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Cover design: Alvaro José Silva Bucheli iii Contents Acknowledgments vii Executive Summary ix Abbreviations xxiii Chapter 1:  About This Report 1 Information Sources and Research Methodology 1 Report Structure 2 Chapter 2:  Mapping Peru’s Key Water Institutions and Stakeholders 5 Water Resources Management 5 The National Water Resources Management System 6 Service Providers—Water Supply and Sanitation, and Irrigation and Drainage 7 Chapter 3:  Why Water Matters to Peru’s Development 9 Water is a Key Driver of Economic and Human Capital Development 9 Water Security Strengthens Food Security, Promotes a Thriving Agricultural Sector, and Contributes to Rural Development 13 Water Sustains the Thirsty Hydropower Sector, Which Is Important for Peru’s Clean Energy Transition 16 Peru’s Vulnerability to Climate Change Could Erode These Economic, Human, and Natural Benefits 16 Water is Essential for Living Ecosystems 17 Notes 17 Chapter 4:  Challenges to Peru’s Water Security 21 Demand Outpaces Supply in Key Economic Regions 21 Groundwater is Poorly Understood and Unsustainably Used 29 Climate Change and Increasing Climate Variability Threaten Economic Growth, Development, and Stability 29 Pollution is Imposing Economic Costs by Further Limiting the Water Endowment Available to People, the Environment, and the Economy 30 Centralized and Inadequately Managed Water Governance is Hindering Policy Rollout and Effectiveness 37 Efforts to Close Water and Sanitation Services Gaps Have Been Slower in Rural and Peri-Urban Areas 39 Inefficient Irrigation and Drainage Systems and Low Irrigation Coverage Are Contributing to Low Agricultural and Water Productivity 45 Budget Execution and Funding Gaps of Water Services are Hindering the Achievement of National and Sustainable Development Goals 47 Chapter 5:  A Way Forward: Nine Recommendations to Improve Water Security in Peru 55 iv PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Boxes ES.1 Key Investment Needs and Associated Costs of Addressing Water Security Challenges xiv 1.1 Technical Deep Dives Conducted for the Water Security Diagnostic (WSD) 2 1.2 An Overview of the Water Cycle of Use 2 3.1 Water Shortages Lower Firm Productivity in Peru  10 3.2 The Perils of Climate Change: In Utero Exposure to Temperature Variability and Birth Outcomes in the Andean Region 14 3.3 Use of an Input-Output Matrix and a Dynamic Stochastic General Equilibrium Model to Estimate the Economic Impacts of Water Insecurity 14 4.1 Water Balance Assessment through the Lens of Climate Change and Climate Variability 25 4.2 Considering Peru’s Climate-Migration Nexus 28 4.3 Robust Decision-Making in the Water Sector: A Strategy for Implementing Lima’s Long-Term Water Resources Master Plan 31 4.4 Applying the Decision Tree Framework (DTF) to the Chancay-Lambayeque River Basin Plan in Peru 32 4.5 Domestic Wastewater Pollution Hotspots Pose a Danger to Public and Ecosystem Health 33 4.6 Water Pollution and Its Consequences for Sustainable Livelihoods and Food Security in Peru 34 4.7 Cerro Verde Public-Private Partnership Success Story: Collaborative Approach Reduces River Pollution and Stress on Water Sources through Circular Economy Principles 36 4.8 MERESE—An Innovative Mechanism to Increase Water Supply Resilience through Nature-Based Solutions 39 4.9 Lack of Women’s Voices in Governance (in numbers) 40 4.10 Levels of Safely Managed Water and Sanitation Services 41 4.11 Sanitary Emergency Program in Lima’s Public Schools: A Collaborative Approach to Replicate 43 4.12 Inappropriate Solutions Cause Projects to Stall and Contribute to Low Budget Execution 48 4.13 Government’s Private Sector Participation Approaches to Improve Peru’s Water Security 50 Figures ES.1 Recommended Actions to Achieve Water Security for All xv ES.2 Linking Challenges with Recommendations xv B1.2.1 Water Use Cycle 3 2.1 Organization of the National Water Resources Management System’s Water Integration Platform 6 2.2 Key Entities Responsible for Water Supply and Sanitation and Irrigation 7 B3.1.1 Firms Experiencing Water Shortages in Peru 10 3.1 Agricultural Water Productivity Compared To Overall Water Productivity 15 4.1 Percentage of Decline in Total Renewable Water Resources Per Capita, 1992–2017 27 B4.2.1 Migration Patterns in Peru Due to Climate Change, 2002–17 28 B4.3.1 Strategy for Implementing Lima’s Water Resources Master Plan 31 B4.6.1 The Web of Sustainability 34 4.2 Peru Dam Storage Capacity versus Other Countries and Regions (m3/person) 37 4.3 Countries in Latin America and the Caribbean with Least Access to Basic Water Services in 2020, in Millions of People 40 4.4 Water and Sanitation Ladders in Peru, 2020 41 v B4.10.1 Safely Managed Drinking Water, by Area 42 4.5 Safely Managed and Basic Drinking Water Services in Rural Areas of Latin America, 2020 (%) 42 4.6 Water Sector Budgeted Expenditures, 2010–20 (S/. millions) 47 4.7 Budget Execution of Irrigation Investments (S/., millions) 48 4.8 Budget Execution of Water and Sanitation Investments (S/., millions) 48 4.9 Capital Investments, by Government Level, 2010–20 49 Maps 3.1 Number of Deaths and Disability-Adjusted Life Years Lost per Million Inhabitants Attributable to Inadequate Water and Sanitation Services, by Region, 2018 13 4.1 The Pacific, the Atlantic, and the Titicaca Hydrographic Regions and Their River Basins 22 4.2 Peru’s Water Balance, by Month 23 4.3 Watersheds with Current Surpluses and Deficits 24 B4.1.1 Representative Concentration Pathway 8.5 Scenario in 2030 25 B4.1.2 Interannual Variability in 2030 26 4.4 Water Pollution Hotspots for Agriculture and Mining 32 B4.5.1 River Basins where Biological Oxygen Demand and Coliform Bacteria Exceed Threshold Concentrations 33 4.5 Mining Concessions and Areas Susceptible to Water Risks 35 Tables ES.1 Cumulative Investment Cost Estimate for Priority Infrastructure Measures, 2021–30 (US$ Millions) xiv 3.1 Summary of Economic Impact of Climate-Related Water Shocks, by Economic Sector 11 3.2 Cultivated Land in Peru, 2018 (Hectares) 15 4.1 Consumptive Use of Surface Water by Sector and Watershed (MCM/year) 24 4.2 Available Reserves and Exploitation Levels of Ica, Villacurí, and Lanchas Aquifers (million cubic meters) 29 4.3 Performance Indicators by Water Supply and Sanitation Provider Size, 2019 44 4.4 Direct and Indirect Losses Due to Water Shortages and Intermittent Water and Sanitation Services 44 4.5 Types of Water User Organizations and Hectares Covered by Irrigation in Peru, 2019 46 Welcome to the Water Security Diagnostic for Peru This report is part of the World Bank’s water security series—a collection of reports analyzing water-related challenges and opportunities that could affect a country’s economy, people, and natural environment. These reports are designed to help countries position water at the center of their national development agendas through evidence- based analytics and multi-stakeholder dialogues. To date, several comprehensive studies have been undertaken around the world, including studies for Argentina and Colombia. The Bank has also conducted regional water security studies for the Middle East and North Africa, and Latin America and the Caribbean. For more information on the Water Security Initiative, please go to: https://www.worldbank.org/en/topic/water/publication​ /water-security-diagnostic-initiative Acknowledgments T he report was prepared by a team lead by Carmen Marie-Laure Lajaunie, Melissa Castera, Midori Makino, Yee-Batista and Christian Borja-Vega and consisted of Victor Vazquez, Alex Serrano, and Klaas de Groot. Camilo Huneeus, Micalea Leaska, Elizabeth Eiseman, The team is very grateful for the support and overall and Lucia Luci. The study was conducted in collaboration guidance of Marianne Fay (Country Director, World with Cesar Fonseca, Emi Yamamura, and Ada Calderon Bank), Bjorn Phillip (Program Leader World Bank), Rita from 2030 Water Resources Group. Paola Abramovici Cestti (Former Practice Manager, Water GP, World Bank), Puron, Maye Rueda, and Alejandra Hernandez provided David Michaud (Practice Manager, World Bank), and Pilar administrative support during the study. Maisterra (Operations Manager, World Bank). The study Background papers were prepared by Eber Risco, Jeronimo has received valuable support from the World Bank’s Puertas, Camilo Huneeus, Jacques Clerc, Sebastian Water Global Solutions Group Publishing Services. Cepeda, Hugo Vega, Manuel F. Barron, Fernando Aragon, Laila Kasuri, Fayre Makeig, and Jennifer Stastny (Clarity Emmanuel Garcia, Jijun Wang, Miguel Priale, Guillermo Global Strategic Communications) provided editorial Leon, Jan Hendriks, and Miguel Dionisio Pires, Sibren Loos, reviews and layout recommendations at various stages Hélène Boisgontier, and Jos van Gils from Deltares. of the report. The authors would also like to thank Erin Contributions to the background papers, technical Barrett for production management. Any remaining inputs, and data were provided by Berenice Flores, errors or omissions are the authors’. Carlos Pomareda, Gabriel Aguirre, Gustavo Perochena, The team would like to thank the Autoridad Nacional Iris Marmanillo, Alex Gordillo, Andrea Juarez, Martin de Agua, Ministerio de Vivienda, Construcción y Albrecht, Carlo Amadei, Malva Baskovish, Griselle F. Saneamiento, Superintendencia Nacional de Servicios de Vega, Fan Zhang, Zael Sanz, and Vera Kehayova. Saneamiento, Ministerio de Desarrollo Agrario y Riego, As peer reviewers, Julie Rosenberg, Miguel Vargas- Programa de Riego Tecnificado y Servicio Nacional de Ramirez, Homero Paltan, Rochi Khemka, Aude-Sophie Meteorología e Hidrología del Perú for their valuable Rodella, and Elsa Galarza (Universidad del Pacifico) support during consultations. provided invaluable comments and suggestions. The team gratefully acknowledges the financial support Technical guidance was also provided by Richard provided for the report by the Global Water Security & Damania, Winston Yu, James Thurlow, Juan Jose Miranda, Sanitation Partnership. Executive Summary Water security—the availability of an acceptable Water Security Is at the quantity and quality of water for health, livelihoods, ecosystems, and production, coupled with an Heart of Peru’s Path toward acceptable level of water-related risks to people, Sustainable Development environments, and economies (Grey and Sadoff Water is a key driver of economic and social 2007)—is crucial to Peru’s path to shared prosperity development, and sustainable ecosystems in while addressing climate risks. Access to this precious Peru. Water-intensive sectors account for nearly two- resource, however, is increasingly threatened by fifths of Peru’s gross domestic product (GDP), with climate change, pollution, and uncontrolled and about 13 percent from manufacturing, 12 percent from inefficient use of existing water resources and mining and hydrocarbons, 7 percent from construction, infrastructure. Taking strategic action now is critical to 6 percent from agriculture, and 2 percent from water ensuring that Peru can sustain its water resource base, and electricity (BCRP 2022). The mining and agriculture continue to deliver water to people and productive sectors account for 63 percent and 16 percent of Peru’s sectors of the economy, and build resilience to climatic total exports, respectively. The agriculture sector alone and non-climatic events. employs almost a quarter of the total labor force, This Water Security Diagnostic (WSD) provides concrete, and more than half in rural areas (INEI 2020a). This is strategic actions to strengthen Peru’s water security significant for rural development, given that 46 percent that complement the government’s ongoing initiatives. of rural populations remain poor and about 14 percent The recommendations are based on the World Bank’s are mired in extreme poverty (INEI 2021). Water’s knowledge of and experience in the Peruvian water contribution to Peru’s economy and overall livelihoods sector, several government studies, as well as specific is further highlighted when considering the impact of assessments carried out as part of the WSD to close electricity— about 57 percent of which is produced knowledge gaps. The brief begins by providing an through hydropower—on all GDP-contributing sectors overview of Peru’s water systems, then outlines the (COES 2021). Water is also essential for sustaining impact of water on economic and social development, Peru’s highly diverse ecosystems, which include about continues with a detailed analysis of the key challenges 8 million hectares of wetlands and a vast network to achieving water security, and culminates with a list of rivers and lakes. These in turn contribute to Peru’s of recommendations to accelerate Peru’s path to water tourism industry, which accounts for 4.5 percent of security. its GDP in 2020. x PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Access to water for efficient irrigation contributes public schools have adequate toilet facilities, and only to poverty alleviation, food security, agricultural 20 percent have access to adequate drinking water income, and resilience to climate change. Irrigation (UNICEF 2020). Each year about 900,000 Peruvian has positive impacts on productivity and profitability. The children under the age of five develop acute diarrhea World Bank–financed Sierra Irrigation Project reported directly related to inadequate WSS services, negatively yield increases of 30 to 70 percent, and net household affecting their health and cognitive capacities as well income per hectare increases of 25 to 100 percent as their future productivity.2 because of improvements in water availability and Climate change and climate variability are linked irrigation techniques.1 Irrigated yields in Peru are to extreme water-related weather events that double those of rainfed (dryland) yields (FAO 2022). affect vast swathes of population, with grave Nevertheless, only 22 percent of agricultural land— implications for the economy and human capital 2.6 million hectares—is under irrigation. Most of the accumulation. Almost half of Peru (46 percent) is agricultural land in Peru’s Costa region (along the Pacific highly to very highly vulnerable to natural disasters coast) is irrigated to sustain commercial agriculture. associated with the El Niño phenomenon and long- However, in the Sierra (Andes Mountains) and Alta Selva term climate change. The country already faces (high-altitude Amazon), where 50 percent of the rural severe water scarcity in the Pacific region, floods and population lives in poverty, only about 20 percent of the mudslides in the highlands and along the coastline, cultivated land is under irrigation. This leaves agricultural extreme rainfall events triggered by the El Niño production exposed to shifts in rainfall patterns linked to phenomenon, and intense rainfall and floods in the climate variability and climate change. Utilizing irrigation Amazon. Water shocks linked to extreme rainfall and in these areas would improve productivity, encourage droughts are expected to increase given the continuous farmers to harvest higher-value crops, and build deterioration of watersheds, increased precipitation resilience to climate variability. variability, and the acceleration of glacial retraction in Access to safe water supply and sanitation (WSS) the Andes. During the period 1990–2020, 1 percent services is essential for a healthy and productive of the total population was affected by water shocks, population. Millions of Peruvians face water insecurity causing US$4.2 billion in accumulative economic daily. Only 50 percent of the population have access to damages (in 2020 constant prices), equivalent to safely managed water and 43 percent to safely managed 2 percent of 2020 GDP (EMDAT 2022). Furthermore, sanitation (WHO/UNICEF JMP 2021). Two