run cost of operations and maintenianice. projects put forward for Federal assistance This makes economic sense in the short term contain reasonable provisions to ensure adequate provided that charges are increased as demanid fuLidinig and managemenit capacity for operations builds up. Unfortunately, the expectations and mainteniance after the projects are completed. created by low initial charges are easily The recognition of the problem is a significanit converted into a quasi-property right witil users step forward, but it is far from clear how effective believing that they should never be required to this scrutiny can be, and it places a huge pay realistic charges for their water. Again, this responlsibility UpoIn ANA. Unfortuliately, very is an example of the time-inconsistency of a often plans put forward by States or other project policy strategy. sponsors have limiited credibility. What will happeni if a sponsor makes a commitimienit to levy Similar problems afflict roads and user charges whicih are sufficient to finanice A, 0 railways. These examples suggest a way of & M expenditures but later fails to honor it? Is it limiting the impact of perverse incenitives. Under realistic to believe that the Federal Govermilenit standard pricing rules the difference between the can insist on r epayment of the original assistance? actual charge for an infrastructure service and the These questions should not immobilize ANA, but variable cost of A, 0 & M is a congestion charge. it should be fully aware of such risks wheni taking For a particular project, this should be increased its own decisions. as demand for the services provided by the project infrastructure grows. The standard The key issue is that the incentives facing investment criterion is then that the discoulited project sponsors and beneficiaries are not time- present value of congestion charges paid over the consistent. They are encouraged to promise one life oftthe project should exceed the present value thinig before tile project starts and theni to oftthe project investmenlt. renegotiate or break their promises after project completioni. They know thiat, once a project has For a bundle of infrastructure projects built been built, the Governmeit has nothinig to gain by over a period of 10 or 20 years the net r evenues imposing penalties whici mnightjeopardize the full generated by the infrastructure projects (i.e. the utilization ofthe infrastructure. The resolution of total revenues from charges and other sources of this problem depends on either (a) requiring income minius expenditures on A, 0 & M) should project sponsors to put some of their own capital be treated as a return on the past investimienit at risk, or (b) appointing an infrastructure embodied in the projects. If the Government 18 Brazil: Managing Water Quality were to treat bygones as bygones, tlhen it may be power sector, industrial and residential argued that, at a minimum, no further investmenits consumers, and environmental protection. On the should be made unless they can be financed out other hanid, practical experience and much of the of the net revenues generated by earlier projects. literature on management tell us that focus and This approachi would provide some economic and clarity of objectives is an essential element in the financial discipline on investments in water effective design and execution of projects or in resources infrastructure that is absent now. managing successful enterprises. There is a further issue concerning the Over-complicated project designs are complexity of project design and objectives. likely to satisfy no-one and may be extremely There are two, possibly irreconcilable, prone to failure either in implementation or perspectives on the nature and design of water peformance after completion. The management projects. Practitioners emphasize understandable tendency to fudge difficult trade- that it is critical to take account of the many offs leaves those responsible for project different users of water resources with, perhaps, managemenit and performance with few guidelines divergent interests. Large projects shLould not be on priorities and constraints when adjustments dominated by the concernis of one dominant have to be made in response to unforeseen sector or group of users but must recognize the developments. competing needs of small and large farmers, the 3 Water supply and sanitation F ollowing the recent demise of the proposed present institutional structure there seems to be law on the regulation of water supply and little prospect of a major change in the sanitation, several of those familiar with the institutional 'rules of the game' over the next few drinking water and sanitationl sector in Brazil have years. Some private concessionis will continue to characterized it as an 'orphan child' of be awarded for small and medium towns and PLANASA, the federal program which led to the cities in various states, mostly in place of creation of the State water companies and municipally operated services or in areas outside finaniced investments in water and sanitation for the major metropolitan areas which have been nearly 20 years. Most of the agents in the sector neglected by the State water companies. A few still expect that they will be able to rely upon the large municipalities may agree to renew the Federal Government to provide the resources concessionls of the State water companies in required to invest in extending and improving return for commitments on investment and services. improvements in service. However, the underlying operational performance and finanicial At the same time, the sector is subject to situation of these companies is not likely to an almost totally dysfunctional process for improve substantially while institutionial adopting new quality and environmental arrangements and incentives remain as they are. standards. Durinig the last 5 years CONAMA and the Ministry of Healtlh have introduced new, In their present condition the majority of more stringenit, regulations wheni few operators State water companies in Brazil and their are able to get close to complying with the municipal counterparts are simply unable to existing regulations. Determination of these new generate the resources required to fund the standards is not based on an assessment of their investments needed to meet targets for the respective costs and benefits, particularly the improvement and extension of services sought by costs implied by the imposition of more stringent municipalities, environmental agencies, and other regulation. The outcome is usually very limited interest groups. Furthermore, progress in or no real improvements in social or adopting a variety of basic operational measures environmental well being. The situation is that would improve the efficiency, reliability, and sufficiently perverse that the incentives created quality of their services is also likely to be very by these regulations may, in practice, hinder the slow, given current incentives for managers and improvement of water services because of the staff. way in which they interact with the existing circumstances of the operators. The continuationi of 'business as usual' will mean that the future level and nature of Despite the manifest disadvantages of the investment will depend primarily on the allocation 19 20 Brazil: Managing Water Quality of funds provided either directly by the Federal about 14.4 million inhabitants, are not served by Government or through Federal financial network wateir connections. However, the institutions such as the Caixa Econ6mica Federal. majority of these households do have water There are many other claims on the limited supply piped to or within their dwelling from volume of budgetary resources and debt finance some other source, usually a well or a spring. that will be available for investments in The number of urban households with no piped infrastructure. Thus, it is essential to think water of any kind is just under 1.5 millioin, carefully about what should be the priorities for representing some 5.2 million urban inhabitants. the allocation of Federal funds for water and sanitation. There is little information about whether houselholds who rely upon piped water from wells Even if the logjam of the different interests or springs receive water of satisfactory quiality which block reforms proposed for the institutional and in sufficient quantity. With the exception of structure of the sector were to be overcome, it almost half a million in the state of Rio de will take some 2-3 years before significant Janeiro, many of them live in thinly populated but changes are put in place. After that, new expanding states in the North and Center-West managers and/or operators will be obliged to give such as Goias, Mato Grosso, Para, and Rond6nia. immediate priority to upgrading the performance It is likely that the majority live in peri-urban of, and service provided by, existing systems. areas at the edges of towns and cities, so that Hence, any program of reform will only bear their water sources may be of reasonable quality significant fruit, in terms of extending the but they will deteriorate as urban populations coverage of services, over a period of 4-5 years. expand. Using some rough assumptions about the Such changes could be facilitated if the proportion of such households which could be government funded selective programs to promote served by network water connections in each efficiency gains and changes in the sector's state, about 1.6 million houselholds with piped incentive structure, such as the Second Water water from other sources might benefit from Sector Modernization Projects (PMSS2) and network connections. ANA's Compra de Esgoto Program (see later). Even so, for the longer tern it is critical that From these figures, we estimate that the structural reforms are adopted. In parallel, it is total need for extending access to urban water also important to consider how the Federal services amounts to about 3.1 million Government, working with the states and houselholds. In addition, it is necessary to allow municipalities, can tackle the most urgent for the continuing growth in urban populations problems of access to and the quality of water which may add 2.8 - 3.0 million houselholds to and santiation services. the number requiring service over the next 5 years. The average investment per additional household served would be of the order of R$ Needs and priorities 800-1,000 at current prices5, so that the total For reasons of public health and the preferences of the households affected, there is general 5As might be expected, there are large variations in the average agreement that immediate priority should be given cost of expanding water supply networks to serve additional to extending access to piped water supply, customers. Some preparatory studies in the Northeast and especially in urban areas. According to the Center-West prepared for the World Bank-financed PMSS2 results of the 2000 Census - see Table I -just yielded average costs of R$ 500-600 per household at 2002 prices, whcreas the usual figures for large urban areas in the over 10% of Brazilian households living in urban Southeast lie in the range R$ 1,200-1,400 per household. We areas, or about 3.9 million households containilng have adopted a railge midway between these cstimates as a Brazil: Manoging Water Quality 21 investmenit required to meet the needs of the None of the above is to suggest that rural unserved population plus population growth water supply should be neglected, but identifyinig would be of the order of R$ 5 - 6 billion over a priorities is rather more difficult. The 2000 period of 5 years or about R$ I - 1.2 billion per Census results show that about 18% of rural year. SUIch an investment should be easily withinl households are connected to network water reach for a sector Which ought to be earning supplies, while 43% (3.3 millioll houselholds) revenues in excess of R$ 14 billion per year from have no piped water of any kind. About 15% of water supply alone at current levels of tariffs and rural households live in areas that are classified consumption, if it were properly managed. The as "rural - aglomerado", either extensionis of current level of Federal grants for urban water urban centers or other concentrations of and sanitation is about R$ I billion per year. population.6 Without access to detailed Hence, a target of ensuring that at least 98% tabulations, it seems reasonable to work on the of urban houselholds have access to piped hypotlhesis that most of the rural houselholds with water connections within 5 years is both network connections live in these areas, thoughl achievable and should be the first priority of the quality of the service which they receive may the new administration. be very poor. Thus, the focus must be on providing adequate water supply for houselholds In addition, priority should also be given to living outside rural agglomerations who do not imiprovinig the quality of service received by the hlave access to piped water. residents of poor urbanl neighborlhoods and peri- urban areas wlho have network connections but Meeting this need over the next 5 years whose service is frequenitly interrupted or whose would involve the extension of services to about water may be contaminated by pathogens or other 3.1 million households, after allowing for a pollutants. Unreliable and/or contaminated water continiued decline in rural population. Over 85% supplies are a manifestationi of the poor of these households live in the Northeast and operational performance of many water utilities. North regions with about 2.2 million in the Under competent management, these problems Northeast and 0.6 million in the North - can usually be remedied within 6-12 montlhs representinlg about two-thirds of all rural without the need for large investments. hiouseholds in these two regions. The average cost of providing a piped water supply with no Urban water supply is particularly more than simple water treatment in small important because public healtlh and communities of 100 to 1,000 households that are epidemiological studies suggest that the benefits able to draw upon a nearby spring or groulidwater of providing access to adequate quanltities of will typically be in the range of R$ 800-900 per piped clean water are significantly larger for houselhold. So, the investmenit cost of providing urbani populationis thani for rural populations. access to this underserved population should be The institutionial and financial mechaniisms for achieving a target for access to urban water suLpply are more straightforward than for rural 6 The definitions whicih underpin the distinction between urban water supply. The main barrier to achieving the and rural households complicate the interpretation of the target proposed above is the poor financial and Census results. Rural houselholds are those vivicih do not livc in muniicipal or district centers (sedes nitnicipais anid sedes operational performance of the existing operators. distritais). However, the definitions of the extent of agglomerations and ofwhich agglomerations count as municipal compromise between the cost of accommodating population or district centers are determined by municipalities themselves. growth in the Southeast plus the lower cost ofextending access There is little problem for medium and large towns or cities, to customers without service in the North, Northeast, and but practice for small towns and less densely scttlecd areas Center-NVest. seems to be con fused and inconsistent. 22 Brazil: Managing Water Quality less than R$ 2.7 billion over 5 years. A sum of Investing in sewers about R$ 550 million per year is almost trivial For wastewater collection and treatment, there is when compared withi Federal spending in othier much less agreement on the basis for establishing areas, especially as this will have a direct impact priorities and how these should rank in on the quality of life of many poor rural comparison with, say, improving the quality of households. drinking water supplies beyond the basic goals discussed above. In this section we will focus on Thace real problems besttoorganize oneuse of ti urban sanitation because the problems of rural finanlce but of how best to organize theausite sanitation are entirely different, beihg much more availmsable money bulto ensureaintaiied so that a o te ey a matter of education and personal hygience than of infrastructure. For the urban populationi, there continue to provide reasonable service rather than are three critical and related questions. rapidly falling into a state of disrepair and non- use. * What, given Brazil's current level of income and development, are reasonable or A second major concern will be the best appropiateistanardsonation way of addressing the issue of intermittent water wastewater treatment for the majority of the scarcity in the semi-arid region of the Northeast. urban population? In this case, solutions may be more expensive and have to be linked to a broader approach to the * Are urban households willing to pay for the management of water resources. Even so, many cost of providing wastewater collection and communities rely upon small reservoirs, shallow treatment at the standards thought to be groundwater, or rainwater harvesting for inter- required to protect either public health or the seasonal management of water resources. The environmenit? reliability and quality of their water supplies could be imnproved by relatively small urban* How should the sanitation needs of poor ilvestments that enable them to utilize deeper urban households, especially those living in sources of groundwater or to improve thle the unplanned peri-urban fringes of cities and management of surface storage. On the other towns, be met? hand, the intermittent cost of supplying water to communities in the semi-arid region by water From one perspective the proportion of tankers in periods of drought is quite high. a rhousehmolds with access to wastewater collection Investment in the construction of infrastructure and treatment falls well short ofthe coverage required to manage water better and to draw upon level at werand enio et seciaists alternative water sources may yield a reasonable regard as desirable he20ensus fige retur ove themedim andlongr tem byreport that 56% of urban households discharge reducingover the ostsof resondlonge toeroughn btheir wastewater to either sanitary or stormwater reducing thie costs of responiding to droughts. swr.Teei to rtnsfrbic sewers. There is strong grounds for being Again, the key issue is how to combinec somewhat skeptical about this statistic. It is not appropriate investments in rural water supply clear how many respondents actually have a clear with the establishment of incentives and idea of what happens to their wastewater, organiizationial structures whichi cani enisure that especially if they live in apartment or other multi- the new infrastructure is properly managed, occupancy building. Furthermore, how did they operated and maintained, answer the question if they have a septic tank whose overflow is discharged to some kind of sewer or a stormwater drainage channel? This is Brazil: Managing Water Quality 23 a quite common arrangemiienit in older and/or less prompted by concerins over the eutrophication of densely settled areas of some cities. inlanid and coastal waters as a result of dischiarges of nutrienits from all sources. The risk of On the other hiand, over 92% of the urban eutropilication of coastal waters is a potential or population hiave some basic level of sanitation, actual problem in some parts of Brazil, but it defined as houselholds with a sewer coniectionl does not rank among the most urgenit of plus those with either a septic tank or a basic enviromilenital priorities. Even in Europe tile total cesspit (fossa rudimentar). Again, the distinctioni contributioni of replacing septic tanks by sewers between septic tanks and cesspits is likely to to the reduction of nutrienit discharges is very hlave been quite unclear to many respondents. uncertaini. The policy on wastewater collection From a public hiealthi perspective, all of these and treatment was driven as much by a complex forms of sanitationi reduce the risk of the set of trade-offs between the member states of thle exposure to diseases transmitted by contact withi Europeani Union as by any careful evaluationi of hluman excreta. The extent of tile reductioll the probable benefits. One importanit elemenit in depenidS UpOIn where anid lhow the overflow from this process was the recognition tihat it would be sewers, septic tanks, and cesspits is dischiarged. extremely difficult to control non-point sources of Many communities rely UpOIn open drainage nutrienlt dischiarges, particularly from agriculture. chiannels wilichi may flood intermittenitly. Thlese As a result, the installationi of sewer systems was expose all of the residents of the neiglhborhlood to seen as a way of eliminatilg some nlon-poinit the risk of disease transmissioni as a result of sources, directing the wastewater to tertiary flooding or chiildren playing in open-air drainage treatment plants withi h1ighi levels of nutrient chiannels. On the other hiand, reliance LIPOIl septic removal. tanks and cesspits whiicih discharge to soakaways can lead to problems of cross-contaminiationi of Thie issue of what to do about cesspits is water supplies, especially when many people rely less clear. By removing excreta from tihe upoin a shiallow groundwater aquifer as is tile case imimlediate hiousehold environment they provide in BLuenios Aires. Wlhile this is not common in most of the hiealthi benefits of better forms of Brazil, the use of shallow groundwater is sanitation. On the other hiand, most cesspits lack increasinig in some areas - e.g. Recife - whiere the any kind of a holding tank whiichi permits water company has failed to supply an adequate anaerobic digestion to take place, so that thleir quanitity and quality of water to customiiers overflow will often contaminate grouLidwater anlc connected to its network. Contamination of nearly waterways with patliogenis as well as network supplies is, of coLurse, still a potential organic waste. Iftile commun1ity relies upOIn tile threat, but this is usually a consequenice of bad ground or surface water for drinkinig, bathiing, or maniagemenit of water distribution networks. It washinlg, this may lead to tihe transmissioni of makes no sense to spend lheavily on sewers in water- and excreta-related diseases and parasitic order to avoid thle risk of contamlinationi of infection1s. So, it must be an empirical question network water supplies. about liow far the use of cesspits for sanitatioln poses a significanlt thireat to healthi in a specific A septic tank sIhould be a perfectly locality. Thle thireat is likely to be greatest in acceptable form of sanitation for a large densely settled favelas wlicih are not adequately proportion of the population. Ideally, tiley shiould served by reliable water distributioll networks. be desludged at regular intervals so as to ensure tilat the process of anaerobic digestion contilLues Other forms of wastewater disposal, to work properly. The pressure to install sewers including direct discharges to ditchies, streams, in place of septic tanks in Europe has been and othier surface water, are certainly not 24 Brazil: Managing Water Quality satisfactory. The proportion of households At an average cost of R$ 1,800-2,000 per withiout adequate sanitation varies from about hlousehold8 (including the cost of associated 14% in the North and Northeast to less than 4% wastewater treatment capacity) a program to in the Centre-West. In absolute numbers the install sewers to serve all households whicih states withi the largest number of houselholds currently do not hiave adequate sanitation would without adequate sanitation are Sao Paulo and cost R$ 5 - 6 billion. On top of this it is Rio de Janeiro (about 470,000 and 410,000 necessary to allow for the cost of providing respectively). In proportionate terms tile worst wastewater infrastructure for a growing urban states are Maranhao, Amapa, and Acre, eachi with population. Over the next 10 years tile nulilber of about 25% of urban lhouseholds without adequate urban hLouseholds may be expected to grow by at sanitation. least 6 million. This increase may be as large as 9 million if the average household size continues The acknowledgement that lower cost decliine as rapidly as it did between 1991 and alternatives to sewers may provide perfectly 2000. Depending upon wilat proportion of new adequate sanitation for many households implies hLouseholds are served by sewers rather tihan other that setting targets to increase the overall forms of sanitationi, the investment required to coverage of sewers for urban areas from, say, keep up with urban population growth may be of 56% to 60% or 80% would make little sense.7 the order of R$ 12 - 18 billion. Finally, there is Obviously the starting point must be to address the potential cost of connecting households which the needs of those without any form of adequate rely upon cesspits to sewer systems. Thlere were sanitation. Even for them, the first priority must about 7.5 million such hiouselholds in 2000, so be to ensure that they hlave access to a reliable that the investment required would be of the order supply of piped water. After that, a choice has to of R$ 13 - 15 billion. be made between the installationl of sewers and tile promotion of septic tanks or other Putting these estimates togethier yields the decentralized forms of sanitation. The latter are followingtotal figures. Potential investment requirements for urban sewers, 2003-2012 Connecting households with no adequate sanitation R$ 5 - 6 billion Growth in the number of urban households R$ 12 - 18 billion Connection of households with cesspits R$ 13 - 15 billion TOTAL R$ 30 - 39 billion most likely to be an appropriate choice for peri- urban areas, small p iand coiely pi Again, there is substantial variation in cost estimates for urbanltowns, adrelatively thinly wastewater collection and treatment in different regions. Some settled districts in larger towns and cities, whiere estimates are as low as R$ 900-1,000 per household, while density of population and grounid coniditions costs in the Southeast run to R$ 2,400-2,600 per household. permit. If land is cheap, the capital cost of secondary wastewater treatment can be substantially reduced by using aerated Obligations to meet targets of 60% or 80% sewer coverage lagoons, waste stabilization ponds, or constructed wetlands. withinl 5 or 10 years are quite frequently specified by This is usually impractical in large urban areas so that more municipalities in drawing up conditions for private water and compact but capital-intensive technologies such as activated sanitation concessions. sludge, with high running costs and sophisticated management Brazil: Managing Water Quality 25 There seems to be little realistic prospect higiler water bills to cover the additional cost of a of mobilizing R$ 3 - 4 billion per year over the sewer coniectioni. In addition, the structure of next 10 years to implement all of the elements of water companiy tariffs means that most companiies sucih a program. To the extent that the Federal incur a significanit loss for each additional sewer Governmienit is able to influence the allocation of customlier using less thani 20 or 30 m3 of water per investmenit funds for the construction or extensioni monithi. The key factors relevant to this question of sewer systems it must be much more selective are: thani it hias been in the past. This should imply * Detailed analyses of the efficient costs of the development of clear criteria to select the provid wates ofpthe ewater projects whicih will be supported on the basis of providilig water supply, wastewater thieir expected hlealthi, social or enivironmiiienital ticollection, and wastewater treatmeno t suggest benefits. It seems l ikely that a focus on areas of that the long runl marginal cost of wastewvater bediefitse Ietsemenslikheelytat many CLIS oareas dof notcollection in Brazil is typically equal to 80- dense settlemienit where m-aniy hiousehiolds do ilot 1 00% of that for water supply. Addingu have access to adequate sanitationi is likely to 1, wastewater treatment pushies the ratio of long yield tile miost cost-effective Imlproverments in rLl -agia otst 0-12%f¢ h1ealth, social and environmental conditions.rnmgiacotto102%fr wastewater collection pIlus primary treatment Many of the residents of these areas hlave and 120-150% for wastewater collection plus Manlatively lof athe residentsi fcthese aThae secondary treatment. These ratios are typical relatiely lo and ucertai incoms. Theof the cost ratios observed in Europe ancl instal lation of better sanitary mfi-astructure may be of dubious benefit for them. On the one hand North America. However, tariffs for wastewater collection and treatmenit together miost of these poor residenlts are niot inform-ed about the benefits of such works, so that with aire set in Brazil at between 70% and 100% of minimilal educational campaigns they might well water tariffs. This is justified either as a ilcreasetieir williigiless to paygforaving cross-subsidy to encourage customer-s to services provided. Also, there is the issue of coniect to sewers or on the basis of the social inclusion' that can be an important factor .negative externality associated with wvater social~ ~ ~ ~ ~ ~ ~ ~~~cosmpin However,l thet figre implymotataco in this equation - when public authorities are seen conSta cptiost. However, the figures wilply to be investinig in wastewater and drainage, and that tie costs of serving additional sewer associated slum upgrading (where this is an issue) customilers will, on average, exceed the extra theni the peri-urbanl inhabitanits themilselves tend to revenue which they provide. start to believe in the permanence of their * At current prices the long runl average cost of settlement and begin to invest in their houses too. providing service is R$ 1 .15 - 1.25 per m3 Having an address for the first time (resultilig for water supply and R$ 1.40 - 1 .60 per ni3 from a slum-upgrading operation), or getting a of water for wastewater collection and water and/or sewer bill, can be a positive factor secondary treatment. However, the average as houselholders look for work, open bank tariffs paid by customilers consuming less than accouLnts, look to buiy goods in installimenits, etc. 20 or 30 m3 are well below these levels. Thle The other positioni, however, is the immediate finanicial viability of water compan ies relies economic implications of havinlg these services upon large cross-subsidies from industrial, provided. They may be very reluctanit to pay commercial, and large residential customer-s to small customers. However, this structure requircments, or biological filter systems must be substitutcd. of tariffs is already threatened by large We have used costs above the middle of the range because industrial customers, who imiay accounlt for muchl of the investment xvill be in areas of dense settlement 25-40% of total revenuie, seekinig alterilative wvhich are often diflicult and expensive to scrve. sources of water in order to avoid the very 26 Brazil: Managing Water Quality highi tariffs that they are charged. It will be that are much lower than the long run cost of necessary to reconsider the structure of providing the service. As a result, water tariffs in order to recover the extra capital companies in different parts of the country report and operating costs implied by a large connection rates for new sewer schemes that are expansion in sewer networks and wastewater much less than 90-100%, so that the presumed treatment. Inevitably, the average tariffs paid environmental and other benefits of these by most small and medium consumers will schemes are not being realized. have to rise to a level closer to the long run average costs of service. Of course, states or municipalities can adopt regulations requiring houselholds to connect Many studies of willingness to pay for to sewer networks that pass within 25 or 50 water and sanitationi services have established meters of their property. These would deal with that households are willing to pay 3% or more of richer households who would otherwise see no their income for water supply, but rather less for reason to convert from an existing septic tank to a sanitation. In studies where households with sewer connection, but they are a m inor part of thie septic tanks or cesspits were offered sewer problem facing water companies. SuchI connections the average willingness to pay for the legislation may be unenforceable in many service was no more than 1-1.5% of income. neighbourhoods. Even if it is enforced, conversion may simply lead to accelerating Consider the implication of these problems of non-payment, so water companies proximate figures for a household consuming 15 have no great enthusiasm for relying upon m3 per month - equivalent to 125 litres per person mandatory connection to new sewer networks. per day for a family of four. If tariffs reflect the An alternative might be to subsidize tariffs to long run average cost of providing the service, the poorer households for some 5 years but not the water tariff would be R$ 1.20 per m3 and the investment cost of connection. Once the wastewater tariff would be R$ 1.50 per m3. At household has been connected for a reasonable these tariffs households with an income of R$ 600 period, it will become accustomed to the service per month or more would spend no more thani 3% and understand its benefits. It is, thus, more of their income for water supply, but household likely to be willing to pay for the service at the income would have to exceed R$ 1,500 per monthl end of the initial subsidized period. to keep the cost of wastewater collection below 1.5% of income. Using data from the 1999 In summary, the investments required to Household Survey (PNAD) adjusted to current implement a full program to expand sewer prices, about 60% of urban houselholds have a networks to extend existing coverage to household income greater than R$ 600 per month houselholds