million Peruvians damage caused by floods and droughts have direct lack basic drinking water services, and a million rural impacts on educational outcomes, morbidity and Peruvians still have no alternative but to defecate in the mortality rates, and labor productivity, hampering open. Regional disparities are acute. Sanitation coverage, human capital accumulation (Barron and Moromizato for example, is particularly poor in the Sierra (65 percent) 2020; Garcia-Morales 2021). and Selva, or Amazon, (51 percent), relative to the Water shocks and limited WSS services cost Costa (90 percent). The people of the Amazon rainforest Peru between 1.3 and 3.5 percent of GDP per shoulder the biggest share of the burden associated with year.3 The cost of water shocks is linked to floods, unimproved WSS services, reporting double the number of droughts and restrictions in water supply affecting related deaths (14.3 deaths per million people) as those agriculture, mining, manufacturing, health, and in the Costa (7.4 per million) (Garcia-Morales 2021). household income. The costs due to limited WSS Women and children are disproportionately services are linked to the burden of disease. When affected by inadequate access to water and production shocks and losses and higher economic sanitation. In rural areas, women, responsible for costs due to water pollution are also considered, overseeing, fetching, storing, and purifying water, the economic impact ranges from 4.0 to 6.4 percent work on average 10 hours more than men per week. of GDP per year. This estimate is conservative as This often limits their access to education, paid jobs, it does not consider the spillover effects of water and decision-making spaces. Women and children’s shocks on local economies or losses in value added. lack of access to adequate sanitary facilities exposes Water shocks disproportionally affect the poor, who them to risks not only to their health, but also risks experience higher rates of water-borne diseases, to their security, because they become vulnerable in part due to lower coverage of WSS services to harassment, attacks, and violence. The lack of a compared to the nonpoor. By 2030 the impacts of hygienic environment for girls and women during their water shocks will be exacerbated by climate change, menstrual period or pregnancy can also perpetuate resulting in an income reduction among the bottom both health and safety risks. 40 percent of the country’s income distribution by 5.2 percent. This could push an additional 0.6 The quality of education is also negatively percent of the population into extreme poverty affected by Peru’s coverage gap. Only two-thirds of (Hallegatte et al. 2016). xi Peru is facing a growing gap glacial lake outburst floods (IPCC 2021). The lack between its development demands of a comprehensive and local response increases the vulnerability of Peru’s storage systems to these and the quantity and quality of increasingly frequent climatic events. its water resource endowment Pollution is further limiting the water endowment Peru’s growth is dependent on water, yet the available to the people, the environment, and the country faces the highest climate variability in economy. Only 25 percent of monitored water bodies the Latin America and Caribbean region and in Peru have “good” ambient water quality, meaning significant rainfall spatial distribution. In terms of they are not harmful to people or ecosystems. The freshwater volume, Peru is the eighth-most water-rich main cause of water pollution in urban areas is the country in the world and the third in Latin America. discharge of domestic wastewater into waterways. But these water resources are unevenly distributed Only about 60 percent of wastewater generated by among Peru’s three major hydrographic regions. urban households is treated at wastewater facilities Watersheds in the Pacific region (the Costa) experience before being released into the environment (WHO/ the greatest water deficit yet are positioned in Peru’s UNICEF JMP 2021). The impact of untreated wastewater most populous and productive area. For example, is especially acute along the Pacific coast, where the Rimac Basin, which serves Lima’s 11 million high population densities and low-flow rivers have residents, provides less than 100 cubic meters of resulted in a concentration of pollution hotspots. water per person per year. This is the lowest level Other sources of pollution include mining effluents, of water resources per person in the country and use of agrochemicals in intensive agriculture, and oil classifies as absolute water scarcity. Peru also faces production. In inland areas, agricultural pollution has rainfall distribution challenges in much of the Andes had the most substantial impact on water quality due and parts of the Amazon. Most precipitation occurs to the runoff of nitrogen, sediments, and pesticides in between November and March, resulting in a large large, upstream areas. dry period with water deficits. Irregular rainfall further complicates Peru’s situation; historical data indicate that annual precipitation can vary from a 40 percent Peru’s aging water infrastructure decrease to a 50 percent increase between years in and limited implementation key productive basins. of its water management Natural storage in glaciers and groundwater, framework have amplified water a key factor to attenuate mismatch between security risks supply and demand and climate variability, is under increasing threat. Glaciers have lost about Hydraulic infrastructure is essential to tackle 43 percent of their surface area since 1970, severely the mismatch between water availability and reducing water supply in areas already suffering from demand and the challenge of high climate water scarcity (ANA 2014). Groundwater, another variability. But current solutions are not sufficient. important form of natural storage, is poorly understood Peru has among the lowest dam storage capacity and unsustainably used. Of the country’s 95 aquifers, levels in Latin America and the Caribbean, leaving it the National Water Authority (Autoridad Nacional susceptible to system failures amid rising climate risks. del Agua, ANA) monitors only 47, representing less In addition, limited capacity to monitor and manage than 1 percent of total groundwater. Several aquifers large hydraulic infrastructure poses access and safety face depletion, indicating the need for effective risks. Hydraulic infrastructure, for the most part, was water rights regulation enforcement, monitoring, and not designed to withstand the forces exerted by management. floods due to climate change and the El Niño weather phenomenon. Despite Peru’s dam safety regulations, Climate change will further reduce water very few operators have implemented early warning availability and increase uncertainty, threatening mechanisms, or safety and emergency protocols for economic growth and development. By the end of disasters affecting hydraulic infrastructure, to prevent the century, the northwest region of South America, potentially fatal floods or power interruptions. Also, where Peru is located, is expected to experience an Peru does not legally mandate that the regional increase in the number of days per year of extreme governments and private entities that manage most of heat and cold, an additional loss of glacier volume its hydraulic infrastructure ensure dam safety or follow and permafrost in the Andean mountains (causing standards for the construction and operation of large reductions in river flows), and high-magnitude hydraulic infrastructure. xii PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Although Peru has a comprehensive water Deteriorating irrigation and drainage systems management legal framework, it has not reaped and low irrigation coverage are contributing the benefits of the framework, given low levels to low agricultural and water productivity. The of implementation. Over the past two decades, agriculture sector is Peru’s biggest water user, the Government of Peru (GoP) has demonstrated its accounting for 89 percent of water withdrawals commitment to strengthening the water sector by in the country (the average across Latin America developing policies on water resources management, and the Caribbean is 70 percent) (INEI 2020b). The water and sanitation services delivery, irrigation, physical efficiency of agricultural water use, however, and disaster risk mitigation. Although the reforms is between 30 and 45 percent. Approximately 57 are comprehensive, implementation is lagging due percent of Peru’s existing irrigation and drainage to wider governance challenges pertaining to bias infrastructure is in poor condition. Only 70 percent in the allocation of water usage rights, low levels of of the 2.6 million hectares of agricultural land decentralization, the need for greater collaboration under irrigation are used to produce crops, and 25 across sectors in water management and disaster percent of the coastal irrigated areas suffer from management approaches, and limited gender equity in salinization. In addition, Peru has only reached 41 water resources management. percent of its irrigation potential. Irrigation coverage is not expanding at the same pace that agricultural Efforts to close water and sanitation supply gaps land is expanding. This can be attributed to several have been slower in rural and peri-urban areas factors, including the variability of local conditions, than in cities. Peru has made remarkable progress insufficient coordination between various levels of in closing water and sanitation coverage gaps over government, limited execution of public investment the past 20 years, yet progress has been much slower for the rollout of irrigation (over the past decade, only in rural and peri-urban areas, where technical and 60 percent of the assigned budget was executed), management solutions are more complex due to and limited performance-based incentives for the geographic, sociocultural, and political conditions, as entire institutional chain to deliver irrigation efficiently well as low population density and logistical difficulties. and equitable.   The use of traditional solutions in these areas that do not consider territorial and social differences has been Low budget execution and funding gaps are a lead cause of stalled water and sanitation investment hindering Peru’s achievement of national targets projects. This is mainly due to high capital and and the Sustainable Development Goals (SDGs) operating costs, lack of ownership from beneficiaries, by 2030. In the past five years, Peru allocated about and limited implementation capacity. S/. 6.2 billion (US$1.6 billion) per year to the WSS sector (predominantly in basic water and sanitation Most of Peru’s water and sanitation utilities are services) with a budget execution rate between locked in a negative cycle in which low revenues 50 and 60 percent. The 2022­ –26 National Sanitation weaken the utilities’ skills base and operational Plan estimates that additional annual funding of S/. performance, resulting in water supply outages 10 billion (US$2.6 billion) per year will be needed that further reduce revenues. At the heart of this to achieve universal access to safely managed WSS cycle are artificially low, politically driven tariffs. On services as envisaged in SDG targets 6.1 and 6.2 by average, utilities apply a tariff of US$0.62 per cubic 2030. In addition, other sources suggest different levels meter, which is well below the Latin America and of funding gaps. For instance, the UNICEF-SWA JMP4 Caribbean regional average of US$1.44. These tariffs estimates that Peru will need additional investments often include large subsidies to users that are not on the order of US$1.3 billion per year from 2021 necessarily in need of this financial support. The effect to 2030 to deliver universal, safely managed WSS of low tariffs is compounded by frequent water service services, whereas a recent study of the Inter-American outages, which cost utilities more than US$500 million Development Bank (IDB 2021) estimates that Peru each year, equivalent to about 10 percent of the total needs to enhance and additional US$2.2 billion to reach health budget for 2020. High levels of commercial this goal.5 Therefore, when compared with the current and physical water losses, and the impact of COVID- budget execution, the funding gap to reach universal 19 on household and business finances have further access to safely managed WSS services by 2030 is strained water utilities’ financial performance. Other between US$1.9 billion and US$3.2 billion per year. To issues contributing to utilities’ limited operational and reach these levels of financing, Peru needs to enhance financial performance are the highly fragmented nature and accelerate its various financing options and of service provision that limits economies of scale, and mechanisms and, more importantly, improve budget the unplanned urban settlements on the outskirts of execution by spending better with cost-effective, cities, which increase the capital and operational costs innovative solutions. of service provision. xiii Strategic action now can Recommendations to accelerate fortify and accelerate Peru’s Peru’s path to water security path to water security Achieving the sustainability, efficiency, and resiliency that water security requires The GoP has begun laying the entails shifting the sector’s focus away from groundwork for water security infrastructure building and toward service Ensuring universal and continuous access delivery and risk management. Although the to water security is high on Peru’s political GoP has begun developing policies that promote agenda. To accelerate progress and develop a this shift, critical gaps remain. The key to fortifying comprehensive understanding of water issues, Peru’s approach, however, does not rely solely on the GoP has engaged in three key activities to ensuring the existence of robust and effective policies build water security. First, it engaged in a water and planning material but on their consolidation and policy dialogue with the Organisation for Economic implementation. As highlighted in the challenges Co-operation and Development (OECD) that section, implementation of sector policies is elevated the discussion around water security and lagging as a result of the need for greater high- facilitated high-level stakeholder engagement. The level commitment among other factors. Moreover, dialogue culminated in a report, Water Governance despite the vast funding needs of the sector (see in Peru (OECD 2021), which contained specific box ES.1), only a fraction of the budget allocated for recommendations centered on the following three water supply, sanitation, and irrigation infrastructure key areas: (i) strengthening multilevel governance is executed each year. This low level of execution to improve water resources management, especially can be attributed to weak implementation capacity risk management linked to pollution, floods, and within key sector agencies, limited monitoring and droughts; (ii) effectively implementing economic evaluation, as well as the use of approaches that instruments for water risk management, including do not reflect territorial realities. Therefore, the water abstraction and pollution charges and payment country needs to optimize its budget execution for environmental services; and (iii) strengthening and implement the cost-effective solutions most the regulatory framework toward universal coverage appropriate to the sector. of WSS services. Second, ANA is updating the The following nine recommendations, which water resources policy to include water security are derived from the findings of the WSD and objectives in Peru’s national development plans dialogues with key stakeholders, focus on shifting and investment system. Third, the Ministry of Peru’s approach to tackling water security issues Housing, Construction, and Sanitation (Ministerio and ensuring that resources are used in an de Vivienda, Construcción y Saneamiento, MVCS) effective and efficient way. The recommendations recently approved the National Sanitation Plan respond to the key sector challenges (see figures ES.1 (2022–26), which includes the goal of reaching and ES.2) and are grouped around the three pillars universal access to water and sanitation by 2040. In of water security: (i) sustaining water resources, addition, the GoP is aligning water-related programs (ii) efficiently delivering services for people and to its Nationally Determined Contribution (climate production, and (iii) building resilience.  