without adequate sanitation, keep up but only 30% have a household income greater with urban population growth, and replace than R$ 1,500 per month. cesspits, are far beyond the financial resources available from the cash flow of water companies Social tariffs and cross-subsidies from and potential assistance from the Federal water supply to sanitation services can expand Government. The companies should not rely the number of households able and willing to pay upon debt finance for the construction of sewer for water supply alone or for both services. But, networks because the revenues that will be the reality is that a substantial majority of urban generated by extending sewer networks are likely households who currently do not pay for to fall short of the amount required to cover sanitation services cannot afford or see little operating and maintenance costs and to service reason to pay for these services, even at tariffs debt. Thus, all parties - particularly the Federal Brazil: Managing Water Quality 27 Government in its allocation of finanicial discussed in the previous section would be about assistance - must be much more selective in R$ 9 - 13 billion over 10 years. deciding what type of projects deserve support and whichi ones should be deferred until resources The benefits of treating domestic and willinginess to pay for service'are less of a wastewater- as distinct from wastewater constraint. In all cases, funds for investment collection and the treatment of industrial should be conditional on the operator wastewater - are almost entirely environmlenital. demonstratinig in its currenit performance that it An investment of as much as R$ 15 - 20 bi ll ion has the financial resources and operational together with operating costs of up to R$ 1.5 capability to ensure that new infrastructure is billion per year should, therefore, be compared managed and maintainied in a sustainable manner. with other options for achieving better Grants or other assistance should be clearly environmental quality and/or other social objectives. Inaked to the achievemenit of clear and substantial benefits from improvements to public healtlh or The environmental benefits conferred by the environiment. wastewater treatment vary greatly according to the location of discharges and the nature of the treatment provided. Few would argue that the discharge of wastewater to or near the beaches of The conclusions of the previous section apply Rio de Janeiro in 2000 caused substantial loss of even more strongly to the issue of wastewater amenity and, perhaps, loss of income because of treatment. According to data from the National damage to the city's reputation as a tourist Information System for Sanitation (SNIS) for destination. However, the reason for the 2000 about 47% of alI wastewater that is discharge was that CEDAE (the state water collected is treated. This amounts to about 21% company) was forced to shut down the submarine of the total volume of water that is consumed. outfall which takes wastewater from the city out Standards of treatment vary widely and there is into the ocean in order to repair it. The ample anecdotal evidence to suggest that a wastewater transported out to sea does not significant proportion of wastewater treatment undergo prior treatment. This has minlimal plants are largely ineffective. This may be due to consequences for the residents of the city in mainteniance problems or because a lack of normal conditions. Furthermore, standard sludge disposal facilities prompts the operators to methods of treatment would have little impact on discharge sludge to rivers or other surface waters. the most serious consequence of ocean discharge, Underlying the specific factors in each case is the which is the risk that bathing waters contain broader issue that inefficient and financially excessive levels of pathogens, since conventional pressed utilities have no incentive to maintain and primary and secondary treatment have only a operate Wastewater collection systems and limited effect on bacteria, viruses, and other treatment plants for which they incur large pathogens in wastewater. It is possible to treat operating costs. wastewater in order to eliiminate most pathogens, but this can be expensive either in terms of The total investment required to provide capital costs (for land-intensive waste secondary treatment for (a) wastewater which is stabilization ponds) or in terms of operating costs currently collected but not treated, and (b) (for conventional treatment, disinfection, and wastewater which is nominally treated but to a microfiltration). lower standard would be about R$ 6 - 7 billion. In addition, the wastewater treatment component This example should not be interpreted as of the costs of extending sanitation services implying that wastewater treatment does not 28 Brazil: Managing Water Quality matter. Rather, it emphasizes that decisions on dillution and dispersion potential provided by this whether and how to treat wastewater should be river, and its associated capacity to process the based on a careful analysis of the impact of organic, nutrient and pathogenic content of the treatment on the quality of the water to whicih wastewater itself, and that (b) the raw water untreated or treated wastewater is discharged. supply intake for the city is upstream of the In the case of Rio de Janeiro, the major existing wastewater outfall, this treatment plant environmenltal problems are the eutrophication of will yield no observable environmental or healti parts of Guanabara Bay, as a result of the benefits relative to discharginig the wastewater nutrients in wastewater discharged to the Bay, into the main stream of the Rio Negro as is done combined with the contaminiation of bathing at present. Iistead, investing these funds in waters (mostly in the Bay) with pathogens from wastewater collection and transport in those areas the wastewater. Careful hydrodynamic modelinig of the city whlich today discharge their wastewater has shown that wastewater treatment will have directly to the city's ubiquitous small streams/ only a very small impact on both of these rivers, or ' igarapes', would bring significanlt local problems while diffuse discharges of wastewater hiealth, social, and environmental benefits to the to canals and streams on the Western side of the generally poor neighborhoods in questions, since Bay continue. Thus, extension of wastewater these igarapes are grossly polluted. collection networks will have a much greater positive environmental impact on the bay than the On the other hand, much smaller and/or treatment of wastewater that is currently less expensive treatment plants may have a collected. Furthermore, in the zones wher-e substantial impact on river quality in sensitive wastewater treatment might have a significant environmental and ecological zones. In the effect the analysis indicates that environmental metropolitan region of Recife, treatment of standards should put more emphasis on indicators wastewater collected in some of the upstream related to the removal of nutrients and pathogenis municipalities in the Capibaribe basin could have than on organic pollutants (BOD). Yet, despite significant impact on the amenity and productive this evidence a large primary treatment plant has value of the river. Similarly, in other localities, been built and there are plans to upgrade it to fisheries and recreational uses of rivers can be provide conventional secondary treatment.9 protected by wastewater treatment plants whici are appropriately located and designed. Another example concerns Manaus. It is reported that the state environmental agency is Much of the discussion in Brazil insisting that the recently privatized water concerning appropriate targets for wastewater company whicih serves the municipality should treatment seems to be based on misleading build a secondary treatment plant for the comparisons with Europe and North America. wastewater which it collects. Manaus is sited Certainly, many of the OECD countries are next to the Rio Negro just upstream of its moving towards universal secondary or tertiary confluence with the Amazon. Given (a) the huge treatment of wastewater. But, this is a lengthiy - and very expensive - process whicih represents the culmination of nearly 150 years of gradual 'In practice it would be extremely difficult, if not impossible, upgradinig of wastewater collection and treatment to remove nlutricnts without first removing the organic content systems. Sewer networks were first inistalled in of wastewater. Since the most relevant parameter s are many European and North American cities in the pathogens and bacteria, their effective removal (as well as second half of the 19th century. Collected that ofNitrogen) would require a substantial reduction in BOD se athe 1 iti ctry. Colleted levels, but not through the usual standard for secondary wastewater was initially discharged to rivers and treatment, coastal waters. Over the next 100-150 years, Brozil: Managing Water Quality 29 preliminary, primary, secondary and - eventually institutionial problems that stand in the way of - tertiary treatment was installed or is still being effective maintenance and operation of treatmenlt installed.'0 Even today there are large cities in plants have been and in some cases remaill Europe which still discharge preliminary treated equally important in many OECD coulitries. So, wastewater (namely that whichi has only this report's emphasis on the importanice of ulidergonie screening and possible grit removal) addressing problems of operation and directly to receiving waters. mainitenianice before spendinig large amounts on new infrastructure reflects a commoni experience The cost of this gradual process was that in rich coulitries as well as in Brazil and maniy most rivers in dense urbani areas were polluted by other middle income countries. wastewater discharges. However, the water quality in many of these rivers was often already As a first step towards a more efficient use poor because of discharges of industrial effluent, of Federal resources, the Government has so reducilng pollution from sewer systems only initiated through ANA a pilot program whicil became a priority once the problem of industrial establishes the principle of payment by results in pollutionl had been tackled. Even then, it will the area of wastewater treatment (Progranla have taken some 50 years in many European and Compra de Esgolo). Until now, the Govermilenit North American cities to install new treatment has provided capital grants or low interest loans plants or upgrade existing ones to currenit to finance investment. This encourages a standards. transition from capital intensive projects that are often badly managed, to an approach in whici This is not to suggest that Brazil should payment is based upon results achieved in follow exactly the same path and time span as wastewater treatment. The pilot program Europe and North America. It is nonethieless provides payments for achieved reductiolIs in equally important to be realistic about the time discharges of wastewater over a period of 5 frame that is involved in moving from a 50-60% years. The level of the payments is set so as to coverage of sewer networks to, say, 95% reimburse up to 50% of the capital cost of the coverage with full treatment. This is not a project over this period. Thus, elemenlts of a program for 5 years or even 10 years, but a capital grant remain but project sponsors have a process that is likely to take 30-50 years - i.e. stronger incentive to adopt low cost methods of longer than the life of the treatment plants that are reducing pollution and to ensure that their plants being built today. Hence, it is perfectly continiue to operate in accordance with the reasonable from an environmental perspective to original design specifications. The problem of permit lesser level of treatment today, on the the credibility of the Government's commitment basis that the level of treatment will be gradually to make recurrent payments for pollution upgraded or that stricter standards will be reductions is dealt with by putting the total Sum adopted wheni the plants need to be modernized or committed into an escrow account at the time replaced in 20-25 years from now. when the coinmitment is made. It should also be recognized that the With some modifications this pilot program could provide a framework for the allocation of "'The wastewater treatment plant that is planned for Brussels, Federal support for wastewater treatment and the capital of the European Union, will not be fully completed other inifrastructure intenided to improve water until 2003-2004. Until recently most of the wastewater quality. These adjustments might include: collectcd in BrussCIs was transported away from the city and discharged without any kind of treatment. * An extension of the period over which 30 Brazil: Managing Water Quality payments are made to the project sponsor Improving operational performance from 5 to 10 years to reinforce the There is little point in making large investments in importance of good operational performance. water and sanitation infrastructure if the networks and plants are not operated or are utilized at * The adoption of weights for reductions it below their design levels. Low levels of discharges based on an assessment of the utilization are characteristic of muchl of the water benefits of improving water quality inutlztoarcirceisc fLCIfthwtr and sanitation sector in Brazil. One estimate different locations. The weights could provided during this study was that only about depend upon (a) the impact of a reducing 20% of the installed nationwide treatment discharges of BOD by, say, 1,000 tonnes per capacity is being used. This is consistenit with day on water quality downstream of the estimates from Mexico, where a figure of 18% discharge; (b) the gap between actual and was estimated, and from a sample of Chinlese desired water quality based on the water cities where the figure was 25-30%. Few of the quality targets for the river; (c) thle niumber of treatment plants built during the course of the people who would benefit from the projects examined in the next section operate at improvement; and (d) the extent to whicl the more thanl 50% of their capacity and most operate segments of the river affected by current at one-quarter to one-third of their intended discharges are important for recreational capacity. users or for other health, social and environmental reasons. These weights would A part of the problem is poor planning. be an approximation to a set of environmental There are dozens of examples of wastewater values for improvements in water quality. It treatment plants whichl were completed years is, nevertheless, not necessary to go as far as before the sewer networks which they were putting monetary prices on environmental intended to serve. In other cases, disputes about benefits. What matters is that the weights access and other problems have delayed the should reflect a reasonably consistent set of construction of the interceptors which should priorities. transport wastewater that is being collected to the treatment plant(s). However, there is a more * The consideration of pollutants other than serious underlying problem. Over the last decade BOD such as nitrogen or phosphorus in river the Ministerio Publico, supported by state basins or coastal regions where environmental agencies and based on existing eutropheication is a matter of concer, and of State legislation, has gone to court on a number of pathogen where recreational use such as occasions to block the issuance of operatilg bathinlg is an issue. permits for new sewer networks if the wastewater to be collected is not to be treated from the tine In the longer term, the Federal Government when the sewer networks start functioninig. In a may wish to consider whether the scope of the few cases, the action was iltended to oblige the program could be extended to provide incentives water company to construct a wastewater for companies or other agents who are able to treatment plant when none had been planned. reduce discharges by methods that do not rely But, more often, the issue at stake was whether upon the installation of treatment facilities or the sewer network could be used before the other end-of-pipe controls. In its current format, completion of the associated wastewater however, ANA has opted for a simpler model, treatment plant. The position taken by the which is perhaps a sensible approach, and a good environmental authorities has been that it cannot, way to launch the program. perhaps because they believe that without such Brazil: Managing Water Quality 31 pressure the water companiies will indefiniitely situationi. A major reason for the actions of the delay the construction of wastewater treatment environm1enital authorities is the often blatant plants. disregard of environimental permits and other- regulations by many water companies. The Even as part of a strategic game between regulators have little confidenice that the the water companies and environmenital companies will comply