action plan). Each recommendation centers on a concrete first The GoP has further signaled strong step to strengthen Peru’s water security, identifies commitment to water-related issues in its the entity responsible for carrying it out, and General Government Policy (2021–26). The specifies the timeline (immediate, short term, or policy prioritizes (i) increasing access to water and medium term) for implementation. Immediate sanitation services in rural and vulnerable urban actions, which can be carried out within the next areas to ensure social protection; (ii) promoting six months, are not administratively or politically water security in agriculture through water storage costly. Short-term actions, which can be carried out solutions (infrastructure and nature based), water- within six to twelve months, are at the center of efficient irrigation systems, and sustainable water dialogue, but may require investment in awareness approaches that consider social, productive, raising to gain consensus and political support. and environmental uses; and (iii) strengthening Medium-term actions, which can be carried out environmental protection and disaster risk over the course of one to two years, still require management and promoting climate change significant discussion to determine the next steps to adaptation and mitigation.  reach their objective. xiv PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box ES.1  Key Investment Needs and Associated Costs of Addressing Water Security Challenges This box summarizes the estimated costs and infrastructure requirements of addressing the water security challenges identified in the Water Security Diagnostic. Key steps include the: 1) Expansion of safely managed water supply and sanitation (WSS) works to improve public health and contribute to human capital development. 2) Expansion of wastewater management works to improve water quality in main water bodies. 3) Modernization and expansion of irrigation infrastructure to reduce the impact of water shocks on agriculture production and to contribute to rural development. 4) Expansion of integrated water storage solutions to increase resilience to climate variability. Expansion of flood control measures and early warning systems to reduce water-related disasters. Building on national studies—such as the 2021 Climate Change Adaptation National Plan, the 2019 Infrastructure for Competitiveness National Plan, and the 2022–26 National Sanitation Plan—the Water Security Diagnostic provides a more comprehensive estimate of investment costs (in 2021 prices) based on the targets presented in these studies. However, the cost estimate should be considered nominal in nature and should not be used for budgeting purposes. It is important to mention that only key infrastructure investments (not all investments needed to move toward water security) have been costed. The total investment costs for Peru to move toward water security have been estimated at US$32 billion to US$52 billion (in 2021 prices). The estimated ranges of investment costs for water storage, water supply and sanitation, irrigation and drainage, and water-related disasters are shown in table B.ES.1. Table ES.1  Cumulative Investment Cost Estimate for Priority Infrastructure Measures, 2021–30 (US$ Millions) Component Low estimate High estimate Water supply and sanitation (including wastewater treatment) 22,000 33,000 Irrigation and drainage 4,300 7,560 Water storage 5,107 11,138 Reduction of water-related disasters 219 639 Total 31,600 52,300 Investments in water supply and sanitation assume that the country will reach universal access to safely managed water and sanitation (SDG targets 6.1 and SDG 6.2) and will reach full wastewater treatment coverage in urban areas.7 Investments in irrigation, which are aligned with SDG 2 to end hunger and achieve food security, assume that the country will (i) increase irrigated land between 330,000 and 490,000 hectares and (ii) increase the efficiency of irrigation water use through off- and on-farm interventions covering between 250,000 and 280,000 hectares.8 Investments in water storage assume that the country will (i) develop additional storage capacity of multipurpose dams ranging between 1,800 million cubic meters (MCM) and 2,300 MCM; (ii) improve the productivity and safety of existing storage capacity of nonenergy dams estimated at 4,500 MCM; and (iii) protect and conserve between 130,000 and 170,000 hectares to serve as nature-based water storage solutions.9 Investments in reducing risks of water-related disasters assume that the country will invest in: (i) establishing 200 early warning systems and (ii) undertaking 60 interventions to protect agriculture production against floods.10 Investments in both water storage and disaster risk reduction are also aligned to SDG 13 to strengthen resilience and adaptive capacity. xv Figure ES.1  Recommended Actions to Achieve Water Security for All Water security Recommendations Key actions (first step) Responsible Timeline key element Consolidate and implement integrated water Reinstate the interagency water commission 1 resources governance at the national and to complete the water governance PCM Immediate basin levels. implementation plan. Sustain water resources Finalize and approve updates to the 2015 ANA Improve the ANA's technical capacity to management and 2 Water Resources Policy and begin updating CEPLAN Short-term pro-actively build water security. improve water quality the 2015 Water Resources National Plan. Improve and expand wastewater management 3 Develop a wastewater management strategy. MVCS Short-term to address water quality in critical basins. Utilize differentiated, territorial approaches to Prepare and implement a comprehensive 4 increase access to safely managed water and water and sanitation policy and strategy for MVCS Medium-term sanitation services for Peru’s most vulnerable. rural and peri-urban areas. Establish financial incentives to improve the Prepare and adopt a performance-based 5 efficiency, service quality, and sustainability of financing policy for water-related capital MVCS Short-term WSS service providers investments. Deliver services for people and Implement a comprehensive approach to agricultural production Develop a detailed national irrigation strategy 6 deliver sustainable, efficient, and equitable MIDAGRI Medium-term and plan. irrigation and drainage services. Strengthen capacity to effectively utilize budget Provide capacity building and technical assistance MVCS 7 Short-term allocation for WSS and irrigation services. for government implementation units. MIDAGRI Invest in integrated water storage solutions 8 Develop an integrated water storage strategy. ANA Medium-term to increase productivity and resilience. Develop a pilot program for local water ANA, Build resilience to Integrate DRM policies in existing sectoral 9 organizations to incorporate DRM measures MIDAGRI, Medium-term ever-increasing planning instrument. into sectoral instruments. and MVCS climate extremes Note: ANA = National Water Authority (Autoridad Nacional del Agua); CEPLAN = National Center for Strategic Planning (Centro Nacional de Planeamiento Estratégico); MIDAGRI = Ministry of Agricultural Development and Irrigation (Ministerio de Desarrollo Agrario y Riego); MVCS = Ministry of Housing, Construction, and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento); PCM = Presidency of the Council of Ministers (Presidencia del Consejo de Ministros). Figure ES.2  Linking Challenges with Recommendations Challenges Linkage with recommendations Demand outpaces supply in key economic regions. 1 2 3 8 9 Groundwater is poorly understood and unsustainably used. 2 Water resources Climate change will further reduce water availability, threatening endowment challenges 2 8 9 economic growth, development, and stability. Pollution is further limiting the water endowment available to people, 3 the environment, and the economy. Limited storage capacity and insufficient attention to securing the safety of existing large hydraulic infrastructure are compromising efforts to 8 boost water security. Centralized and inadequately managed water governance is hindering 1 9 policy rollout. Infrastructure and water Efforts to close supply gaps have been slower in rural and peri-urban 4 management challenges areas. Water and sanitation utilities are in operational and financial distress. 5 Deteriorating irrigation and drainage systems and low irrigation coverage 6 are contributing to low agricultural and water productivity. Budget execution and funding gaps are hindering the achievement of 7 national argets and SDGs. xvi PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY These action-oriented first steps lay the full recognition from all water users and all government necessary groundwork for efficient, effective, institutions. To overcome these challenges, the GoP and sustainable infrastructure investments. formed an interagency water commission in 2019 as Key infrastructure improvements center on reaching part of an OECD water governance dialogue and was universal access to safely managed WSS services, tasked with drafting an implementation plan based on expanding wastewater treatment to improve water the OECD’s recommendations. The process, however, quality, expanding access to efficient irrigation stalled due to political instability. Strong political will solutions, and increasing integrated water storage and commitment are needed to overcome this core solutions to build resilience to water security challenge. challenges. The level of financing required to achieve First step: Reinstate the interagency water commission these improvements, however, depends on many to complete the water governance implementation variables, including the actual goals and targets the plan based on the findings from the OECD water GoP establishes. For instance, the GoP may decide to governance report and this WSD (see additional provide only basic water and sanitation services or may guidance below). Once complete, the interagency decide to utilize high-cost technology. Box ES.1 provides commission may submit the implementation plan to greater detail on infrastructure needs and costs. the Presidency of the Council of Ministers (Presidencia del Consejo de Ministros, PCM) and the National Water Sustain water resources Resources Management System (Sistema Nacional To sustain water resources, Peru must de Gestión de Recursos Hídricos, SNGRH) for high- accelerate its capacity to respond to level approval. After approval, the PCM might want to growing threats from climate change, establish a monitoring system to track progress. pollution, and increasing demand through proactive water resources Responsible entity: PCM management. Timeline: Immediate The implementation plan would do well to: Recommendation 1. Consolidate and • Ensure that ANA is a neutral, institutionally implement integrated water resources autonomous entity. ANA’s irrigation functions should governance at the national and basin levels. also be transferred to MIDAGRI. To overcome its many water resources endowment • Improve the SNGRH’s ability to coordinate water- related policies and programs efficiently across challenges (high climate variability, water pollution, sectors and government levels by systematically and a mismatch between demands and water involving high-level officials in meetings, ensuring availability among others), Peru will need to employ adequate staffing and financial resources for strong water governance, adopt integrated water water resources management, and strengthening resources management strategies at the local and coordination between river basin management basin levels, and ensure that there is coordination and plans and regional and local development plans. harmonization across water-related agencies. Although • Strengthen local water resources management by Peru has a comprehensive legal framework for water increasing the effectiveness of ANA’s decentralized resources management, it has not reaped the benefits entities to: (i) implement regulation policies linked to of the framework given low levels of implementation. water abstraction and pollution discharge permits; (ii) Through implementing the existing legal framework, facilitate cross-sectoral and stakeholder participation Peru will be better positioned to safeguard its water and water conflict resolution mechanisms; and (iii) resources endowment from both controllable (i.e., design and implement river basin management pollution, degradation, and water overexploitation) and plans. The GoP could also further the decentralization process by accelerating the formation of the 17 uncontrollable (i.e., climatic change, climate variability, remaining (out of 29 planned) river basin councils. and natural disasters) factors. Implementing the legal framework will require shifting Recommendation 2. Improve the National from centralized governance to inclusive, properly Water Authority’s technical and planning decentralized, responsive governance. In particular, capacity to integrate risk management, ANA requires greater independence to fulfill its role and improved information systems, and employ a comprehensive and multisectoral approach efforts to address climate change into to water. The authority’s current position under the water resources management. Ministry of Agricultural Development and Irrigation (Ministerio de Desarrollo Agrario y Riego, MIDAGRI) Although ANA has made progress toward setting up limits its capacity to operate independently with the a system for managing information on national water xvii resources, developing six river basin management Recommendation 3. Improve and plans, and creating a technical dam safety unit, it expand wastewater management needs to scale up these efforts to sustain water to address water quality and resources for current and future generations. ANA quantity in critical basins. would do well to continue strengthening its knowledge base and analytical capacity on water security at the Pollution due to economic growth and rapid national and basin levels. urbanization has decreased the quality and availability of water resources, affected public health, and is First step: Finalize and approve updates to the 2015 posing serious threats to the environment. Given Water Resources Policy and begin updating the 2015 the complexity of the problem, this diagnostic Water Resources National Plan to integrate water recommends that ANA and the Ministry of security and climate change elements. These steps will Environment (Ministerio de Ambiente, MINAM) work facilitate resource allocation and the prioritization of together to: (i) identify pollution hotspots, point activities related to water security in ANA and in water- sources (domestic, mining, and other industrial dependent sectors. wastewater discharges), and nonpoint sources (agricultural runoff) of pollution; (ii) implement Responsible entity: ANA targeted source control measures in the identified Timeline: Short term hotspots; and (iii) enforce adequate treatment The Water Resources Policy and Plan might include solutions where pollution cannot be prevented at measures to: the source. Given that the main cause of water pollution is the discharge of domestic wastewater into • Ensure that information regarding water security surface water bodies, this diagnostic proposes the gaps and related indicators linked to social, environmental, and economic outcomes are development of a wastewater management strategy included in the national strategy development plan, led by the MVCS as a first step to overcome this the concerted regional development plans, and the challenge. national budgeting and public investment system First step: Develop a wastewater management (invierte.pe) through strong coordination with sectoral agencies, the Ministry of Finance, and the strategy and pilot, at the basin level, sustainable National Center for Strategic Planning. programs for wastewater treatment that utilize circular economy approaches. • Put in place a monitoring and evaluation process to track the implementation of water security measures Responsible entity: The MVCS in close collaboration under three pillars (sustaining water resources, delivering efficient and equitable water services, with MINAM and ANA and building resilience) in coordination with the Timeline: Short term Ministry of Economy and Finance (MEF) and the The strategy could aim to: National Center for Strategic Planning. • Rehabilitate and optimize existing wastewater • Strengthen knowledge of groundwater to inform treatment plants to ensure effective and efficient regulations for its management, with an initial wastewater treatment. focus on overexploited aquifers, and to identify potential areas for groundwater development. • Align financing and investment programs for This will help promote the use of both surface new wastewater treatment systems with public water and groundwater in regions with health and water quality objectives at the basin water stress. level. Including successive targets and standards that are realistic given investment needs and operation • Establish a regulatory framework for dam and maintenance costs will be central to achieving safety, modernize dam safety instruments, and this objective. implement dam safety plans and their respective emergency action plans in key dams. The capacity • Utilize non-networked solutions in accordance with of ANA’s Dam Safety Technical Unit should also be SDG target 6.2 in areas of low population density strengthened. that do not have sewerage networks.  • Strengthen existing information management • Strengthen the regulatory and incentives systems and planning tools by integrating remote framework for circular economy approaches sensing technologies, using drones to complement through establishing (i) methodological guidelines information systems, and using water balance to study reuse alternatives; (ii) market demand modeling (and other planning methodologies and reference prices for the commercialization that take a risk management approach) to better of water reuse and biosolids; and (iii) incentive understand system uncertainties and to support programs and technical assistance for service robust decision-making. providers. xviii PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Deliver services for people Recommendation 5. Establish financial and agriculture incentives to improve the efficiency, service quality, and sustainability of To ensure secure water for human water and sanitation service providers. consumption and agriculture use, Peru must improve the efficiency of water To ensure continued WSS access and to improve overall services; employ differentiated, territorial approaches service quality, service providers must improve their for service delivery; and ensure the financial efficiency and achieve financial sustainability. Despite sustainability of operations. several water and sanitation policies directed at improving performance and efficiency of water service Recommendation 4. Utilize differentiated, providers, including tariff regulations that allow for cost territorial approaches to increase access recovery and aggregation of service providers, overall performance has not improved given low adoption and to safely managed water and sanitation implementation of the policies at the local level. To services for Peru’s most vulnerable. ensure more sustainable WSS service delivery, the WSD Peru still has significant work to do to improve water recommends aligning existing policies with financing and sanitation services in rural and peri-urban areas, incentives. especially in regard to achieving drinking water quality First step: Prepare, adopt, and begin implementation standards and providing access to basic sanitation. of a performance-based financing policy for water- Tackling such challenges will improve the health related capital investments. and capacity of citizens and promote opportunities for social mobility. Reaching these areas, however, requires Responsible entity: MVCS, in close coordination with a differentiated, territorial approach that considers service providers and local governments geographic, sociocultural, and political conditions and Timeline: Short term takes into account population density and logistical difficulties. The proposed policy might: First step: Prepare and begin implementation of • Allocate investment funds based on operational a comprehensive water and sanitation policy and and commercial efficiency, application of adequate tariffs, aggregation of service providers, and strategy for vulnerable populations in rural and improvements in service quality. peri-urban areas that includes strong community participation in the selection of technical and • Ensure transparency and the efficient allocation of management solutions, promotes handwashing resources for investments through simple procedures and hygiene, and utilizes innovative financial accompanied by technical assistance. strategies. • Ensure that internal renumeration policies attract qualified, experienced professionals who are Responsible entity: MVCS capable of leading efficient and sustainable Timeline: Medium term utilities. Human resources must be equitable and promote gender equity in utilities given the The policy would do well to: low representation of women in senior and key decision-making positions. • Improve the existing public sector investment approach to ensure poverty and low human capital indicators are used when selecting project Recommendation 6. Implement a interventions. comprehensive approach to deliver sustainable, efficient, and equitable • Include guidelines and incentives for cost-effective, innovative technical solutions and management irrigation and drainage services. models that reflect Peru’s geographical and Investing in modernizing and developing irrigation and cultural differences. To ensure that the solutions drainage systems and developing the technical and are adequate, the process will require community participation, close coordination with local institutional capacity to improve service delivery will officials, and knowledge of urban plans and risk increase agricultural efficiency and productivity. Irrigated management regulations. agriculture is critical to achieving better food security, producing higher-value crops, and increasing resilience • Coordinate across sectors to prioritize and plan of agriculture to climate change, especially in drought access to water and sanitation services for health care facilities and schools, initially focusing on areas seasons. Irrigation-related investments, however, have most vulnerable to COVID-19 (in other words, areas not kept pace with the expansion of agricultural land in with high population densities and limited access to Peru. The country requires a comprehensive approach to safe water and adequate toilet facilities). enable irrigation expansion to the most vulnerable and xix improve the efficiency, reliability, flexibility, adequacy, As detailed in the challenges section, the budget and equity of irrigation and drainage services following execution for the water and agriculture sectors is low performance-based mechanisms. despite the high need for financing. First step: Develop a detailed national irrigation First step: Provide capacity building and technical strategy and plan that considers water storage, assistance to strengthen project implementation units equitable water allocation, modernization of irrigation to support the design and implementation of water systems, and differentiated irrigation approaches and sanitation and irrigation projects and to enhance to allow for the expansion of irrigation systems in the capacity of government staff. undeveloped areas with irrigation potential. Responsible entity: MVCS and MIDAGRI Responsible entity: MIDAGRI, in close Timeline: Short term coordination with ANA Technical support might be needed to: Timeline: Medium term • Conduct a systematic audit of investment In addition, the irrigation strategy and plan would do bottlenecks and develop and standardize processes well to: and tools to assist with overall project management • Prioritize the upgrade and expansion of efficient activities. irrigation and drainage systems, especially for small- • Provide targeted assistance to local, regional, and medium-sized family farms in areas with high and national agencies in the preparation and seasonal water variability. approval of feasibility studies, following social and • Couple irrigation and drainage projects with environmental safeguards. complementary activities linked to cropping • Prepare a capacity-building action plan that includes systems, innovation and technical assistance, and activities such as virtual learning, certification the production and marketing stage of produced programs with accredited local institutions, and crops to support agricultural productivity and rural twining and internship arrangements. development. • Accompany new hydraulic infrastructure with • Strengthen MIDAGRI’s information management reliable water resources studies and environmental system by integrating water resources, climate, and social assessments. agricultural, and land use information in a single knowledge management center. Build resilience • Develop capacity and financial incentives programs linked to public investments for regional To build resilience to ever-increasing and local governments to improve the design, climatic extremes, Peru must focus on implementation, and performance of irrigation and improving the productivity and safety drainage projects. of existing dams, developing additional • Develop technical assistance programs to strengthen multipurpose and integrated water storage capacity, the ability of water user organizations to improve and strengthening disaster risk governance at the the quality, efficiency, and sustainability of irrigation national and local levels. and drainage services and to access local and international markets. Recommendation 8. Invest in integrated • Encourage private sector investment in irrigation water storage solutions and improve through farmers’ and water user organizations. In addition to technical assistance programs, MIDAGRI resilience of existing hydraulic systems. could support land titling and registration of water Peru faces water stress in the Costa region and use rights to encourage investment and create significant interannual and seasonal variability of surface incentives for public-private partnerships in small- runoff in the Selva and Sierra regions. Regulation of and medium-sized farms. surface runoff is even more critical in the context of climate change and impacts on the frequency and Recommendation 7. Strengthen capacity severity of floods and droughts. To build resilience to effectively utilize budget allocation for to extreme droughts and floods, Peru must invest water, sanitation, and irrigation services. in integrated water storage measures and improve Strengthening the technical and project management management of existing hydraulic infrastructure. To capacity of national, local, and regional agencies to respond to this challenge, the GoP needs to employ an implement public investments in the water, sanitation, integrated approach that goes beyond infrastructure. and irrigation sectors is key to accelerating efforts to close First step: Develop an integrated water storage service gaps and expand access to irrigated agriculture. strategy focused on ensuring risk-based management xx PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY of existing hydraulic infrastructure, increasing water into existing sectoral planning instruments and storage capacity, and facilitating multipurpose operational procedures. arrangements.6 Responsible entities: ANA, MIDAGRI, and MVCS Responsible entity: ANA, in close collaboration Timeline: Medium term with water users The pilot program could focus on the following: Timeline: Medium term • Drought and flood preparedness and emergency It is advisable that the water storage strategy: plans in selected water user organizations • Prioritize rehabilitation of aging hydraulic (irrigation) and asset inventory and management infrastructure and strengthen risk management programs in selected urban water utilities. measures—including dam safety protocols, sediment • Natured-based solutions for water source protection management, operation and maintenance systems, in selected water user organizations (irrigation) and and catchment management programs—to water service providers. reduce vulnerability and increase the longevity of infrastructure. • Application of decision-making under deep uncertainty in water supply master plans and in river basin • Promote investment in water storage systems that management plans to support short- and long-term utilize nature-based solutions, use groundwater investment planning and project design to manage during drought periods, and optimize multipurpose water-related risks in select water utilities and river water storage and regulation of river flows. basin councils, taking into account the interconnected • Develop institutional arrangements and flexible water uses and sources at the local level. water allocation mechanisms to facilitate and The results of the pilot program should be documented optimize multipurpose water storage, particularly for the energy and agricultural sectors. and used to inform the development of policies and programs to scale up these resilience-related practices • Support the development of capacities to improve across the water sector. To incentivize these practices, information management systems for long-term public funds for investments could be subject to specific planning, and monitoring resilience of water DRM and resilience-building requirements (refer to systems and services in an integrated platform. Recommendation 5). Recommendation 9. Build resilience, Notes in the face of an uncertain future, into 1. The Sierra Irrigation Project closed in 2017: https:// existing sector planning instruments. documents.worldbank.org/en/publication/documents​ Peru has a national disaster risk management (DRM) -reports/documentdetail/595941505485032273/peru​ legal framework that focuses on improving prevention -sierra-irrigation-project. of and building resilience to disasters, but adoption by 2. Data calculated from the Institute of Health Metrics water-related agencies at the local level has been slow. and Evaluation’s Global Burden of Disease Results Tool A concerted, multisectoral effort to develop harmonized (http://ghdx.healthdata.org/gbd-results-tool) and from guidelines, provide technical assistance, and offer Peru’s 2018 Demographic and Family Health Survey incentives is needed to ensure that local governments, (Encuesta Demográfica y de Salud Familar). service providers, and river basin counsels incorporate 3. Includes losses due to water pollution and production DRM policies into their existing sectoral planning shocks. instruments and operational procedures. Given that 4. The Water Supply, Sanitation, and Hygiene (WASH) several studies have been conducted to include DRM SDG Costing Tool uses data from the Joint Monitoring in river basin plans, to accelerate adoption of nature- Programme (JMP) and is a joint publication of the United based solutions for climate resilience and incorporate Nations Children’s Fund (UNICEF) and Sanitation and decision-making under deep uncertainty in water Water for All (SWA). The data by country can be accessed master plans, the WSD recommends working with at: https://www.sanitationandwaterforall.org/tools​ ANA, MVCS, and MIDAGRI to develop a targeted pilot -portal/tool/sdg-costing-tool. program to include DRM practices within local water 5. The range of additional investments required come from organizations’ planning instruments. different sources. The JMP estimates US$1.3 billion based on a narrow set of least-cost sanitation technologies. First step: Develop a pilot program for local water The highest estimate of US$2.6 billion comes from the organizations, including river basin councils, water National Sanitation Plan (2022–26), which incorporates all and sanitation service providers, and water user sanitation projects with a larger set of technologies and organizations (irrigation) to incorporate DRM measures options. The UNICEF-SWA JMP estimates (US$1.3 billion) xxi represent 16 percent of the trade balance of the country of Peru), Peru. https://estadisticas.bcrp.gob.pe​ in 2020, whereas the IDB estimates (US$2.2 billion) /­estadisticas/series/anuales/pbi-por-sectores. represent one-quarter of all 2020 imports of consumer goods in the country. Calculated based on data from: COES. 2021. ĐInforme de la Operación Anual del https://www.bcrp.gob.pe/eng-docs/Statistics/quarterly​ SEIN.