with the agreemenits that authorities, the actions of the environmental allowed them to collect wastewater as sooIn as authlor-ities result in a huge waste of resources networks are completed, o01 the basis that and, on balance are probably harmful to the treatment will commence withinl 1 or 2 years. environiment. There are substantial economies of scale in the construictioni of wastewater treatment Th is combination of poor operational plants, so it is norimial for plants to be built with a performance and a lack of trust between parties is desigil capacity to handle the volume of bad for all of those involved. The next section of wastewater expected 5 or 8 years after this report outlines some ways in whichi the focus completion. But, in the face of long delays in the of environmental policy could be improved. constructioni of sewer infrastructure and large Progress also depends upon tackling the unlcertainities concerini ig expected rates of widespread problems of water companies in connectioni, the environimenital autlhorities are Brazil in maintaining the operational perfor-milanice effectively forcing water companies to build of their systems. To achieve thils it is crucial to over-sized treatment plants well before there is examinie and correct the incentives - or lack any established requiremenit for them. So scarce thereof- whichi encourage the poor operational investimienit resources are comimii itted to treatment performanice and the neglect of mainitenianice of plants that are boulid to be uinder-utilized for both water and sewer systems. many years, while there are insufficienit resources to finanice the extensioni of water or sewer Many state or municipal water operators il networks in areas where these may have a major Brazil are unable to provide uninterrupted service imipact o11 public healtlh, on1 the quality of life of 24 hours per day throughlout their service areas. the poor, and on the improvement of the Yet in every case where a private operator has imimlediate environmilenit in wlicil people live. The taken over a system previously operated by a clhoices are further complicated if there are legal state or muniicipal company, the new operator hias requiremiients for treating collected wastewater. been able to ensure reliable service withini a period of 6 to 12 monthis. Equally, there are This isjust one example ofthe exteit to public companies in Brazil and otier counltries whicih the 'regulatory framework' for water and whichi are able to sustaini a good level of service sanitationi has lost sight oftthe social and for their customers. In all cases, the key is good environililenltal objectives of policy. By focusilng operational management, requirinig silmple exclusively on the enforcemiienlt of emission attentioni to detail, combined with the application standards, the environimental autilorities are of small amounts of investment whichi should be neglectinigtleir broader responisibility to work well with in the capacity ofexistiig operators to with other sectors to develop, implement, and finanice. enforce if necessary, programs that reduce pollution and improve the environimenital quality The World Bank experience from numrlie-ous of life enjoyed by the population. projects around the world and in Brazil suggests that providing techinical assistance and investmenit Similarly, the water companies should not resources is rarely sufficient to acihieve a be regarded as innocent parties in the current sustained improvement in service delivery 32 Brazil: Managing Water Quality performance as long as the incentives facing private) service providers and the public public sector operators remain unaltered. Hence, authorities (poderpzublico), so that it the critical issue is how to alter the incentive becomes a contractual relationship with clear framework under whicih service providers operate roles, responsibilities, performance targets, so that good management practices are promoted etc., and which is competently regulated; and rewarded. Just as importantly, operators must be protected from political interference in teir (ii) providing federal and state investments only technical and managerial decision-making. frcmaista aedmntae efficiency in operating existing infrastructure One option is to contract with a private and only for municipalities/states which have sector operator. However, the success of private demonstrated their desire to seriously reform sector participation will depend on the quality of the sector institutional/regulatory framework, r * | r s ~~and implement real changes throu h the contract, the transparency of the bidding g g process, and the clarity of the legal and regulatory regulatory control and enforcement, in order framework within which the service provider will to promote efficient service delivery; and be operating. The latter factor determines the (iii) working with customers so that they level of risk that the private operator perceives appreciate that by paying their bills they have and, consequently, the price that the operator will consumer rights with regard to decent WS&S charge for providing the service. The reality in services. Brazil today is that the regulatory framework is unclear and progress in adopting regulatory The pay-off to ensuring reliable water reforms is likely to be slow, so that private supply is large because it greatly reduces the long investment in the water sector will be limited. term damage to water systems which is caused by the pressure changes associated with interruptions The majority of state and municipal water in supply. Furthermore, it avoids the utilities will remain public companies for some contamination of water supplies by back- time, so that other changes in the incentive siphonage during such pressure changes when framework are required to promote efficient there are leaking pipes in areas polluted by service delivery in the short to medium term. cesspits, septic tanks or wastewater lines. Sewer The state of Parana has followed the route of networks, pumping stations, and wastewater selling a significant number of shares to a treatment plants can equally suffer long term strategic private sector partner. This allows damage from inappropriate operation and a lack private sector expertise to be brought to bear on a of preventative/curative maintenance. Also, since public company's management. Another wastewater collection, transport and treatment is approach is to tie investment funds to usually undertaken by the same entity that improvements in key operational and financial supplies water, if the water supply system is not performance indicators, as proposed under the being properly operated, and is not providing the World Bank's PMSS2 Project. appropriate revenue, then the wastewater systems are likely to be suffering from disproportionately The goal is to identify and implement the worse operation and maintenance. Customers will structural changes necessary to correct the complain immediately about interruptions In incentives which allow or encourage poor water supply services, whereas wastewater operational performance in existing companies. collection and treatment can be ignored This involves: continuously by utilities with no public reaction. Wastewater systems are hence treated as poor (i) reviewing the relationship between (public or relatives of water supply systems, and are the Brazil: Managing Water Quality 33 first to whiclh a 'blind eye' is turned by the this was done to improve the working operator. conditions of the plant operators, but render-s the biofilters largely ineffective in treating the Similarly, there are frequent examples of wastewater; wastewater treatment plants whose removal rates for BOD and other pollutants are far below * the secondary sedimentationi tanks were being design standards and whicih discharge effluent at bypassed and the partially treated wastewater far greater concenitrations than permitted by their being discharged straight to the river, because environimenital licenses. There are many plants in the tyres that allow the scraper arms in the Brazil wlhere activated sludge tanks are bypassed sedimentation tanks to rotate were blown out or the aerators in aerated lagoons or oxidation (they probably cost some US$50-1 00 to ditches are switched off, in order to reduce replace); and operating and maintenance costs, particularly electricity bills. Other plants are unable to * the anaerobic sludge digestors were not hanidle and dispose of their sludge properly. The functionlinig because tihey had been allowed to net effect is that such plants provide no effective 'grit up' over the years, and the working treatment and may, indeed, discharge effluent that volume had been compromised (such contains more concentrated organic matter and degritting was designed as a manual activity nutrients thani in the raw wastewater. Such plants which had not been undertakeni). simply represent a waste of capital and operating expenses and provide none of their intenided This example illustrates that most of the envii-onmenital benefits. problems were operational in nature and had nothingto do with investment in additional plant A wastewater treatment plant in Recife is or treatment capacity. a case in point. The plant was built in the 1970s but is not fuLictioninig properly. The operational It is critical to tackle the problem of the problems are linked to the inability of the utility, operational performance of the water and Compesa, to run the plant properly as well as the sanitation sector. Until this is done the economic, lack of incentives (for the operator, for the social and environmenital benefits of new concedinig power, etc.) to change this situation. investment will remain extremely low. Indeed, a Wheni the plant was visited a couple of years ago strong case can be made for withholding all it was found that: financial assistance for investment from any water company whichi fails to meet certain goals for its * the pumping/lifting stations that feed operational performance. As mentioned above, wastewater to the plant were mostly not this approach/inicenitive structure is central to the working due to ineffective maintenance logic behind the Bank's PMSS2 Project, whicl (pumps burnt out, rising mains leaking, etc.); allows for different levels of investment to be made in utilities as long as, either, certain * the plant's biofilters were allowed to operational or financial efficiency gains are made, deliberately flood by the operators to or reforms are made to the legal and regulatory discourage the swarms of flies that would framework and private sector participation is otherwise be attracted to the 'dry' filters - promoted. 4 Environmental management in the water sector W71 Tater resources and environmental issues treatment in line with their own financial capacity are closely interrelated and, in theory or on the basis of regulations and standar-ds laid TV at least, inseparable. Althoughi water- down by outside regulatory bodies. Perforimianice related matters worldwide hiave substantial thierefore largely depends on the institutional impact on the environment, water resources structure and especially on the degree of maniagemenit has traditionally fallen within the regulatory independenice governing the sector. remiit of water agencies, while environmental Brazilian state water companies have en;joyed a subjects are dealt with by separate environmenital long history of independence from outside bodies. These organizations have little incentive regulation and have thus been able to define their to work together to ensure efficient use of own targets for wastewater collection and resources and simultaneously to pay due attentioni treatment levels. Meanwhiile, state environimilental to envirolimental concerns. agencies have the power to block certain developments but little or no capacity to promote Water agencies need to ensure that water investment and identify other measures to resources are allocated efficiently among improve water quality. As a result, resource competing users in a given water basin. Standard allocation tends to be driven by techinical economic principles determine tihat efficient considerations rather than any collerent strategic allocation occurs whien the marginal net benefits plan. among all users are equal, while making allowances for seasonal variations (e.g. supply State environmental agencies should have scarcity). This approach tends to focus on water the power to ensure that water resources agencies availability as the main deciding factor, and water companies are fully apprized of the regardless of water quality or the effects of water impact of their decisions on water quality. abstraction on the ecosystem and the aesthetics of Unfortuliately, they lack the political support and a given location, as well as on activities ranginig the resources needed to carry out this from fishinig/fishi spawning and shipping to responsibility, the net result being that they tend recreational pursuits. to focus narrowly on emissioni standards rather thlan on the quality of the receiving water bodies. The water supply and sanitationi sector Their ability to influence strategic issues is also follows a similar pattern. Water companies in severely restricted by their failure to establishi Brazil, mainly State-owned, establish targets for effective mechanisms for (a) monitoring water water supply, wastewater collection and sewage quality and polluting discharges and (b) enforcinig 35 36 Brazil: Managing Water Quality license and permit conditions, particularly those The lack of a consensus about the benefits involving the state water companies. of improving water quality in relation to other social objectives is especially notable in the case The problems encountered by of water companies. There are strong and environmental agencies in developing a sound understandable pressures to hold down water and approach to water quality reflect broader sanitation tariffs. However, tariffs calculated to questions of environmenital management in Brazil. satisfy social and political objectives or charges Substantial public, political, and legal support that can be afforded by low income houselholds exists for reducilg pollution and improving may be too low to finance investment in environmental quality. However, this is not based wastewater collection and treatment. This on a comprehensive understanding of, or problem is compounded by the inefficiency and consensus about, the trade-offs between poor performance of many of the country's state economic costs and environmental benefits. The and municipal water companies. Nonetheless, the upshot is that, since the various environmental trade-off between setting tariffs to meet social authorities have no direct responsibility for goals and ensuring the financial sustainability of financing implementation, they tend to adopt water companies would not be an issue if these legislation and promulgate regulations that set companies were better managed, both by the unrealistic goals and unenforceable standards. public sector or through the introduction of private participation. The courts, at the behest of the Ministerio Publico, are obliged to accept these goals and standards as legally binding. At the same time Managing water quality the courts are unable to mediate constructive, Water quality targets are the key expression of practical solutions or to oblige state authorities public objectives for environmental management to finance the means for ensuring compliance with in the water sector. Such targets should reflect the standards imposed. The resulting overall the various environmental, social, and economic picture is one of strict environmental policies factors involved. This inevitably involves disconnected from the performance of much of consideration of resource constraints and the water sector but whichi can seriously impede environmental priorities, and should take into the adoption of cost-effective methods for account public and political choices about the improving environmental quality. relative importance of competing goals. Once defined, these targets need translating into The costs of degradation of surface waters measurable indicators that can be used by those and underground aquifers are not widely realized. responsible for the day-to-day decisions regarding They include the short-term, reversible impact of project selection and operational management, as degradation (amenity, increased water supply well as by those charged with the enforcement and costs, reduction in fish population) and longer monitoring of compliance with the agreed goals. term largely irreversible effects (loss of ecosystems, accumulation of toxins, etc.). The What emerges strongly from the analyses role of the various government authorities undertaken for the present study is the lack of concerned is to (a) assess the costs; (b) define clarity and consistency concerning the objectives priorities for damage reduction; (c) allocate of those agencies with responsibilities for the responsibilities for addressing priorities; and (d) management of water quality. Unsurprisingly, it