Đ COES SINAC, Lima, Peru. https://www​ -indicators.pdf. .coes.org.pe/Portal/PostOperacion/Informes​   6. Operational and legal arrangements so that storage can /­EvaluacionAnual. serve multiple functions and provide multiple services EMDAT (The International Disaster Database). and uses. 2022. “Publications.” https://www.emdat.be​   7. The cost estimate for WSS services is based on the /­publications. 2022–26 National Sanitation Plan, and the cost range to reach safely managed WSS services is based on the data FAO. 2022. “AQUASTAT Database.” FAO, Rome, Italy. estimates of the UNICEF-SWA JMP (lowest) and IDB’s 2021 https://www.fao.org/aquastat/statistics/query​ study (highest). The cost range estimated in the 2019 /­index.html?lang=en. Infrastructure Plan for Peru is close to US$25 billion. Garcia-Morales, E. E. 2021. “Global Burden of Disease   8. Irrigated land targets are based on MIDAGRI’s Multiannual Analysis.” Background Study of the Peru Water Plan for the period 2015–21 (40.8 percent of the Security Diagnostic. John Hopkins University. Mimeo. cultivated land in 2012) and the long-term target under the National Infrastructure Plan is 490,000 hectares at Grey, D., and C. W. Sadoff. 2007. “Sink or Swim? a unit cost ranging between US$10,000 and US$12,000 Water Security for Growth and Development.” per hectare (expert estimates). The target established Water Policy: Official Journal of the World Water under the National Climate Change Adaptation Plan Council 9 (6): 545–71. https://iwaponline. for increasing efficiency of irrigated land with on-farm com/wp/article-abstract/9/6/545/31241​ irrigation equipment (such as sprinkler or drip irrigation) /­Sink-or-Swim-Water-security-for-growth​ is between 250,000 and 280,000 hectares (equivalent -and?redirectedFrom=fulltext. to 20.1 percent of total irrigated land) at a unit cost ranging between US$4,000 and US$6,000 per hectare Hallegatte, S., M. Bangalore, L. Bonzanigo, M. Fay, (expert estimates). T. Kane, U. Narloch, J. Rozenberg, D. Treguer, and   9. Development of water storage is estimated based A. Vogt-Schilb. 2016. Shock Waves: Managing the on the water deficits data obtained from the 2015 Impacts of Climate Change on Poverty. Climate National Water Resources Plan and from the water Change and Development Series. Washington, balance study conducted for this diagnostic. A unit cost DC: World Bank. https://openknowledge​ between US$2.2 and US$4.2 per cubic meter was used .worldbank.org/handle/10986/22787. to determine the investment cost based on the recent Chancay-Lambayeque River Basin Plan. Improving the INEI (Instituto Nacional de Estadística e Informática). productivity and safety of existing storage capacity of 2020a. “Encuesta Nacional de Hogares nonenergy dams is estimated at 4,500 MCM. Hectares (ENAHO) 2020.” INEI, Lima, Peru. https:// and unit cost for nature-based solutions are estimated www.datosabiertos.gob.pe /dataset/ based on information provided by the National Climate encuesta-nacional-de-hogares-enaho-2020​ Change Adaptation Plan. -instituto-nacional-de-estad%C3%ADstica-e​ 10. The target of early warning systems and the number of -inform%C3%A1tica-inei. interventions to protect agricultural production against floods, as well as unit costs, are calculated based on INEI. 2020b. “Medio Ambiente” (Environment). Instituto information in the National Climate Change Adaptation Nacional de Estadística e informática (National Plan for the period 2021–30. Institute of Statistics and Informatics), Lima, Peru. https://www.inei.gob.pe/estadisticas​ /indice-tematico/medio-ambiente/. References OECD (Organisation for Economic Co-operation and Barron, M., and G. Moromizato. 2020. “Precipitation Development). 2021. Water Governance in Peru. and Human Capital Formation in Rural Peru.” OECD Studies on Water. Paris: OECD. https://doi​ Background Paper. World Bank, Washington, DC. .org/10.1787/568847b5-en. BCRP (Banco Central de Reserva del Peru). 2022. “GDP UNICEF (United Nations Children’s Fund). 2020. by Sectors (220 series).” Gerencia Central de “WASH in Schools.” UNICEF, New York. https:// Estudios Económicos (Central Management of data.unicef.org/topic/water-and-sanitation​ Economic Studies), BCRP (Central Reserve Bank /­wash-in-schools/. Abbreviations ANA National Water Authority MIDAGRI Ministry of Agricultural Development and (Autoridad Nacional del Agua) Irrigation (Ministerio de Desarrollo Agrario BCM billion cubic meters y Riego) BOT build, operate, transfer MINAM Ministry of Environment (Ministerio de Ambiente) BOD biological oxygen demand MVCS Ministry of Housing, Construction, and DRM disaster risk management Sanitation (Ministerio de Vivienda, DSGE Dynamic Stochastic General Equilibrium Construcción y Saneamiento) DTF Decision Tree Framework MW megawatt EPS urban water utility O&M operation and maintenance FAO Food and Agriculture Organization OECD Organisation for Economic Co-operation and GDP gross domestic product Development GoP Government of Peru PCM Presidency of the Council of Ministers IDB Inter-American Development Bank (Presidencia del Consejo de Ministros) INEI National Institute of Statistics and PPP purchase power parity Computing (Instituto Nacional de UNICEF United Nations Children’s Fund Estadística e Informática) S/. The Peruvian sol (code PEN) is the currency JMP Joint Monitoring Programme of of Peru; it is subdivided into 100 céntimos WHO/UNICEF (cents) LAC Latin America and the Caribbean SEDAPAL Lima’s water and sanitation utility (Servicio m3 cubic meter de Agua Potable y Alcantarillado de Lima) MCM million cubic meters SEDAPAR Arequipa Water and Sanitation Utility (Servicio de Agua Potable y Alcantarillado MERESE Mechanisms of Compensation de Arequipa) for Ecosystem Services (Mecanismos de Retribución por Servicios SDG Sustainable Development Goal Ecosistémicos) xxiv PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY SNGRH National Water Resources Management WHO World Health Organization System (Sistema Nacional de Gestión de WSD Water Security Diagnostic Recursos Hídricos) WSS water supply and sanitation SUNASS National Superintendence of Sanitation WUA water user association Services (Superintendencia Nacional de Servicios de Saneamiento) WASH water supply, sanitation, and hygiene C HAPT E R 1 About This Report T Information Sources and he World Bank defines water security as the availability of an acceptable quantity and quality of water for health, livelihoods, ecosystems, and Research Methodology production, coupled with an acceptable level of water- This diagnostic draws on the wide range of related risks to people, environments, and economies. knowledge and experiences of the World Bank’s Water Global Practice in Peru, together with strong This Water Security Diagnostic (WSD) report adds engagement with the national government. It also to the evidence base that water security matters draws on existing studies, supplemented by additional for Peru’s economic, social, and environmental data and analysis to fill knowledge gaps. Deep dives development pathways, and presents conducted in preparation for this diagnostic are available recommendations on how the Government of as background papers (refer to box 1.1). Topics include Peru (GoP) could further strengthen its ability the burden of disease associated with unimproved to address water challenges in the face of a water and sanitation services; a quantitative model to changing climate to achieve water security determine how the water balance (supply and demand) objectives. It is informed by the World Bank’s firsthand at the basin level might shift in response to climate experience in the Latin America and the Caribbean change; a public expenditure review of water supply (LAC) region and in Peru itself, where water security and sanitation (WSS) services and irrigation services; a challenges stemming from growing demand and hydroeconomic model for Peru to estimate the impacts climate change are on the rise. of water shocks on key economic sectors; and a water This report was also inspired by the country’s quality diagnostic of Peru. commitment to achieving the 2030 Sustainable For the purposes of this report, the World Bank Development Goals (SDGs), in which water plays drew on national and global datasets to develop a central role. This commitment is reflected in Peru’s a set of water-security-related indicators. These Nationally Determined Contributions as well as its indicators provided information on various water- 2021­ –26 General Government Policy, which prioritizes related variables over time, most notably water universal access to safe water and sanitation for all, endowments; water use; water’s contribution to water storage solutions, expansion of sustainable people and ecosystems; and the impacts of floods and irrigation systems to improve rural livelihoods, and droughts on people, the economy, and ecosystems. climate change adaptation and mitigation. 2 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY A wide range of studies and assessments cover Report Structure different aspects of water security in Peru. This knowledge has been critical in the development of The report begins by providing an overview of Peru’s this diagnostic. References that have been especially key institutions and stakeholders in the water sector, useful include Water Governance in Peru (OECD 2021); the then analyzes why water is important for Peru’s National Water Resources Plan (ANA 2013); the Water socioeconomic development and continues with a Resources Policy and Strategy (GoP 2015); the Investment detailed analysis of the key challenges to achieving and Financing Policy Proposal for the Sanitation Sector water security. The challenges are broadly grouped (World Bank 2016); The Future of Irrigation in Peru (World into those that pertain to the quantity and quality of Bank 2013); and Repensar el Futuro del Perú [Rethinking the country’s water resource endowment, and those the Future of Peru] (World Bank 2021). that pertain to the performance of the country’s water sector institutions and infrastructure. The report Although the scope of the diagnostic was national, concludes with nine priority recommendations and this report also reflects geographical and social concrete actions to improve water security in Peru. differences across Peru’s three main geographic regions—the coast (Costa), the highlands (Sierra), and Before proceeding, it is helpful to understand the water the Amazon rainforest (Selva)—to support social inclusion cycle of use, as explained in box 1.2 and depicted in in future measures to improve water security. figure B1.2.1. Box 1.1  Technical Deep Dives Conducted for the Water Security Diagnostic (WSD) The information and analysis summarized in this report are the results of deep dives presented as technical studies conducted between 2019 and 2021. Below is a list of the key studies commissioned for the WSD: • Countrywide hydrological water balance modeling at the macrobasin level, with climate change projections. • A hydroeconomic model to estimate the economic impacts of various types of water shocks on the sectoral and aggregate economy through an input-output matrix (2017) and a dynamic, stochastic general equilibrium model. • Burden of disease: An in-depth analysis of the economic cost of lack of access to water and sanitation using a burden of disease methodology that pays close attention to health impacts on children and women. • A public expenditure review of water, sanitation, and irrigation subsectors between 2010 and 2020. • A water quality study to identify pollution hotspots and relate them to known sources of pollution and impacts on human health and development. • A gender analysis identifying opportunities and good practices for gender-sensitive water resources management and water supply and sanitation services. • Nine actions to improve water security in the country proposed by high-level private sector stakeholders. • Additional background papers on microeconomic impacts of water shocks on human capital and development outcomes. Box 1.2  An Overview of the Water Cycle of Use The water cycle starts with a water endowment, that is, the rivers, glaciers, lakes, aquifers, and various other freshwater resources that are available for a country to tap to serve its economic and demographic needs. Additional aspects to consider include rainfall volumes and patterns, and also water pollution, which wield significant influence on a country’s economy and people, especially through their effects on public health, agricultural productivity, and the occurrence of extreme events such as droughts and floods. Water resources need to be tapped and managed in a sustainable manner. This second stage of the cycle centers on the institutions and policies governing the use of water resources, as well as the physical infrastructure in place to store water, transport it to its end users, and to dispose of waste in a manner that does not compromise the quality and quantity of water at its source. The present Water Security Diagnostic aims to assess the performance 3 Box 1.2  Continued of the Peruvian water sector, by gauging its effectiveness in the delivery of services, mitigation of risks, and the management of resources. Last in the cycle of use come the end users—the “farms, firms, and families” that utilize water for subsistence, recreation, and production, before returning it to the earth in one form or another. Looking at the entire cycle helps assess a country’s water security and its ramifications for the economy, environment, and people. Figure B1.2.1 Water Use Cycle Water source Protect the source of water supplies Farms Manage demand to address Water infrastructure deepening water stress for delivery transforms water from a public to a private good Firms Regulate water utilities for reliable access to safe water and sanitation Families Safety nets to protect the vulnerable since water is a merit good Environmental policies to reduce water pollution and degradation Source: Damania et al. 2017 4 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY References World Bank. 2013. The Future of Irrigation in Peru. Washington, DC: World Bank. ANA (La Autoridad Nacional del Agua). 2013. National Water Resources Plan. San Isidro, Peru: ANA World Bank. 2016. Investment and Financing Policy (National Water Authority). Proposal for the Sanitation Sector. Washington, DC: World Bank. Damania, Richard, Sébastien Desbureaux, Marie Hyland, Asif Islam, Scott Moore, Aude-Sophie Rodella, World Bank. 2021. Repensar el Futuro del Perú: Notas Jason Russ, and Esha Zaveri. 2017. Uncharted de Política Para Transformar Al Estado En Un Waters: The New Economics of Water Scarcity Gestor De Bienestar Y Desarrollo (Rethinking and Variability. Washington, DC: World Bank. the Future of Peru: Policy Notes to Transform the State into a Manager of Welfare and GoP (Government of Peru). 2015. “Water Resources Development). Washington, DC: World Bank. Policy and Strategy.” Government of Peru, Lima. https://www.bancomundial.org/es/country​ https://www.ana.gob.pe/sites/default/files​ /­peru/publication/repensar-el-futuro-del-per​ /­default_images/politica_y_estrategia_nacional​ -apuntes-de-pol-tica-para-transformar-al-estado​ _de_recursos_hidricos_ana.pdf. -en-un-gestor-del-bienestar-y-el-desarrollo. OECD (Organisation for Economic Co-operation and Development). 2021. Water Governance in Peru. OECD Studies on Water. Paris: OECD. https://doi​ .org/10.1787/568847b5-en. C HAPT E R 2 Mapping Peru’s Key Water Institutions and Stakeholders T his chapter outlines the key institutions and Congress in 2009. ANA is ascribed to the Ministry of stakeholders involved in Peru’s water sector. Agricultural Development and Irrigation (Ministerio de Desarrollo Agrario y Riego, MIDAGRI). Therefore, This diagnostic focuses on the activities and MIDAGRI issues supreme decrees proposed by ANA challenges of the institutions linked to water resources in order to regulate the integrated and multisectoral management and the delivery of WSS and irrigation management of water resources (OECD 2021). and drainage services, as well as the multisectoral platform that ensures interagency coordination of water ANA has a deconcentrated administration responsible policies. for local water resource policy, through administrative water authorities, with hydrographic regional scope; Overall, the core institutional challenge is to improve local water authorities at the basin/multibasin level; governance, which in turn would enhance the sector’s and river basin councils (established at the initiative of efficacy and effectiveness. The first step is to align regional governments). ANA’s main functions include: management practices with sustainability, quality, and (i) developing national water resource policy and performance objectives. Also, building resilience can supervising its execution; (ii) determining the value help adapt water resources use to population demands of fees for water usage rights and for the discharge of and a changing climate. Gaps in the administrative wastewater in natural water sources; and (iii) granting, and technical capacities of local institutions need amending, and terminating water usage rights. ANA to be filled so they can implement national policies generated the National Policy and Strategy for Water and regulations. Considerable financial investment Resources Management 2013 and the National Water is needed to meet the sector’s objectives for access, Resources Plan 2015. Their main feature is a focus availability, and quality, and prepare it to cope with the on the basin level as the main unit for integrated increasing risks and vulnerabilities of climate change. water resources management. Regional governments are responsible for the operation and maintenance Water Resources Management (O&M) of major public hydraulic infrastructure, and Peru’s water resources sector is headed by the National regional and local governments participate in basin- Water Authority (Autoridad Nacional del Agua, ANA), scale planning and undertake water quality and created by the Water Resources Law approved by discharge monitoring and control actions in their areas 6 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY of jurisdiction. A tribunal for conflict resolution was Gestión de Recursos Hídricos, SNGRH), an integrated also created by the Water Resources Law to address water management platform established in 2009 under conflicts between water users. the Water Resources Law. The platform brings together public sector institutions and water users at the These deconcentrated entities work with water national and subnational levels—including grassroots user associations (WUAs) to plan, distribute water, and indigenous communities—to collectively contribute and operate the hydraulic infrastructure. To date, their competencies and sensibly designate functions. of the 29 such councils originally envisioned, 17 It is strategically important because it offers a vehicle river basin councils are outstanding, only 12 having to integrate, articulate, and coordinate aspects of water been established (ANA n.d.), and the corresponding management that are carried out by multiple public basin management plans are under development or entities. completed. WUAs provide services to the agricultural sector but were envisioned in the Water Resources Law The SNGRH develops its policies in coordination with as multisectoral organizations that would address a the Ministry of Environment (Ministerio de Ambiente, wider variety of water-related issues. MINAM); MIDAGRI; the Ministry of Energy and Mines; the Ministry of Health; the Ministry of Production; The National Water Resources the Ministry of Housing, Construction, and Sanitation (Ministerio de Vivienda, Construcción y Saneamiento, Management System MVCS); and the regional and local governments, within ANA is responsible for overseeing the National Water the framework of the national water resources policy Resources Management System (Sistema Nacional de and strategy (figure 2.1). Figure 2.1  Organization of the National Water Resources Management System’s Water Integration Platform Council of National Water Authority and deconcentrated entities Government Ministries Ministry of Rural National Water Authority Development and (ANA) Irrigation (Chair) Council of Ministries Ministry of Environment Board of Ministry of Energy and Mining Ministry of Health directors of Ministry of Housing the National National Construction and Sanitation Water Authority Ministry of Production Maritime authority Agrarian associations Nonagraian associations Peasant communities Native communities Regional governments Rural municipal governments 14 Regional/ Administrative local water authorities • Board of water users National River basin • Commissions of water users Water 71 Local water council • Committees of water users Basin Resources authorities (12 established • Peasant communities Management (ALAs) and 3 under • Native communities System formation) • Special hydraulic projects 7 Service Providers—Water national government’s policy on administration and management of these entities. Supply and Sanitation, and Irrigation and Drainage The National Superintendence of Sanitation Services (Superintendencia Nacional de Servicios Various national and subnational institutions are de Saneamiento, SUNASS) is an independent entity responsible for regulating and providing water responsible for economic regulation of water and and sanitation services in Peru (see figure 2.2). sanitation services, including the resolution of customer At the national level: service complaints to the regulator. The MVCS oversees policy development and national Regional and local governments are responsible planning, including prioritizing and allocating public for applying MVCS standards and policies to sector investments at the national level. investments within their jurisdictions. The regional The Technical Organization for the Administration of governments are also mandated by law with the role Water and Sanitation Services (Organismo Técnico de of providing technical assistance to local governments la Administración de los Servicios de Saneamiento, and to service providers. OTASS), which falls under the MVCS, is primarily A variety of service providers are responsible for responsible for providing technical assistance the delivery of water and sanitation services. to urban water utilities in order to execute the Lima’s water and sanitation utility (Servicio de Agua Figure 2.2  Key Entities Responsible for Water Supply and Sanitation and Irrigation a. Water supply and sanitation b. Irrigation Ministry of housing, construction, Ministry of agricultural and sanitation (MVCS) development and irrigation National National National superintendence of sanitation services (SUNASS) 26 Regional governmernts National Regional Thechnical organization for the administration of water and 1,895 Local governments sanitation services (OTASS) National Local 26 Regional governments Water user associations/irrigation committees Regional Hyperlocal 50 Urban water utilities Regional 1,895 Local government (municipalities) Local 3,000 Community grassroots organizations Hyperlocal 8 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Potable y Alcantarillado de Lima, SEDAPAL) serves the Local WUAs are groups of private water users, such country’s metropolitan capital, while another 49 water as irrigators, who pool their financial, technical, and sanitation utilities provide services to other urban material, and human resources for the O&M of areas. Small municipalities and community grassroots a water system. Following a period of strong organizations are responsible for small towns and rural intervention from the public administration in areas. the management of irrigation systems in Peru, responsibility for the operational management of Various national and subnational institutions are systems was transferred to these WUAs in 1989. responsible for regulating and providing irrigation There are 64 WUAs in the coastal area and 34 services in Peru (see figure 2.2). in the highlands or Sierra region. These coexist At the national level, MIDAGRI’s main function is to with more traditional organizations (irrigation regulate the agrarian sector. To this end, it oversees committees and farming communities), sometimes national policy development and planning, including creating confusion regarding their roles and prioritizing and allocating public investments in responsibilities. irrigation. MIDAGRI implements a number of financing mechanisms for irrigation through institutions including References Agrorural, the Sierra Azul, and the Irrigation Subsectoral ANA (Autoridad Nacional de Agua). n.d. “Consejos Program, which implements infrastructure irrigation de Recursos Hídricos de Cuenca.” Retrieved systems. May 23, 2023 from https://www.ana​ .gob.pe/nosotros/planificacion-hidrica​ Regional and local governments are responsible /­plan-gestion-cuencas. for applying MIDAGRI’s standards and policies to sector investments within their jurisdictions. The regional OECD (Organisation for Economic Co-operation and governments are also mandated by law to provide Development). 2021. Water Governance in Peru. technical assistance to local governments and to OECD Studies on Water. Paris: OECD. https://doi​ service providers. .org/10.1787/568847b5-en. C HAPT E R 3 Why Water Matters to Peru’s Development W ater security is at the heart of Peru’s path accounting for 16 percent of total exports. The toward sustainable development. The country agricultural sector also accounts for 22 percent of needs to act now to safeguard its water employment on the national scale; in rural areas, this resources and, ultimately, protect its ecosystems, increases to 54 percent (INEI 2020). Nearly two‑thirds economy, and people from the negative impacts of the 300,000 new formal jobs created in 2018 and of water stress and excess. This chapter outlines 2019 combined were related to the agricultural sector. why water security is important for Peru’s economy, Without water, these exports and jobs would not be industry, food security, energy, natural environment, possible. This is significant for rural development given and public health. that 46 percent of the population in rural areas remains poor and about 14 percent is mired in extreme poverty Water is a Key Driver of Economic (INEI 2021). and Human Capital Development As the agriculture sector demonstrates, water and jobs are intimately linked. As many as 2.4 million Water-intensive sectors account for two-fifths of jobs are in water-intensive sectors such as mining, Peru’s gross domestic product (GDP), with about construction, and manufacturing. Manufacturing alone 6 percent coming from agriculture, 12 percent employs 1.3 million people, or 5 percent of Peru’s from mining and hydrocarbons, 13 percent from workforce. The high production value of manufacturing, manufacturing, 7 percent from construction, and combined with the number of people it employs, 2 percent from water and electricity (BCRP 2022). means that it is highly exposed to water risks. The Metals and ore are especially important to Peru’s yearly water shocks generate impacts on the mining economy, accounting for 63 percent of total exports and manufacturing industries in the order of US$395 in 2020. Copper alone accounts for 50 percent of all million on average, an amount that is comparable exports; other important export minerals are gold and to 45.8 percent of the total budget for health refined petroleum. infrastructure in 2021 (US$874 million) (MEF 2021). Agriculture is also a key economic sector, with Water is key for industrial production. The exports of tropical fruits, grapes, blueberries, interruptions in water services halt production avocado, coffee, and other high-value produce processes and increase production costs in industries 10 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY such as manufacturing. For many manufactured Unreliable water services also affect the products, water is essential to clean, cool, or transform competitiveness of firms and have direct impacts raw materials or inputs used for production. Moreover, on households. It has been estimated that a strong consumption and investments have driven substantial improvement in the reliability of water solid growth rates in Peru over the last two decades, supply services (from the current rate of 4.5 to 6.0 but when the provision of water or energy is not on a scale of 1 to 7) will generate an increase of 1 continuous, investments are delayed and their impact percent in Peru’s Global Competitiveness Index. Water on growth is diminished. Further, water interruptions disruptions are estimated to cost households between also have impacts on firm productivity. According to 0.11 percent and 0.19 percent of GDP every year the World Bank Enterprise Survey, about 13 percent of (Hallegatte, Rentschler, and Rozenberg 2019), which firms in 2017 experienced insufficient water supply for in the case of Peru corresponds to US$222–384 million. production (with interruptions amounting to 30 hours This underpins the importance of improving the per month on average). Water shortages are estimated reliability of water and sanitation systems. to translate into an 18 percent reduction in total factor Water shocks linked to extreme rainfall and productivity (box 3.1). Similar burdens resulting from droughts, which are commonplace in Peru, water shortages are also felt by informal firms in Peru. affect vast populations causing severe economic A 24-hour increase of water shortage in a month leads damages and impacts on human capital to a 3.7 percent loss in monthly sales per worker accumulation (Barron and Moromizato 2020). (Islam 2018). Box 3.1  Water Shortages Lower Firm Productivity in Peru  A stochastic frontier analysis based on the World Bank Enterprise Survey (2017) was conducted to assess the impacts of water shortages on firm productivity. The results indicate an 18 percent reduction in total factor productivity. Figure B3.1.1 shows the cumulative distribution of technical efficiency scores of firms experiencing water insufficiencies and firms experiencing no water insufficiencies. A higher technical efficiency score indicates a higher technical efficiency. Figure B3.1.1  Firms Experiencing Water Shortages in Peru 1.0 ECDF of technical efficiency scores 1.8 1.6 1.4 0.2 0.0 0.3 0.4 0.5 0.6 0.7 Technical efficiency scores No water insufficiencies Water insufficiencies Note: Empirical cumulative distribution function (ECDF) is an empirical cumulative distribution function that plots continuous data points of a sample from lowest to highest against their percentiles or percent contribution to total in cumulative terms. 