establish an appropriate framework of financial follows that complex projects or resource support and incentives to ensure implementation allocation mechanisms appear to be poorly of the measures required. designed and insufficiently coordinated. Brozil: Manoging Water Quality 37 Before entry into force of Law 9433/97 The quality of many water bodies falls establish ing water management by river basin well below that of their nominal classifications. committees, all Brazil's rivers were deemed to be This gives rise to: classified according to target quality levels. The * inconsistencies encountered in the various latter was based on existing or projected uses, classifications, in environmental licensing, environmental conditionis and other factors. This classification is obviously crucial from the in th e awardit (new enivironmiental poinit of view, informing water oi enterprises contiue to be awarded licenses users of the objectives to be achieved by on the basis of emissions standards, even controlling discharges. Environmental quality when the receiving water bodies do not meet targets are in effect more important thani specific the relevant standards)"; emission standards, whicil should be employed * reluctance to negotiate phased programs to only as part of the endeavor to achieve reduce existing discharge levels; environimenital quality. The practice has however fallen short of the theory in the case of Brazil. * difficulties encountered by enterprises and environmental authorities in defendinig The state environmenital agencies are negotiated solutions if these are challeniged in responsible for classifications whichi in turn are court by the Ministerio PHiblico or others; and stibject to CONAMA Resolution 20. "By * a general lack of credibility of the entire default", all rivers are in priniciple classified as scheme governing water quality targets. "Class 2". With the exception of a few rare cases, no rivers in Brazil have been subject to a With the adoption of Law 9433/97, which serious analysis of desirable quality levels and coi-pliace osts Futherore iioextriia imstituted the National System- of Water comptitLtiSliance osts. setLIP F rore unoextakeor Resources Management, and is embodied in insttutins ave eenset p toundrtak orcomplementary legislation'2 of the different participate in sucih analyses. Classification has states,te sujec ofgclasifci of wtere been substantially based on unilateral assessments by the environmental agencies, with bodies has stimulated more vigorous debate. Within the new legal framework, classification is minimum consuiltation with those affectedineddtemrcevro etagal regarding, for exam-ple, their funding capabilities. ineddtemrcevro etagal regarding both quantity and quality, linked to a water resources plan for a given water basin. Environmental agencies have chosen to focus on emission standards - simpler to establish This plan aims to incorporate a workable financial framework which also takes account of, and moe easiy moniored. he emision nter a/ia, fees charged for water use and standards appear to be unrelated to environmental d isch arges for . te inta posa qLiaity bjecive aii areappied itliiiodischarges. The aim is for the initial proposals quality objectives and are applied with no for water resource plans to be drawn up by river conisiderationi for the impact of existing discharges on the quality of receiving water bodies. In many cases, the result is severe " It is not uncommon for the standards governing pollution caused by existing discharges, even concentrations of pollutants to be lower than the quality of where emissions standards are applied to new the water in the river receiving the discharge. sources. In others, stringent treatment standards 12 At present, 19 states and the Federal District are regulated are required when there is little or no by the legislation. T he states not included are mainly those enivironmental and/or socialjustification for them. in the North where water resource problems differ substantially from the other states given the abundant water resources in This is the core of the problem arising from sub- the Amazon region (the Amazon basin accounts for 80% of optimal economic allocation of resources. the country's freshwater resources). 38 Brazil: Managing Water Quality basin agencies before review and/or amendment naturally being strongly resisted by those who by river basin committees. This consultation/ have hitherto enjoyed free rights of effluent negotiation arrangement should forge a consensus disposal, it is wholly consistent with the new on objectives and responsibility-sharing and thus approach, providing appropriate incentives for the endow the agencies responsible for the grantinig of reduction of the concentration and/or volume of abstraction or discharge licenses with a degree of discharges. If eventually widely accepted and legitimacy. implemented, it will transform the basis for managing water quality in Brazil. Brazil's river basin committees will be eventually responsible for agreeing on acceptable A substantial investment in monitoring and levels of pollution. This will involve balancing data analysis linked to permits enforcement will the various interests of water users (including be required. Many irrigation intakes, small those of the general population) with hydroelectric plants and wells operate with n1o environmental concerns. Agreement reached oni authorization or registration. Waste discharges the basis of discussion among different parties are rarely monitored, and untreated urban and will hopefully reflect a balance between the costs industrial effluents are commonly released and benefits of water quantity/ quality goals, directly into rivers and lakes. The degradation of water allocation arrangements, and the environmentally sensitive areas, such as the requirements of the beneficiaries and purchasers. Pantanal, by non-point source pollution is also a growing concern. In the coastal areas of the The new system, supervised by ANA, is a Northeast, strategically located aquifers are beilg key step towards the integration of environmental contaminated and/or rapidly depleted. Rather issues with traditional arrangements for water thanl monitor users and discharges to safeguard allocation. One aspect of ANA's approach is to against subtle but obvious forms of make water quantity and quality commensurable, contamination, public agencies tend to react only by assessing polluting discharges in quantity to highi-profile accidental spills. If the attitLdes terms (by calculatinig the flow of water required governing this kind of modus ope7randi fail to to dilute the discharge) so that the quality of the chanige, the new framework will be undermined receiving body remains within the range of by a lack of credibility in those responsible for concenltrationis consistent with the water quality overseeing its implementation. classification and any downstream uses. Effluent discharges may thus be regarded as pre- The institutional framework for water empting a given flow in order to maintain water qualitytminagement quality. In short, the new system gives formal quality management expression to the intuitive notion that river flows Despite proposals for joint action at state or local must be maintained in order to dilute wastewater level between those engaged in water resources discharges in urban or heavily industrialized managemenlt and practitioners in the areas. Initially, the calculation of the diluting environmental field, existing links are still in their flow focuses on levels of BOD, but it can be infancy. Conflicts have arisen when various extended to encompass a range of pollutanits. agencies make different requirements and demands on those seeking environmental licenses The crucial additional step is that ANA and/or authorization to abstract water or discharge envisages that those responsible for effluent wastewater. The challenge is to minimize or discharges must acquire water rights/permits for a eliminate suchl conflicts within a framework flow not less thani the diluting flow calculated in consistent with the national water resources the above manner. While this proposal is policy and state legislation. Cooperation between Brazil: Managing Water Quolity 39 resources management and environmenltal the difficulties involved in identifyling suitable agencies hias been encouraged mainly in the states transfer mechaniisms. of Sao Paulo and Parana. Thie bulk of the resources for implemelitilig The new system of water resources river basin strategies will be provided by the management prescribed under Law 9433/97 is principal user sectors - water and sanitationi, based on river basin management. Thiis energy, and large industrial companies. These foresiladows greatly improved co-ordinationi may be supplemenited by (a) income from chiarges between thle various sectors and institutiolIs. The for water abstraction and effluenits discharge, and river basin committees possess adequate (b) limited budgetary support from the Federal I-neclianisms for resolving conflictinig demands on Governmeit, states, and mullicipalities. water resoLirces, includinlg environmenital ones. Since tile system is still evolving, its strengtis Integrating programs and projects and weaknesses are difficult to assess at this stage. As can be expected, the basin committees Until the early 1990s, water projects in Brazil appear to be most active wilere there are were sector-based, dominated by infrastructure significant issues to be resolved. engineerinig. Institutionial considerationis wer-e generally confinied to operator performance and/or The river basin committees and agencies the fine-tuniling ofthe instrulimenits for recoverin,, shiould not be seen as a panacea to solve all the costs. Environmental questions were limited to problems associated withi previouLs structures and specific environmental licensing arrangemenlts, arrangemenits. Environimiienital agencies and those based on emissions standards for enterpr-ises'3. responsible for water resources will contilnue to perform their essential regulatory functions of More recently, as concerns for a mor-e licensing and authiorization. hlolistic approachi to the problems hiave grown, efforts hiave been made to develop integrated Not surprisinigly, the issue that is causing projects. The main aim of these pro ects is to the most difficulty is the financial dimensionl of bring about a sustainable improvement in the river basin managemiienit. Since the costs and quality of life, in its broadest sense, in the benefits of manlaginig water quality often fall on catchmenit areas or sub-basins. But, as complex different users, a key questioni for every river projects withi a variety of broad objectives, they basin organizationl is flow to finanice hiave proved difficult to implement. Criticism hias improvemenits that yield benefits that are widely for example been leveled at the "overloading" of distributed. Arrangemilenits for finanicial transfers the capacity of the implementinig agencies and the often make economiiic sense but are difficult to "Christmas Tree" approach - weighiing down introduce, particularly whien severalj urisdictions different agencies with too many unirelated are involved. Moreover, it is easier to introduce responsibilities. A key question is thierefore hiow levies on water users wilen the benefits of better best to manage such1 multi-sectoral and multi- water management are visible. The main problem agency "integrated" projects tojustify the is lhow to finanice the necessary tecihical studies, complexity of tile entire coordinationi effort, and togethier withi othier initial investimients, before a lhow they can focus better on genuinie case for providing adequate finance for river environmenital priorities. basin management hias been made. ANA is able to provide some support to river basin i3 The representative case is Loan Agreemcnt no. 3102-BR, comimillttees, buIt the onigoling debates aboLIt a sector loan for the Sanitation Company of the State ofSao chlarges for water use in different basins reflect Paaulo - SABESI'. 40 Brazil: Managing Water Quality The key objectives and components of the charging for water use - and in some cases projects reviewed for the present study are these institutional and legal reforms are still summarized in the Annlex. It became apparent in pending. Paradoxically, the tenacity with the course of the review that the projects were whichl the objectives were followed made it designed to address a range of goals of varying clear that long-term goals were needed to complexity, incorporating components from produce the institutional development that several different agencies. All of them possessed can be observed today. Furthermore, it is institutional capacity and policy development important to consider the institutionial goals, together with physical and operational capability ofthe executing agenlcies. This objectives. All of them, despite certain was seen as a constraining factor given the deficiencies, appear to have been broadly level of complexity demanded by the satisfactory. This study also took into account programs, and although the projects involved ICRs available for two projects"4 and anecdotal an institutional reinforcement componenit, the evidence obtained during field interviews. It does difficulties of managinig the experimental not attempt a detailed performance analysis and programs clearly show that inter-institutionial project comparison (althougih such an analysis rivalries cannot be discounted'5, even when might be worthwiliie, particularly as regards the the executing agencies are strongly supported implementation lessons and the organizational by specialized consultants. learning - both of the clients and the Bank). Some emphasis was given to understanding the Concern over institutional arrangements operations in the State of Sao Paulo where the needed to go hand in hand with that World Bank and the 1DB have been involved withi regarding potential sources of financinig, in the sector since the late 1980s and are now order to eschew dependence on transfers considering "thiird generation" projects. from state or municipal governments and to Consideration of the objectives and outcomes of attract private capital. In general, the the set of projects suggests a number of broad programs improved absorption capacity, findings: cost-effectiveness and the quality of the receiving bodies. However, little attention A. Institutional Questions. Looking back at the was given to achieving broader social appraisal documents, the experimental nature returns, in contrast to the more recent case of the programs can be seen as attempts to of the Guarapiranga Project, where much bring together concepts and methodologies attention was given to such broader social that were not consolidated at the outset. In returns in terms of slum urbanization, addition, extremely ambitious institutional resettlement, improved and expanded basic goals were set. For example, the basin infrastructure, and of community agencies and the charges for water use were infrastructure (parks, community centers, to be implemented in Guarapiranga, Alto etc.). Igua,u, and Arrudas/On,ca over the short space of three years. In reality, ten or more B. Need to Focus on Specif icAreas. The years were needed for the management chances of success of integrated projects are systems to come on stream, which meant that improved when they focus on a specific a long delay was incurred in introducing geographical area and when the broad I Loan 3 102-BR: Water Supply and Sewerage Sector Project "5The internal difficulties and lack of incentives for the World in Sao Paulo (1989) and Loan 3554-BR: Minas Gerais Water Bank to undertake collaborative projects itself across internal Quality and Pollution Control Project (1993). units and departments should also be viewed in this context. Brazil: Managing Water Quality 41 objectives of all tile parties involved hiappen area of interest) of the implemenitinig agency to coincide. In poor urban areas, without providing incenitives for the agency to environimiienital problems of drainage, solid become involved, problems can arise. Many waste, and sanitationi overlap and certainly of the difficulties encounitered in achieving need to be addressed in an integrated way. tile objectives of the Guanabara Bay Project In this respect, concenitrating on specific - PDBG - occurred because the maini geographical areas appears to be one implementinig agency (CEDAE) omitted to practical way towards finding common interinalize those objectives, tendinig insteacl objectives. to focus on those componienits and activities wilicih were of most interest to it. Unlike the In Minas Gerais, the objective was to case of the Guarapiranga Reservoir, wilere improve the urban waterways and adjacent SABESP had a real stake in the water quality, areas. Tlle project managemlielnt Ullit came the clean-up of Guanabara Bay is of little from outside the implemenitinlg sectors and direct relevance to CEDAE, beyond the was tilus able to focus on the overall goal. support it provided for constructilng