11 The 1990 and 1992 droughts affected 10 percent droughts have direct impacts on educational outcomes, and 5 percent of the population in the country and morbidity and mortality rates, and labor productivity, generated economic losses that represented 0.14 and hampering human capital accumulation. 0.7 percent of the country’s GDP, respectively. The According to the economic analysis conducted for water shocks from the El Niño events of 1982/83 and this diagnostic (refer to box 3.1), water security 1997/98 caused the greatest economic losses of any gaps cost Peru between 1.3 and 3.5 percent of natural event to date (about 11 percent and 6 percent GDP per year (table 3.1); 4.1 percent of jobs of GDP, respectively).The 2017 floods associated are lost as a result of water-related losses in with El Niño Costero offer another example of the agriculture, mining, manufacturing, health, and substantial impacts of water shocks: nearly 2.2 million households’ income.1 When production shocks and people, representing 7 percent of the population, were losses due to water pollution are also considered affected; and US$3.2 billion of economic damages (and concomitant benefits are excluded), the were inflicted, equivalent to 1.5 percent of GDP. During economic impact could range between 4.0 percent the period 1990–2020, 1 percent of the total population and 6.4 percent of GDP per year. These losses do not was affected by water shocks causing US$4.2 billion consider spillover effects on local economies or losses in accumulative economic damages (in 2020 constant in value added, so they largely underestimate the prices), equivalent to 2 percent of 2020 GDP (EMDAT impacts of water shocks and pollution. 2022). Furthermore, damage caused by floods and Table 3.1  Summary of Economic Impact of Climate-Related Water Shocks, by Economic Sector Impact area Agriculture Manufacturing / Industry Energy Households Total mining Restrictions in water supply Total value (US$, billions 2020 PPP) 1.08 2.90 0.99 0.24 0.28 5.49 % of sector’s GDP 9.46 10.24 8.41 6.22 1.50   % of GDP 0.51 1.36 0.46 0.11 0.13 2.57 Floods Total value (US$, billions 2020) 0.22 0.08 0.14 0.01 0.15 0.60 % of sector’s GDP 1.93 0.29 1.18 0.29 1.10   % of GDP 0.10 0.04 0.15 0.01 0.07 0.37 Droughts Total value (US$, billions 2020) 0.48 0.09 0.03 0.01 0.06 0.67 % of sector’s GDP 4.20 0.32 0.28 0.25 0.9   % of GDP 0.22 0.1 0.04 0.01 0.03 0.40 Limited water and sanitation services linked to burden of disease Total value (US$, billions 2020)         0.25 0.25 % of sector’s GDP         1.4   % of GDP         0.12 0.12 Range of economic cost % of GDP (low)—Climate-related 0.70 0.17 0.17 0.02 0.21 1.27 impacts only (floods and droughts) % of GDP (high)—All impacts 0.83 1.50 0.65 0.13 0.35 3.46 Source: Estimates based on the Input-Output Matrix and DSGE model 2021. Note: Data are in PPP (purchasing power parity) 2020 prices, expressed in billion US dollars. Dollar figures for gross domestic product (GDP) are converted from domestic currencies using 2020 official exchange rates of Peru’s Central Bank (BCP). Underlying GDP in local currency unit is annualized with time series of PPP conversion factors for GDP, which are extrapolated with linked GDP deflators. GDP is expressed in current international dollars, converted by the PPP conversion factor. GDP is the sum of gross value added by all resident producers in the country plus any product taxes and minus any subsidies not included in the value of the products. The PPP conversion factor is a spatial price deflator and currency converter that eliminates the effects of the differences in price levels between countries. The sectors’ gross production values are taken from INEI’s GDP series 2007–20 (https://m.inei.gob.pe/estadisticas/indice-tematico/pbi-de-los-departamentos-segun-actividades-economicas-9110/). 12 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY By contrast, Peru generates between 21,000 children, leading to malnutrition. In turn, this could and 36,000 indirect and direct jobs when it lead to negative outcomes in school performance invests US$1 billion to close water security and physical growth, with long-term consequences gaps.2 This shows the potential that investments in for both society as a whole and individuals, who the water sector have to maximize job generation might struggle to find well-paying work due to in Peru. In fact, the GoP has prioritized water-related their short stature or poor academic record. A study investment projects as a key strategy of its post– conducted in Peru indicates that the odds of children COVID-19 economic recovery while benefitting from developing acute diarrhea is 2.5 times higher in rural building a green and inclusive economy. For instance, areas without improved sanitation, with the highest in irrigation, the GoP is using a short-term response prevalence among children 22 months to 6 years of strategy, as public funding for deferred maintenance age (Ballard 2017). and cleaning of irrigation and drainage canals has generated 100,000 temporary jobs, while increasing A study of the economic burden of diseases access to water and preparedness for flood events associated with unimproved WSS services found (World Bank 2021a). that the number of years of life lost resulting from inadequate access to water and sanitation Water’s contribution to Peru’s economy is further is costing the country about US$246 million per amplified when the impact of hydropower is year. Of this, US$138 million was due to illnesses, considered. Water is required to produce electricity US$82 million due to hospitalizations, and US$26 and is critical for energy security and green energy. million due to the cost of caregiving, most of which Hydropower accounts for 57 percent of total electricity is done by women.3 In addition, an economic analysis generation in the country and is the enabler of other conducted for this study indicates that closing the energy renewables (solar and wind) by providing gap in access to water and sanitation services would the storage needed to manage variability. Peru’s increase GDP by 1.6 percent each year through Regulatory Agency for Investment in Energy and reducing the burden of disease and limiting the impact Mining (Osinergmin) has estimated that a 60 percent of climate change on health. reduction of the electricity generated by the Mantaro hydropower system, equivalent to 10 percent of The people of the Amazon rainforest region electricity generation in Peru, could reduce GDP by 0.23 shoulder most of the burden associated with percent and the balance of payments by 0.22 percent. unimproved water and sanitation, recording Fortunately, at present, Peru has a good electricity double the number of deaths related to inadequate reserve, which allows the country to avoid negative WSS services (14.3 deaths per million people, impacts in case of electricity disruptions. Nonetheless, compared with 7.4 deaths per million for the Costa) this exemplifies the economic contribution of and double the number of years lost due to disability hydropower. linked to WSS-related diseases (1,328.2 years, compared with 684.8 years on the Costa) (map 3.1). People need access to adequate and This geographical disparity is closely linked to safe water and sanitation services if economic and public health conditions, which are better in the Costa region. they are to be healthy and productive enough to contribute to the economy Investments in nutrition-specific interventions aiming at reducing child stunting that include The World Bank defines human capital as the access to water supply, sanitation, and hygiene knowledge, skills, and health that people are estimated to yield substantial returns. accumulate throughout their lives, enabling them Economic costs of childhood stunting to the private to realize their potential as productive members sector are very high. Childhood stunting reduces of society (World Bank 2022). It is possible to end cognitive development, causing delays in starting extreme poverty and create more inclusive societies by school (by five months), losses of schooling (by developing this human capital, which requires access to more than half a year), and reductions in lifetime public services such as health care, education, and safe earnings; and, in women, poor reproductive water and sanitation. performance, including smaller babies (Barron 2018; Each year, about 900,000 Peruvian children Molina and Saldarriaga 2017). In the case of Peru, under the age of five develop acute diarrhea it is estimated that total median annual income directly related to inadequate water and losses associated with stunting in childhood are sanitation services. Empirical studies show that US$3.7 billion (representing 8 percent of national recurrent infections could result in gut dysfunction in income). The benefit-cost ratio of investments to 13 Map 3.1  Number of Deaths and Disability-Adjusted Life Years Lost per Million Inhabitants Attributable to Inadequate Water and Sanitation Services, by Region, 2018 Note: DALY = disability-adjusted life year. improve nutritional outcomes and prevent stunting Water Security Strengthens is very high: there is a return of 15 dollars for every dollar invested annually (at a 5 percent discount Food Security, Promotes a rate) (Akseer et al. 2022). Since in utero exposure Thriving Agricultural Sector, and to nitrate pollution in water bodies lowers the Contributes to Rural Development height-for-age scores and increases the likelihood of A quarter of Peru’s agricultural land is unused, stunting for children younger than five; and women partly due to lack of water. In 2018, there were born during rainfall deficiencies are more likely to 11.7 million hectares of agricultural land in Peru, grow up stunted, investments to improve water most of which are in the Sierra (table 3.2). However, quality and increase food security will also prevent a quarter of this land was unused, with 18 percent of stunting (see box 3.2 on the impacts of increased farmers on unproductive land citing lack of water as temperature and associated food insecurity on the main reason for this. birth outcomes). The performance levels of water and sanitation utilities amplify these impacts, Agriculture is the sector most threatened by as do improved institutional and governance water scarcity, especially in the Costa region frameworks. (where it is the most productive and contributes 14 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 3.2  The Perils of Climate Change: In Utero Exposure to Temperature Variability and Birth Outcomes in the Andean Region A study conducted by Molina and Saldarriaga (2016) in the Andean region of Bolivia, Colombia, and Peru looked at how in utero exposure to temperature variability affects birth outcomes. When dividing the effects according to gestational period, the results indicate that the effect of temperature variability on birth weight is concentrated during the six to eight months before birth, corresponding to the first trimester of pregnancy or the embryonic period. In particular, a one standard deviation increase in the temperature relative to the local long-term meandering rates for six to eight months before birth, reduces birth weight by 16.5 grams (roughly 84 percent of the overall effect). The results therefore suggest that the effects of temperature variability on birth outcomes may not be driven by the effects in a particular gestational period but are likely to represent the overall temperature variability experienced during the full gestational period.  The results of the effects of temperature variability during the nine months before birth (entire pregnancy period) on birth weight indicate that birth weight is more affected when the distributional changes in the temperature levels are positive rather than negative. In addition, this study found some evidence that these results might be explained by food insecurity and insufficiencies in health care during pregnancy that arise due to increased temperature variability. These results are more likely to mirror the actual effects of climate change on birth outcomes, since the use of adaptation technologies is not widespread in developing countries. Source: Molina and Saldarriaga 2016. Box 3.3  Use of an Input-Output Matrix and a Dynamic Stochastic General Equilibrium Model to Estimate the Economic Impacts of Water Insecurity The Water Security Diagnostic estimates the economic impacts of water insecurity in Peru. The results are summarized in this report. The estimates are based on a quantitative evaluation of different water scenarios or shocks, conducted using a Dynamic Stochastic General Equilibrium (DSGE) model. The model incorporates information from an Input-Output Matrix (in monetary value units) for Peru for the year 2017 representing 54 sectors, and the sectoral composition of gross domestic product. The DSGE model captures the water-intense economic sectors (namely, agriculture, mining, manufacturing, and energy) and services, representing the rest of the economy; and takes into account capital, labor, water, energy, and (imported) oil. The model makes the following simplifications regarding the factors of production: capital is only used in the production of mining, manufacturing, services, and energy; labor is an input for manufacturing, services, and agriculture; energy is required in the mining, manufacturing, and services sectors; oil is only used in the energy sector as an alternative to water; and water is used in all sectors. Energy is an intermediate good, and is produced using capital, water, and oil.  The different scenarios or water shocks simulated with the DSGE model include: (i) decline of production across several sectors resulting from water scarcity under future climate change; (ii) reduction in agriculture production because of droughts; and (iii) capital and assets shocks resulting from floods.  The Input-Output Matrix was also used to analyze adjustments in supply, demand, value-added, and production in the presence of the above water shocks. The results were then used to calibrate the DSGE model.  For the analysis of increasing water scarcity, sectoral impacts calculated with a Computable General Equilibrium model that incorporates water based on the Global Trade Analysis Project (GTAP 9) database (featuring the reference year 2011, 140 regions, and 57 commodities) were considered.  For the analysis of drought, the elasticity of agriculture production at the department level (defined as the ratio of percentage change in agricultural value added to the percentage change of precipitation, when the precipitation is one standard deviation below the 1981–2019 average) was used to estimate the reduction in agricultural production resulting from a 25 percent reduction in precipitation.  