In Guarapiranlga, the main purpose was to wastewater treatment plants. upgrade the "informal areas" so as to protect thle water quality in tile reservoir It is useful to reviewv the objectives, and thus ensure a reliable water source for preliminiary results, and implementationi the metropolitan area. In thils case, the incentives of tilree major projects"6- (a) the Basic implemenltinig agencies, includinig the State Sanitationi Program for the Guanabara Bay Basin Water Agency (SABESP) and the (PDBG) in Rio de Janeiro, (b) the Tiete River Mullicipality of Sao Paulo, possess strong Cleanup Project in Sao Paulo, and (c) the techinical capabilities as well as common Environmenital Sanitation Program forthe objectives - furthier degradation of the Metropolitan Belo Horizonte (PROSAM) in reservoir would have imposed substantial Minas Gerais. additional operating costs on SABESP, wilile thle Municipality's aim was to find In the case of tile PDBG, CEDAE as a state ways of dealiing witl the impact of water and sanitation companiy was left withi the continui ng miigration to the metropolitan responsibility of dealiing withi matters whlichi fell area. In the two cases, an integrated outside its remit, althioughi there were no approacih was tile only practical way to incenitives for the company to do so. UInlike achiieve institutionial and operational SABESP, whiich directly benefits from the objectives. mainitenanice of good water quality in the Guarapiranga reservoir, CEDAE is not overly C. Incentivesfor thle Inipleinentinig Agencies. concerined about improvements to the water Issues fallingwithin the mandate and quality of the bay. This is true at least in terms competency of a single agency call for focus of its fundamenltal responsibilities of water on a single clear goal. The Water Sector supply and/or revenue generationi. As for Project in Sao Paulo was designed to pollutioll control, the environmenital agenicy improve SABESP efficiency in providing FEEMA had been mandated to control industries water and sanitationi services. The project and was allocated specific funds to improve successfully strengthienied the agency - the enforcement. Meanwhile, urbani dischiarges largest in Brazil and acknowledged as one of remained the responsibility of CEDAE, whiici the better performiers. However, whien the project goals expand beyond the mandate (or " Also see the Aninex for a short description of these projccts 42 Brazil: Manoging Water Quality paid scant attention to FEEMA regulations and difficulties encountered in carrying out standards, in the absence of the likelihood of domestic connections and to the rigorous sanctions. CEDAE was therefore in a unwillingness of the local population (among position to decide its strategy for dealing with the poorest in the metropolitan region) to pay urban discharges without interacting with other for wastewater collection. agencies, except insofar as it was obliged to respect the agreements covered by the 1DB- * The most successful componenit of the financed project. Despite evidence that some of Program has been the construction of a the proposed wastewater treatment measures submarine outfall linked to the Icarai WWTP foreseen in the project were technlically weak, to transport effluent out into the Bay, thus CEDAE has been reluctant to reconsider its protecting nearby bathing beaches. strategy. CEDAE continues to follow its own traditional approach to sewerage collection and PDBQ whicih was initially foreseen as a treatment, frequenitly incurrinig unnecessary costs sanitation project with a social objective - and oni occasions worsening, rather than focused on improving the life quality of the user improving, water quality in the bay. population through provision of a sewer network - has become increasingly focused on the A number of high-profile negative constructioni of large treatment stations using consequences have been registered, ilCluding: conventional technologies. Unfortunately, little contribution has been made to reducing the * The solid waste treatment plants have environmental problem of the receiving water effectively beeni abandonied; body. The project was originally negotiated * The large Alegria wastewater treatment plant without sufficient involvement by the (WWTP) is funlction ing well below project municipalities which effectively obliged the state capacity, owing to the difficulties in government to assume exclusive responsibility installating trunk sewers in urban for it. This has been the root cause of the neighlborhoods. The upgrading of this plant problem - an integrated sanitation project to secondary treatment is being planned for definitely calls for close involvement by local the next phase of the Program, but no governments and local populations. increase in tariffs is foreseen to cover the costs involved; The IDB's Tiete Project can on1 the other hand be terned a large conventional sanitation * The CEPT (chemically enhanced primary project. The first stage of this project favored the treatment) plant is operating at half of its constructionl of large treatment plants, along the nominal capacity owing to problems in same lines as the PDBG. In the event, the waste making domestic connections. CEDAE has water treatment plants (WWTPs) constructed in no agreement with the municipalities of the Tiete Project also operate below the nominal Baixada Fluminenise to collect and treat capacity because of difficulties in transporting the sewage discharges which means that wastewater to the new WWTPs. There is clear investments are being made there with no evidence that the primary objective of the project guarantee on returns; was confined to meeting state legislation that * The secondary treatment plant in Sao demands a minimal level of treatment for Gon,alo (on the East side of the Bay) with a municipal sewerage, without considering goals Gominal capacity of 780 I/s Byas been specifically related to improving the quality of operating with 280 I/s, due to construction the receiving water body. Brazil: Managing Water Quality 43 Anothier weakness of the wastewater Finally, in Minas Gerais, the one major treatment systems is related to the treatment and "failure" in an otherwise successful project was the disposal of the sludge, screening and grit the exclusioll of two large treatment plants, resulting from their operations. Althoughi efforts mainly due to lack of couliterpart funlds from the are in train to find a techinically and economically State and the two municipalities involved (Belo viable solution to the problem, there is little Horizonte and Contagem). This absence of funids clarity about currenit practices for disposal of was not unexpected but in the event was sludge generated in SABESP's wastewater fortunate. The project contracted a team to carry treatmenit works. out a cost-benefit analysis to decide whethier or not a treatment plant would be justified and to Given the delays in collecting and examine an appropriate level of treatment. The transportinig wastewater before enterinig the study revealed that the downstream benefits treatment plants, the second phase of Tiete would be minimal given the small size of the Project is primarily aimed at achieving full population in communities in the area up to 50 utilization of the capacity of the WWTPs km downstream affected by the wastewater constructed in the first phase. This will be discharge. All these communities had either achlieved throughi extendinig the network system of alternative, nonl-polluted sources of raw water or interceptor and trunk collectors and improving the treatment plants that could easily hanidle r aw collector network, together with detailed in sith water of equivalent quality as that in the river investigationis in order to detect and impede without the wastewater treatment plants. Finally, inflows and clandestinie connectionis. the study concluded that the net benefits of the project would be much higher if the funds An institutional component will support the allocated for the treatment plants were used contilnued modernization of the company, instead to (a) extend coverage of drinking water includ ing the establI ishmenit of a geograph ic supply to the entire Metropolitan Region of Belo inforimiationi system. It will also include a Horizonte, and/or (b) extend the sewer coverage finanicial stidy for calculating necessary tariffs in poorer neighborhoods. and marketing studies that seek to identify new markets for the company, since the industries with This illustration demonstrates the a large demand for treated water are interested in importance of the political and institutional establishinig premises outside Metropolitan Sao context in environmental infrastructire investimienit Paulo or have resorted to installing their own decisions. Both the State and the municipal grouLidwater supplies. governments in Minas Gerais agreed to re- allocate the project funds from the wastewater Although the environmenptal goals lack treatment plants to the expansion of the sewer clear definitio,t the sond has of the Project network, with the option of installing the two seeks to adopt the format of a genuinely treatment plants originally contemplated in the integrated project, with more wide-reaching project at "some later date". Using State funds, objectives from the point of view of financial and COPASA then decided to go ahead with both social sustainability and fewer ambitions in terms treatment plants. A primary treatment plant has of construction projects. The second phase of already been inaugurated at On,a - treating 65% thlis project can thus be viewed as a complement of the wastewater - and anothler at Arrudas is to the first, aiming to definle a more sustainable nearin compewtio - atn the .remai 35 ' . . ~~~~~~~~~nearing completioni - treatimg the remam iliig 3 5%/ direction by focusmig more substantially on ^ inidicators ofpuiblic health and environmental of the wastewater. Projects to upgrade both quality - both of whlich slhould serve to plants to secondary treatment have been prepared quaityonstrateth e prof jct'shouldservem ntso or are underway. demonstrate the project's achievements. 44 Brazil: Managing Water Quality There would appear to be three reasons The general lesson to be learned from the why COPASA has made these investmenits in above is that perverse incenitives give rise to wastewater treatment plants with minimal inefficienit and economically unsustainable resultant economilic benefits. All reflect the outcomes. In the latter case, the problem mainly intractable incentives created by poor charginig derives from the consistenit failure of the water mechanisms and institutional arrangements: companies to adopt tariff structures whiclh clearly differentiate between tariffs for wastewater * COPASA faces extensive legal actioni collection and those for wastewater treatment. clhalleiigiiia its riglht to clharge "wastewater fees" cc The companies would be in a better positioln to WithlOuIttreating the wastewater; explain and defend their sewerage charges if they * COPASA has to renew its concession made efforts to identify the costs involved in agreement with the Prefeitura of Belo Horizonte each activity and then charge tariffs for for water and sanitationi services. The revenues wastewater treatment only in municipalities where from wastewater collection alone in Belo most of the wastewater collected is actually Horizonte represent 20% of all COPASA's treated. Furthiermore, the tariffs for wastewater income. Thus, COPASA is concerned that its treatment should vary in accordance witlh the concession may not be renewed unless it is seen level of treatment so that municipalities and their to invest in these services - in other words the customers are left with a clear understanidinig that construction of wastewater treatment plants is a there is a real cost to insisting oni highier levels of visible sign of its commitment, althoughi the plants wastewater treatment. If the population is willing make little economic sense. to cover the costs of treatment, such tariffs would provide a clear incentive for water companlies to * COPASA is also concerned that industries expand their treatment systems and operate them that are charged heavi ly for "wastewater efficiently, al locating the extra revenue services" may simply discharge their effluents to specifically for this purpose. storml water drains if the wastewater that it collects is not treated. 5 An integrated approach to water quality T ihe preceding sections have reviewed A. Incentives and regulation aspects of the water resources, water and Both policy and major investment projects are sanitation, and enviroiinmenital sectors whiichi chiaracterized by a failLire to establish a coherenit influence their performance from the perspective set of priorities and pursue them on a soulid of their role in the maniagemenit of water quality. basis. To some extent this is an uliavoidable In each case, the sector's investimienlts and consequenice of the need to build coalitions of performance have a major impact on water support, but all too often the lack of clarity about quality in particular river basins or coastal zones priorities and objectives reflects an approach that but this is barely reflected in the criteria whichi focuses on building sometiing, even anythilntg, shape priorities and the allocation of resources. rather than designing measures to attain particular Instead, each sector tends to focus on inputs - goals. Underpinning this approach is a system of dams, irrigation infrastructure, sewers and political and economic incentives that emphasizes wastewater treatment plants, emission standards, public expenditure and investment without proper etc. - rathier thani their impact on water quality, to expenefits acid generat by healthi, quality of life, or other relevant outputs. regard to the benefits actually generated by What has been lacking is any kind of integrated policies or investments (ratler than those which approach to the assessment and managemenit of may be promised). water quality, taking account of the overlapping The 'Compra de Esgoto' pilot program for interests of water users and those who discharge financing wastewater treatment is a first step to rivers and other water bodies. towards putting the emphasis on outcomes, but even this is limited by the In1k to investmenit in In this concluding section, we will (a) wastewater treatment rather thani a broader set of haiglmligltanmberof consistew t tleineswliicli possible measures. Nonetlheless, it higlhliglhts the liave em-nerged froin ouir review of the ihidividLial ineed for a funidamenital shift in the mannier in sectors, and (b) outline an agenda that focuses on whichi the Federal Government provides support the development of an integrated approach to for projects and policies which affect water water quality. The themlies are familiar from other quality. analyses of infrastructure but they bear repeating because they are so critical to Lliiderstandinig the The World Bank and other multilateral steps required to improve both performance and agencies are also not immune to the pressures outcomes. which lead to projects without clear objectives and priorities. Unfortunately, the commenidable 45 46 Brazil: Managing Water Quality desire to develop programs which integrate concerned with achieving better performance from various aspects of water quality management has existing infrastructure. resulted all too frequently in the approval of 'CChristmas tree' projects covering an ill-assorted Another reason for the neglect of operating set of activities, some of which may have little performance is the failure to implement more than a marginal impact on the stated project reasonable mechanisms for charging for many objectives. Despite the overall poor record in infrastructure services in the water sector. This is terms of their impact on water quality or closely linked to the lack of incenltives for the environimental management, experience also proper management of infrastructure. Without suggests that disregard for related problems suchi charges, funding of recurrent expenses will whicih may have only a minor or indirect impact always be a problem and there will be less on water quality may end up generating future pressure from users who expect a proper service problems, also undermining the original project's in return for their payment. In the case of water more narrow objectives. resources management the challenge is to introduce charges for all water users, not merely It is very difficult tojudge apriori whichi those with the highest willingness to pay for approach is more indicated for specific service. This, in turn, is linked to the question of conditions. There are some early experiences of developing a framework of water rights for relatively successful integrated projects - and the different uses, includinig mechanisms for Guarapiranga may be a good example in Brazil. transferrinig them between users - either within or They are perhaps the only response to a myriad across sectors. For both the water and sanitation of extremely complex and mutually reinforcing and the environment sectors the key issue is to problems of different nature. Extreme caution find appropriate ways of charging for wastewater must be taken in both design and implementation services and discharges, taking accounit of the of such projects in order to ensure cohesioni of constraints on willingness and ability to pay for actions, avoiding the bad consequences of classic these services. "Christmas tree" projects. As higilighited earlier, incentives that B. Institutional arrangements emphasizes public expenditure and investment Each of the sectors has evolved along different without proper regard to the benefits potentially lines, reflecting the role of Federal Governmelt generated by them operate to focus the efforts of vis-ai-vis the States and the priority given to the sectoral institutions on the construction of large sector by the various States. The environmenit infrastructure projects, neglectinig both proper sector, as a relatively new and marginal player, provision for the costs of administration, has a stable Federal structure (SISNAMA) whicil operation, and maintenanice as well as combines clear decentralization of responsibilities opportunities for smaller projects whicil may to States. Differences across the States are yield much higher returns. Since there are large primarily a response to differences in the nature gaps between perceived needs and what is of the problems that state environmental agencies currently available, all of the sectors are inclined have to deal with. On the other hand, water to the view that any investment is desirable and resources management is going through a period should be promoted. Unfortunately, this ignores of major institutionial chanige from a structure the constraints on human and other resources dominated by the Federal Government towards whicih means that the obsession with large greater decentralization, primarily to the river investment projects results in a neglect of more basin level, rather than to States. Little progress cost-effective actions, particularly those has been made in developing a better institutionial Brozil: Managing Water Quality 47 framework for the water and sanitation sector serving poorer populations. Thus, the net value because of unresolved disputes over the crucial of water used for large scale and relatively issue of the poder concedente which have capital-intensive irrigated agriculture may be blocked progress on the scope and nature of muchi higlher than that allocated to subsistence regulation and on addressing the economic and farming or low value cash crops. One difficulty financial problems of the sector. is that the overall impact of irrigation projects on1 poverty reduction and equity is complex and All institutional changes are likely to be rarely considered within a consistent framework. slow, so that improvements are likely to come in Projects whichi allocate water to subsistence and a piecemeal fashioni. This will be especially true small farmers may generate immediate benefits for the process of establishinlg river basin for an existing population of poor farmers. In the committees and agencies with the capacity to longer term, projects that give more emphasis to develop and implement management strategies as large farms and higlh value crops may yield higlher a basis for reachinlg negotiated agreements with incomes for poor houselholds througlh both farn major water users. On the otlher hanld, it should and off-farm employment, but the beneficiaries be possible to tackle some of the issues of may be migrants or urban workers rather thani the incentives and regulation 1o a basis that they are mrural poor in the project area. This can create independent of specific institutional tensions between meeting the needs of specific arrangements. populationis versus the wider goal of poverty reduction. There are n1o simple answers, but Whatever institutionial arrangements much greater care is required during project emerge, one immediate concern is the poor design to thinik througlh and present a clear integration of environmenital issues with sector analysis of the effects of project alternatives. policies and projects. In the water resources sector, the challenige is to ensure that attempts to In the case of water and sanitationi, the integrate quality and quanitity do not end up either allocation of resources to fund sewer networks causing political clashes between water and and wastewater treatment in the Southl and environmental agencies and/or givinlg inconsistenlt Southeast is an example of potential conflicts signals to water users. In water and sanitationi, betweeni meeting environmental objectives and the issue is how to persuade or, if necessary, improving the quality of life of poor houselholds. compel the State water companies to comply with Using funids to extend coverage of urbani and rural environmenital norms and regulations. Oni the water supply would yield higher economiiic returnis other side, environmental agencies have to learn as well as contributing to poverty reduction and how to work in a more constructive manner with social well-being. otlher actors which will involve the adoption of more flexible instruments with a shift from However, since there should be n1o major emission standards (focusing on wastewater financial barrier to meeting targets for extendinig discharges) to quality standards (focusing on1 the water coverage, the real issue here is how any quality of receiving waters). remaining subsidies for wastewater should be utilized. This raises questions of willingnless to C. Povertyrductionadequitypay for wastewater services as well as the overall C. Poverty reduction and equity structure of tariffs. Careful thought needs to be There are often difficult trade-offs between given to the ways in whichi available funlds are project designs thatwill generate higl economic allocated. Should they be used to subsidize returnis and/or will be more cost-effective and capital costs of developing sewer networks or those that set out to meet specific objectives of installinlg sewer connections? Or, is it better to 48 Brazil: Managing Water Quality subsidize monthly water supply and wastewater project's longer term consequences for tariffs. In collection tariffs for poor houselholds or those the same way, other environmental projects with low volumes of water consumption? There should be examined not only in terms of their are few good answers to such questions at present (immediate) impact on the environment and the because too little is known about the distribution poor, but also in terms of their longer term of the benefits of, and the willingness to pay for, implications for incentives for water use and wastewater services in different types of management, the cost of services, and the real communities and different income groups. distribution of income. Much of the problem in reconciling poverty reduction with traditional environmental and An agenda for water quality water sector objectives is the frequent assumption management that the provision or extension of certain services The passage of Law 9433/97 followed by the is ihilerently a "good thing". In some cases, that creation of ANA with an explicit goal of assumption may be fully justified, but the lack of integrating the quantity and quality aspects of clear analysis about project objectives and their water management provides a unique opportunity implications for project design often means that to construct a better framework for the future. projects could htive a much greater impact on the However, this process can not be driven by ANA quality of life of the poor by relatively simple alone and requires support from other Federal adjustments. bodies as well as many different State agencies. Here we summarize the key steps that must be As an illustration, the State's commitment taken and issues that should be addressed in to the PDBG in Rio de Janeiro was strengthened moving to an integrated approach for water by a sense that the provision of basic sanitation management. services in the low income areas of the Baixada Fluminense would improve the quality of life of * If water quality is to be taken seriously, the local residents. Indeed, that perception was first step must be to undertake a proper certainly correct for the water supply component, assessment of water quality goals for each as also for earlier flood control projects. river basin. The current classification seems However, the presentation of the project as an to be arbitrary and is certainly not based on effort to "save" Guanabara Bay from water any systematic evaluation of the costs and pollution, which it did not and could not achieve, benefits of setting and reaching alternative diverted substantial effort and resources into standards, nor of explicit social objectives investments in wastewater collection and such as expanding service provision and treatment as well as other environmental service quality to the poor. components with only marginal returns. * At present, it is environmental agencies that Further, in the case of the PDBG the have taken the lead in establishing water burden of repaying project loans will fall more quality goals. However, ANA has indicated heavily on water users because of cross-subsidies that it envisages a much greater, perhaps from water tariffs to sewer tariffs, so that the dominant, role for river basin committees and overall impact of the project on equity may be agencies in future. This is critical if adverse despite the benefits accruing to poor consistency of policies with respect to the households who were provided with water management of water quantity and quality is connections through the project. This could have to be achieved. Of course, environmental been avoided by a more careful analysis of the agencies would be participants in the process Brazil: Managing Water Quality 49 by whichi water quality goals are elaborated * If necessary the goals and the program to and adopted, but they would have to be able achieve them should be given legal force in to put forward sound, economically justified order to avoid the current situation where the arguments for their proposals. Ministerio Publico goes to court to block the award of licenses for projects which do not * The technical work on which the development comply with strict but often irrelevant of water quality goals should be based would emission standards. be either undertaken or supervised by river basin agencies. This means that these * There are also institutional implications to agencies must be provided with adequate such a system. Instead of water companlies start-up funds in order to ensure that the deciding for themselves on1 levels of necessary work is not delayed by a wastewater collection and treatment, as is reluctance to levy charges on water users. currently the case, these companies will be bound by outside decisions on1 these matters. * In addition to the technical work that will be Of course, they will be important participants necessary, the process of forging a in river basin committees. They should have consensus about goals will be difficult. particular weight in negotiating feasible There is little experience in Brazil of relying targets for wastewater collection and upon participatory mechanisms to shape the treatment, but their influence will depend on1 goals of public policy and the levels and the quality of their technical and economiiic allocation of public expenditures needed to proposals combined with their operational achieve these goals. There is much at stake performance witlh respect to existing systems. in the early experiences of river basin committees. Thus, ANA will have to provide * A related issue is that the system will also a large amount of technical and high-level require inter-sectoral coordination since the support for their work. At the same time, it obligation to comply with specific treatment may be necessary to make clear that levels will limit the availability of participants who are unwilling to contribute investments in other, related infrastructure, constructively or to make necessary such as water supply and flood protection, compromises will prejudice future which in turn may have even higher social applications for licenses or other permits that returns. must be granted by ANA or State water resources agencies. * The development of water quality programs must, of course, be linked to the decisions of * Once water quality goals have been river basin institutions on the allocation and established, it should be mandatory for exercise of water rights and the construction environmental agencies to frame decisions of water management infrastructure. Thus, concerning the award of licenses for sewer licenses to abstract or to store water may be developments and wastewater treatment conditional on the maintenance of adequate within the context of programs designed to water flows to ensure that water quality goals meet these targets over a reasonable time can be met - i.e. the volume of water that can period - which may be from 5 to 15 years. be abstracted or stored is reduced in low flow years or increased in high flow years. 50 Brazil: Managing Water Quality Table 1 - Households without access to water or sanitation Total number of households % of households State (thousands) Urban Rural No No piped No No No piped No Urban Rural network water sanitation network water sanitation water water_ Rond6nia 230 122 55.4 13.2 7.6 96.5 47.4 28.9 Acre 91 40 50.0 23.6 24.6 97.1 81.1 54.4 Amazonas 455 123 26.1 13.8 17.6 94.7 87.8 50.7 Roraima 59 16 5.3 2.6 5.0 82.9 67.6 39.1 Para 914 411 44.6 20.0 12.8 87.4 75.5 39.9 Amapa 89 10 45.4 16.5 25.9 87.6 74.2 45.1 Tocantins 213 71 16.2 7.0 15.0 89.3 67.1 73.0 Maranhao 758 484 25.0 18.5 26.3 82.2 75.4 72.2 Piaui 431 233 13.1 10.5 20.1 88.0 80.2 87.8 Ceara 1,295 469 20.5 14.0 12.1 91.7 80.0 66.6 Rio Grande do Norte 505 169 8.0 6.0 5.3 63.9 52.5 30.5 Paraiba 624 228 10.3 8.0 10.2 89.3 78.6 61.7 Pemambuco 1,558 421 14.8 8.7 11.9 85.4 72.7 60.5 Alagoas 463 192 20.1 10.2 12.2 78.5 67.2 52.5 Sergipe 321 119 8.4 6.0 8.1 69.3 60.6 40.6 Bahia 2,218 977 11.1 7.1 13.2 76.4 61.2 66.0 Minas Gerais 3,977 806 3.6 0.8 6.2 85.2 16.5 47.7 Espirito Santo 685 160 3.9 0.7 10.0 86.8 5.2 35.8 Rio de Janeiro 4,107 157 14.6 2.8 10.0 78.7 11.3 35.7 Sao Paulo 9,756 639 2.9 0.5 4.8 66.5 4.2 13.7 Parana 2,217 465 3.5 0.8 4.0 80.8 10.9 14.5 Santa Catarina 1,206 299 11.1 0.7 5.5 84.7 5.0 20.9 Rio Grande do Sul 2,518 534 7.6 1.1 5.0 81.8 10.2 21.1 Mato Grosso do Sul 480 89 10.6 2.0 2.3 87.1 18.6 13.7 Mato Grosso 525 134 23.5 5.9 5.1 92.9 37.4 30.6 Goias 1,232 177 22.7 2.9 3.8 89.6 17.9 29.0 Distrito Federal 526 23 8.4 2.5 0.6 82.7 6.2 5.0 Brazil 37,455 7,567 10.5 3.9 7.9 82.2 43.3 44.7 Source: IBGE, Census 2000 tabulations. ANNEX: Summary description of projects reviewed BOX 1 - Basic Sanitation Program for the Guanabara Bay Basin (Programa de Despoluicao da Baia de Guanabara - PDBG) - IDB Loan 782/OC - BR The general objectives of the program Guanabara Bay. This included a were to: (a) clean up the Guanabara Bay hydrodynamic model focusing mainly on and adjacent basin area; (b) improve the eutrophication of the bay. The studies quality of life of the 7.3 million residents of involved indicated that the pollution the basin; and (c) strengthen local generated in the bay itself, originating from government institutions whose activities primary productivity, makes up a could positively affect the bay. The significant portion - around 60%, of the Project was jointly financed by the IDB and global organic pollution. This provided the Japan Bank for International evidence for the need to remove nutrient Cooperation - JBIC, with resources of US$ discharges from effluents flowing into the 793 million. bay, in order to reduce the problem of eutrophication and to recuperate the The initial priority of the First Phase of the ecosystem. Program was the construction of a sewerage collection network and primary The expected impacts of the Program's treatment plants, so as to reduce the first phase included direct benefits to the degradation of the waters of the bay and population located in the areas of project at the same time comply with the influence, the vast majority consisting of requirements of the State Constitution. low-income people, diminishing the incidence of infant mortality and of The Program relied largely on a JICA waterborne diseases. Other benefits Project initiated in the beginning of the included the non-interruption of socio- 1990s - a Directing Plan for the economic activities following floods and Recuperation of the Ecosystem of the improvement in water quality of the beaches in the interior of the bay. 51 52 Brazil: Managing Water Quality BOX 2 - Guaiba Watershed Environmental Management Project (PRO-GUAiBA) - IDB Loan 776/OC - BR The overall objective of the program was of the State Secretariat of Coordination to improve the environmental quality of and Planning (SCP), responsible for the Gua[ba River watershed by reducing carrying out Pro-Guaiba. pollution and preserving its natural resources. In order to achieve such The Program benefited an area equivalent objective, the project comprised a broad to 30% of the territory of Rio Grande do Sul set of actions: (a) expanding the (80,000 km2), where almost 5.9 million coverage of sewage systems and habitants live (56% of the state treatment plants in Porto Alegre; (b) population), in 251 municipalities that controlling pollution in Lake Guaiba and generate 86% of the state GNP. Although its tributaries; (c) implementing a rural the geographic reach and the extension program that targets soil concentration of the investments of Pr6- management, reforestation and pollution Guaiba occur in the Metropolitan Region control; (d) strengthening the of Porto Alegre, the most critical field of infrastructure of five conservation units; (e) urban-industrial pollution (53% of raw implementing a pilot environmental discharge of domestic sewage of the education program in six cities and basin) affects the Guaiba Lake (10,360 drawing up an environmental education kM2), where the waters of 8 sub-basin plan for the state; and (f) providing components converge. institutional strengthening for participating agencies. To reach its goals, the Program will spread actions over a period of 15 years in This set of actions implied a complex successive stages. One of the positive institutional arrangement incorporating aspects of the implementation of the Pr6- entities of distinct cultures and executive Guaiba project is that it occurred in capacities, from the Municipal parallel with the installation of the State Department of Sewerage of Porto Alegre System of Water Resources Management, (DMAE) to the Zoo-botanical Foundation allowing the effective decentralization of (FZB). These agencies were under the many decisions to the Water Basin orientation of the Project Management Committees and/or to the State Water Unit (UGP) that was installed in the sphere resources Council. Brazil: Managing Water Quality 53 BOX 3 - Tiete River Pollution Control Projects - IDB Loans 713/OC-BR and 1212/OC-BR Thirty four of the thirty nine municipalities took wastewater away from direct that make up the Metropolitan Sdo Paulo contact with the population. This Region (MSPR) are located in the water benefited around 250,000 families. Three basin of Alto Tiete. At the end of 1990, new Wastewater Treatment Works were only 20% of the sewage collected was constructed, and the treatment capacity treated. Another major problem was the of the existing Barueri Works was increased. progressive pollution of the Billings Dam, As a result of this project, the indices for which limited its usage as source of wastewater collection in MSPR went from potable water and for generation of 63% in 1992 to 83% in 1999. The indices for electric energy. treatment rose from 20% to 60% in the some period. In 1991 the State Government of Sdo Paulo launched the Tiete River Pollution The main objectives of the second phase Control Project with the overall objective (2000-2004) are: to increase the quantity of to improve environmental quality of the wastewater treated, by directing it to the Tiete River watershed in the MSPR, treatment works to the greatest extent conserving and making efficient use of possible; to extend the sewage collection water resources in the upper reaches of service to 400,000 more families, therefore, the basin, including a pilot program to increasing the service index to 90% of the reduce unaccounted for water losses. The population of MSPR; and, finally, to control project was the first in a series of three the emission of effluents from over 290 projects financed by the IDB. industries. It also includes an institutional component focused on modernization of During the first phase (1992-1998), SABESP the company, including implementation of prioritized investments with higher social a geographical information system, a returns through the construction of financial study for calculating the sewage collection networks and connections that tariffs, and marketing studies that seek to identify new markets for the company. 54 Brazil: Managing Water Quality BOX 4 - Water Quality and Pollution Control Project (PQA) - World Bank Loan 3503-BR The 'PQA' Project was conceived in the investment loans described below. The beginning of the 1990s and structured studies were carried out on the following through four Loan Agreements from the river systems: Para[ba do Sul; Piracicaba, World Bank. Loan 3503-BR was the Federal Capivari and Jundiai (state of Sao Paulo); Component; the others were specific State Beberibe, Capibaribe and Jabotao (Recife loans and are presented below. The metropolitan area); and Paragua,cu and general objective of the Federal loan was Suba6 (state of Bahia). to assist Brazil in developing cost-effective approaches to control water pollution. The conceptual base of the PQA loans It was also designed to provide finance for included innovative approaches to project preparation and technical integrated and prioritized actions in the assistance to states and local institutions, context of strong fiscal restrictions. The use specifically for the preparation of of land use planning strategies, which are investment plans and strategies for a derived from measuring the impact of the number of major urban river basins spread resulting pollution on the water body for throughout the country. different land development scenarios, proved to be a powerful tool for municipal The Federal loan, which closed in and metropolitan decision makers; September 1999, produced its investment environmental valuation and the search plans and strategies based on the for cost-effectiveness, and striking a prioritization of interventions following the balance between social and same logic used in the three state PQA environmental outcomes were also key ingredients of the loans. Brazil: Managing Water Quolity 55 BOX 5 - Sao Paulo Water Quality and Pollution Control Project (Guarapiranga Basin Environmental Sanitation Program, SP) - World Bank Loan 3504-BR The Sao Paulo PQA loan had the main disposal and drainage in four objective of guaranteeing the municipalities. The loan consisted of the Guarapiranga reservoir as a reliable water following components: water and works; source capable of supplying the municipal solid waste management; urban Metropolitan Region of Sdo Paulo (MRSP). rehabilitation; environmental protection The reservoir produces some 20% of the and water basin management. potable water supplied to MRSP but, as a result of domestic and industrial pollution, One key intervention of the Guarapiranga was suffering - at project inception - from loan was the urbanization of slums, and frequent algal blooms and the associated the improvement of irregular settlements, difficulties of water treatment and the that are major contributors to the domestic problems of taste and odor for consumers. pollution of the reservoir. The river basin Despite legislation to control formal urban was used as a context for the upgrading development in the catchment area, the of such slums, allowing for the prioritization reservoir basin has suffered from decades of investments in urban upgrading which of informal invasion and settlement by not only provided much needed those looking for places to live close to the improvement in the living conditions of heart of Sao Paulo. The population of the these vulnerable communities but also basin consequently increased from some had an overarching objective of reducing 500,000 in 1990 to 800,000 today, many of urban water pollution. The project whom live in slums or irregular settlements, developed both technical and legal including more than 200 favelas with over instruments which allow for the prioritization 100 thousand habitants in irregular housing. of investments and which help guarantee These are high density poverty areas their sustainability. The use of land use lacking most basic services, including planning strategies, which are derived sanitation infrastructure. from measuring the impact of the resulting pollution on the water body for different Given this context, the Guarapiranga loan land development scenarios, proved to was designed from a multi-disciplinary and be a powerful tool for municipal and integrated perspective with two main metropolitan decision makers. objectives: (i) the development of institutional capabilities to manage the The implementation of the project was water basin in an environmentally coordinated by a Project Management sustainable manner through the Unit within the State Secretariat of Water introduction of modern land-use incentives, Resources, Sanitation, and Works and cost recovery mechanisms, and an comprised five State and municipal efficient legal and regulatory framework; executive agencies. At closing in and (ii) the improvement of the quality of December, 2000, the total investments of life of the 550,000 inhabitants of the water the Guarapiranga loan reached US$ 336 basin through the rehabilitation and million. One of the most important expansion of basic sanitation infrastructure, outcomes of the Program was the namely sewers, solid waste collection, and development, and later approval, of State Legislation to protect watersheds. 56 Brazil: Managing Water Quality BOX 6 - Water Quality and Pollution Control Project - Alto lguac,u Water Basin (Environmental Sanitation Program for Metropolitan Curitiba - PROSAM/PR) - World Bank Loan 3505-BR In the Metropolitan Region of Curitiba a physical barrier to the irregular (MRC), the State capital of Parand, there settlements; increase in coverage of are major irregular settlements in collection and treatment of domestic solid watersheds located to the East of the city. waste; relocation and housing for 1,800 The occupation of the Igua,cu watershed families located in areas of greater risk; by poor families result in serious and structuring a regional system for the recurrent floods, without many technical collection and disposal of solid waste; alternatives for making the river channel construction of linear parks in the depths of deeper, because of poor declivity. The the valley, providing localized control of deposition of solid residue on the banks of rivers and streams, in addition to other the rivers and streams further aggravates complementary actions. the situation. The Program was managed by a single In order to confront these problems, unit installed within the State Secretariat of PROSAM/PR sought to create an Planning and General Coordination and integrated set of interventions which had five State and municipal executing included: the construction of the Ira[ River agencies. As in the case of Guarapiranga, Dam (on one of the tributaries of the PROSAM/PR was also directly responsible Iguac,u River), with the dual purpose of for the concept and approval of the supplying water to MRC and regulating Special Law for the Protection of river flow; the construction of a canal Metropolitan Curitiba Water Sources (State parallel to the Iguagu River capable of Law no. 12.248/98) and the State Law of absorbing excess flows and also serving as Water Resource Management. Brazil: Managing Water Quality 57 BOX 7 - Environmental Sanitation Program for Metropolitan Belo Horizonte (PROSAM/MG) - Arrudas and Sarandi/Onga River Water Basins (MG) - World Bank Loan 3554-BR The Arruda and Sarandi/On,a rivers drain urbanization, including the creation of large parts of Belo Horizonte and public areas, reforestation and Contagem, including their industrial resettlement; and (v) environmental districts. Recurrent floods and the protection and water basin management, transport of effluents in open canals from including studies and institutional Contagem to the urban areas of strengthening of the State Environmental Metropolitan Region of Belo Horizonte Agency (FEAM). (MRBH), together with the lack of domestic wastewater treatment prompted the The project resulted in the restoration of launching of PROSAM/MG. the Arruda and On,a basins, which are now less flood prone, wastewater The principal objective of the project was discharges are largely intercepted, and to recuperate the environmentally land use in areas near the rivers has been deteriorated urban basins of the Arrudas redefined. Industrial discharges are now and On,a rivers in MRBH. The project controlled, both directly by the industries consisted of five main components: (i) themselves or through COPASA, and flood control and urban drainage, discharges into rivers after treatment are including macro drainage of all rivers and regularly monitored by FEAM. A new creeks in the water basin; (ii) municipal and regulatory and institutional framework for industrial wastewater collection and the management of water resources in the treatment; (iii) municipal and industrial solid river basins is now in effect, with the Velhas waste collection and disposal, (iv) River Basin Commission having been created. Recent World Bank Technical Papers (coztiuiiield) No 465 Csaba Csaki and Zvi Lerman, eds., Strulicturl-al Change in the 1F'arinng Sector s in Central and Eastern Europe Lessonsfor EU Accession-Second World Ban/kl EIO JVllorlkhop, June 27-29, 1999 No. 466 Barbara Nunberg, Reaclyfor ETurope: P1iblic Administration Refor m and European Union Accession in Central and Eastern Eurlope No. 467 Quenltini T. Wodon vith contributionis fiom Robert Ayres, Matias 13arenistein., Norman Flicks, Kihooll Lee, William Maloney, I'm Pecters, Corinne Siacns, and Shilomo Yitzhaki, Poverty and Policy in Latin America anid the Caribbean No. 469 Laurian Unnevchr and Nanicy l-lirschiloril, Food Sqfety Isstues in the Developing WIorld No. 470) Alberto Valdes, ed.. Agr icuiltiural Suipport Policies in 7Transition Economies No 471 Brianinlllto, Vladimir Drcbeintsov, and Alexander Morozov, Disincantlinig Ruissia : Nonpaynients System: Creating Comidition7sfor Grouvtli No. 472 Jit B. S. Gill, A Dicngnostic Fraineiuor kfor Revemiuie Administration No. 473 EIscn Ulgcnle-k andl Leila Zlaoui, Froii Transition to Accessiour Developii7g Stable and Competitive Financial AMIarkets i11 Bulgaria No. 474 loannis N. Kessides, ed., iIun1gary: A Reguilatoty and Structural Review of Selected Infrastructure Sectors No. 475 Csaba Csaki, Zvi Lerman, and Sergey Sotnikov, F arim Sector Restructuring in Belaruis Plrogr ess and Constraints No. 476 Kathierine Terrell, Czech Repiblic. Labor 'IWarket Report No. 481 Csaba Csaki, Jolh Nashi, Achimii Fock, andl Ilolgcr Krav, Food and Agriculture in Bulgaria I/lze Cliallenge oJ Preparing for EU Accession No. 482 lPcter I-lavlik, 7iade and Cost Competitiveness in ilue Czech Repnblic, Hungary I'oland, and Slovemiia No. 483 Molmir Mrak, Comuiuninal Infr-astruiicture in Slovenia. Survey oJ Investmnent ANeeds and Policies Ainied at Encouraging Private Sector P'articipation No 484 Csaba Csaki anllLaura Tuck, Rural Development . -, Eastern Europe and Central Asia No. 488 Nina Bubniova, Goverlanice Impact on Private Investmemnt No. 489 Tim Schwarz andl David Satola, Telecominnunications Legislatioii in Diansitional and Developing Economies No. 490 Jesko l-lcntsclicl and Radha Seshagiri, 7he City PovertI vAssessmnent. A Priiier No. 491 Daniel MOiller-Jcntscih, 7'1e Development of Electricity 1lIarlkets in the Euro-Mediterranean Area No. 492 Tuntivate Voravate, Douglas F Barnes, and V Susan 13ogachi, Assessing Marketsjbr Renewable Energy in Ruiiral Areas of Northlwestern China No. 496 Jerry Lebo and Dieter Schelling, Design andAppraisal of Rraal Transport Infrastruictuire: Ensuring Basic Access for Rural Coniuumuinties No 497 .1 uliani A. Lainpietti, Anthoniy A. Kolb, SuLimila GIilyani, and Vahr-amil Avenesyani, Utility Pricing and tlie Poor. Lessonsfiooin Alrlieniia No. 498 Gillian Perkinis ancl Ruslan Ycmtsov, Arniemna Restriicturinug to Suistain Universal General Education No. 499 Rogrigo A. Chaves, Susania Sanchiez, Saul Schor, and Emil Tesliuc, F;inancial Markets, Credit Constraints, and Investmient 11 R?iiral Ro07a71nia No 500 Zvi Lermana andc Karcn 13rooks, Tuirkkmenistan: Aii A/ssessment oJ Lcasehold-B3ased l-arnm Restructuring No. 501 Alclo 13aietti, Private Infrastructire in East Asia Lessons Learned in the Afterniathi of the Crisis No 505 Ali Hashimi aid BillAllan, Treasury Reference lt'odel No. 506 Omier GokcekIis, Nick Mlaianiinig, Ran jana Mukhicrjee, and Ral Nallari, Institutional Environment and Public Ojficials' Peijorlmiatce in Guyana No 507 Ran jana Mukhcrjcc, Omier Gokcckus, Nick Manning, and Picrre Landcll-Mills, Bangladesh: Tlhe Experience and Perceptions oj'Pitblhc Officials No. 509 World Baank, Kosovo: Economic amid Social ReJbrmns jor Peace and Reconciliation No. 510 Anatoly Vinokur, Joana Godiilho, Christophier Dye, Nico Nagclkerke, The TB and I-IIV/AIIDS Epj3idemucs in the R?ussial1 Federation No. 512 Gereniia Palomba, Milan Vodopivec, Financing, Efficiency and Equity in Albanian Education No. 513 'Ilhomilas O'Bricn, Christian Filipov, The Current Regulatory F-ramiework Governing BIusiness in Btlgaria No. 514 Carmela Martini, F'rancisco .1. Velizquez, Bernard Funck, Eiiropean Integration and Income Convergence Lessonsfor Central and Eastern European Countries SBO rE O ( L D GS CZ7 Mo 00 M ISBN 0-8213-5347-0 911780 82111 5347911