Flood risk assessments for a 1-in-100-year return period fluvial flood hazard were carried out for Peru using three Global Flood Models (CMA-UNEP, GLOFRIS, and IRC); five datasets of global population (GHS-POP, GPW4, HRSI, LandScan, and WorldPop); and two approaches for calculating vulnerability based on global depth-damage functions using GlobCover and Global Human Settlement Layer landcover maps. The resulting averages of minimum and maximum economic damages were used to represent capital and asset shocks associated with floods. 15 the most to exports) but also in the Selva and Sierra Access to irrigation increases regions, given the high levels of climate variability. agricultural productivity Multipurpose water storage, irrigation, nature-based solutions, and adaptive and flexible water allocation Access to irrigation contributes to better food mechanisms will be critical to sustain economic security, better agricultural incomes by enabling growth. In the short run these measures could increase farmers to grow higher-value crops, and the GDP by 0.8 percent each year through productivity increased resilience of agriculture to climate gains in the agriculture sector.4 change, especially in drought seasons. Yet currently only 22 percent of agricultural land—2.6 million Agriculture water productivity—the value of hectares—is under irrigation. About 44 percent of this is agricultural output to the economy per unit of along the water-stressed Pacific coast and covers about water withdrawn—is low compared to other 70 percent of the agricultural land. Only 24 percent of sectors (figure 3.1). Opportunities for improving agricultural land in the highlands and 11 percent of agricultural water productivity mainly lie in agricultural land in the rainforests (Selva high altitude) choosing adapted, water-efficient crops; reducing are irrigated. In these areas, subsistence farming unproductive water losses with modernized dominates. irrigation systems; and ensuring ideal agronomic conditions for crop production. Crops with high Agriculture becomes a more productive activity water consumption can still be part of water- where utilized land parcels have access to productive systems if their multiple uses are taken irrigation. Thanks to increased access to irrigation, into consideration. For example, a high-value crop in 2021 there was a significant increase in agro- that also provides residues for livestock feed has both exports (of cocoa, coffee, and Andean berries as well economic and agricultural benefits that counterbalance as avocados) from the Selva and Sierra subregions. its relatively high rate of water consumption. The Sierra A recent study reported yield increases of about region in particular shows potential for export-oriented 30 to 70 percent, and net household income per crops, which require a substantial investment in hectare increases of 25 to 100 percent as a result irrigation infrastructure. of improvements in water availability and irrigation techniques in agricultural parcels in the Sierra (World Bank 2017b). But in both the Sierra and Selva, competitiveness is based not only on providing water Table 3.2 Cultivated Land in Peru, 2018 efficiently. Amid these subregions’ difficult climatic (hectares) conditions, technical assistance in logistics and access will help producers increase crops’ quantity and quality Region Agricultural land Irrigated land for more competitive markets. Sierra 5,172,954 1,257,032 The 22 percent of land that is under irrigation Costa 1,654,258 1,156,923 produces about two-thirds of the country’s Selva high altitude 1,741,767 198,108 agricultural outputs, demonstrating the effect irrigation has on productivity. On Selva low areas 3,080,737 7,704 average, irrigated yields are twice as much Total 11,649,716 2,619,667 as rainfed yields in Peru. Indeed, the irrigated Figure 3.1  Agricultural Water Productivity Compared To Overall Water Productivity 12 12 10 USD per cubic meter 8 6 4 2 0.6 0 Overall water use Irrigated agriculture efficiency water use efficiency Note: This includes the sum of water usage in the services, industrial, and irrigated agriculture sectors. Industrial use is the highest at US$115 per cubic meter. 16 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY regions of Arequipa and Ica yield on average 33.5 and it could potentially derive from hydroelectric sources 32.2 tons per hectare, respectively, while the rainfed (MINEM 2011). regions of Piura and Lambayeque barely produce Hydropower plants are important for Peru’s 9.5 and 6.6 tons per hectare (MIDAGRI 2017). Crop clean energy transition. Hydropower is the management, local climate, and market access also enabler of other energy renewables by providing contribute to these differences. the storage needed to manage variability. However, About 82 percent of Peruvian farmers, mostly located building new hydropower plants can be challenging. in the Sierra and Selva, practice subsistence farming Since 86 percent of potential hydropower is located on less than 5 hectares of land (USAID 2017). Much in river basins in the Amazon rainforest region, of this land—about 63.8 percent of Peru’s total construction of new reservoirs could generate agricultural area—is rainfed (drylands), with opposition from local communities due to potential low productivity. In addition, rainfed agriculture social and environmental concerns (Gestión 2021). leaves agricultural production exposed to shifts Environmental concerns stem from the carbon dioxide in rainfall patterns linked to climate change and methane that are emitted when new hydropower and variability. This vulnerability undermines dams are filled, flooding large areas that contain national food security and reduces farmers’ economic plants and other organic materials. resilience to the effects of climate change, potentially Potential measures to improve the environmental driving migration to urban and peri-urban areas. Such performance of both new and existing hydropower migration has already been observed in Ancash, Cusco, plants include installing solar floating panels Junín, and Piura, where glacial recession and rainfall to supplement generation capacity and reduce changes are driving water scarcity and droughts evaporation and eutrophication (by reducing exposure (Bergmann et al. 2021). Very high food insecurity is of the water body to the sun), which are expected already affecting Huancavelica, Apurimac, Huánuco, to increase with climate change. Ensuring that Puno, Amazonas, and Ayacucho. hydropower reservoirs provide for other water Access to irrigation, especially when paired with uses and benefit local communities while access to roads and markets, makes it possible generating electricity could help to address social for small holders to rise above subsistence concerns. So far, however, limited consideration has agriculture by enabling them to produce higher- been given to multipurpose dams. value export crops, which are generally more sensitive to water stress. These crops have the Peru’s Vulnerability to potential to boost farmer incomes and so improve their economic resilience to climate change, especially in Climate Change Could Erode times of drought. They also strengthen the agriculture These Economic, Human, sector, which is becoming increasingly important to the and Natural Benefits country’s export economy. Almost half of Peru’s area (46 percent) is highly to very highly vulnerable to natural disasters Water Sustains the Thirsty associated with the El Niño phenomenon and Hydropower Sector, Which long-term climate change (MINAM 2016). In some Is Important for Peru’s regions climate change may already be increasing the frequency and intensity of floods and droughts Clean Energy Transition in some basins. The agricultural lands of Cajamarca, Fifty-seven percent of Peru’s electricity (30,664 Pasco, and Huánuco face the highest risk of droughts, gigawatt-hours, with 5,286 megawatts [MW] while Tumbes, Piura, Lambayeque, Loreto, Ica, Ancash, of installed capacity at the end of 2021) came Cajamarca, Huancavelica, and the metropolitan from hydroelectric energy in 2021 (COES 2021). provinces of Lima are the most vulnerable to human By October 2021, the GoP had issued concessions and and material losses from floods (ANA 2019). authorizations for the development of an additional Farmland is especially sensitive to both droughts 4,150 MW of hydropower generation capacity involving and flooding due to its dependence on rain. In 50 hydropower projects, many of which have a Candarave in Tacna district, only 10 percent of crops capacity of under 20 MW (considered nonconventional grew in areas where the 100-year flooding mark was renewable energy resources). Of these 50 projects, greater than 50 centimeters. Areas where the flooding 6 are under construction, totaling 391 MW. Even mark was 25 centimeters accounted for 55 percent of with these additional projects, Peru is accessing crops (World Bank 2021b). only a small fraction of the nearly 70,000 MW that 17 Climate change is expected to increase average Environmental degradation is costly in economic, national temperatures, which in turn will social, and natural resources terms. Changes in land drive up demand for water (by increasing cover and pollution pose serious threats to ecosystems evapotranspiration, which is the loss of water and the country’s natural resources. Between 2001 and from soils and the entire ecosystem), increase 2017, Peru lost about 2.1 million hectares of Amazon the variability of rainfall patterns, and accelerate rainforest due to agricultural expansion. Land use and glacial melt. Glaciers in Peru have lost about 43 forestry already accounts for 48 percent of greenhouse percent of their surface area since 1970, severely gas emissions in Peru; now these activities are reducing water supply in areas already suffering from accelerating soil erosion and land degradation while water scarcity (ANA 2014). This represents 7 billion reducing water availability. cubic meters (BCM) of water, or the equivalent of 10 Wetland integrity continues to be threatened. years of drinking water for the capital city of Lima. Despite efforts to improve regulatory oversight, Peru’s wetland loss score on the Environmental Performance Water is Essential for Index is 43 (out of a possible 100), which falls below Living Ecosystems the South American average of 50 and the upper- middle-income country average of 56.5 (Wendling Water resources are essential for sustaining et al. 2020). In addition, pollution has caused healthy ecosystems, which provide key services significant water quality deterioration in Peru’s water that benefit humans. Peru’s highly biodiverse bodies. Only 25 percent of Peru’s water resources have ecosystems are the result of its diverse geography, good ambient water quality based on global standards. which ranges from high-level mountains in the This is significantly lower than the LAC average of Andes to the dry Pacific coastline to the jungles in 60 percent. the Amazon. The country is blessed with close to 72 million hectares of forested land, 8 million hectares of wetlands, and a vast network of rivers and lakes. Notes There are 14 Ramsar sites (wetlands of 1 The economic analysis is based on hydroeconomic international importance) covering 6.8 million analysis commissioned for this water security diagnostic that modeled various water shocks and their impacts hectares within Peru’s borders (Ramsar 2013). The in the economy using an Input-Output Matrix and a three largest Ramsar sites are Lake Titicaca, the Paracas Dynamic Stochastic General Equilibrium (DSGE) model. National Reserve, and the Pacaya-Samiria National Reserve. These ecosystems contribute to food security 2 This is based on estimates from the International and support the livelihoods of rural populations, Monetary Fund (IMF 2019) and the Center of Distributive, Labor and Social Studies (CEDLAS 2020) of the impacts on especially indigenous people and local communities employment of public spending on infrastructure. who live along major rivers and lakes and depend on them to meet their basic needs. These ecosystems 3 Based on background paper on burden of disease: an also provide nature-based solutions by providing key in-depth analysis of the economic cost of lack of access services, including flood protection, climate regulation, to water and sanitation using a burden of disease methodology that pays close attention to health impacts water storage, and water quality improvement. on children and women, Garcia-Morales (2021). Water resources and freshwater ecosystems are 4 This figure comes from the Input-Output Matrix and also fundamental elements for Peru’s sustainable DSGE model 2021. Agriculture is the highest-water- tourism. Tourism generates 1.4 million jobs (OECD consumptive sector of the economy, and water scarcity 2020) and accounts for 4.5 percent of the GDP, which affects its economic outcomes such as labor, investment, increases to about 10 percent when travel-related consumption, wages, and productivity. In the World services and business activities are included (MVCS Bank’s Global Trade Analysis Project analysis, the loss in 2021). Before the pandemic, tourism was the third- total factor productivity due to water scarcity is 12.03 largest exporting sector (8.5 percent of exports) percent. Since the GDP of Peru is US$220 billion (2020), the loss in productivity is US$27.06 million. Additionally, generating US$4.9 billion in foreign currency revenues the shock in the agricultural sector estimated with the (OECD 2020). Since tourism activities rely heavily DSGE model is 6.7 percent, so the GDP decline would be on natural resources, preserving water bodies and 0.81 percent (6.7%*27060/220000). Also, 80 percent of freshwater ecosystems for recreational activities, as this shock persists throughout three-quarters of a year. well as ensuring adequate access to drinking water and sanitation, are critical conditions for spurring tourism that will fuel the country’s economy. 18 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY References .econo.unlp.edu.ar/wp/estadisticas/sedlac​ /­estadisticas/#1496165509975-36a05fb8-428. Akseer, N., H. Tasic, M. Nnachebe Onah, J. Wigle, R. Rajakumar, D. Sanchez-Hernandez, J. Akuoku, COES. 2021. “Informe de la Operación Anual del R. E. Black, B. L. Horta, N. Nwuneli, R. Shine, SEIN.” COES SINAC, Lima, Peru. https://www​ K. Wazny, N. Japra, M. Shekar, and J. Hoddinott. .coes.org.pe/Portal/PostOperacion/Informes​ 2022. “Economic Costs of Childhood Stunting to /­EvaluacionAnual. the Private Sector in Low- and Middle-Income EMDAT (The International Disaster Database). 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World Bank, Washington, DC. https://www​ .worldbank.org/en/publication/human-capital​ OECD (Organisation for Economic Co-operation and /­brief/about-hcp. Development). 2020. OECD Tourism Trends and C HAPT E R 4 Challenges to Peru’s Water Security T his chapter outlines the most pressing water- population and where most economic activities and related concerns that Peru faces in achieving water exports take place—receives just under 4 percent of the security. The challenges can be broadly grouped country’s water resources endowment (map 4.1). into those that are related to the quality and quantity Peru has significant seasonal1 and interannual2 of Peru’s water resource endowment and those that variability, challenging inclusive and sustainable are related to Peru’s institutions and infrastructure. The development. Rainfall distribution is very irregular second set of challenges presents an opportunity for during the year in most areas of the country, including Peru to strengthen water security in the short term. the Atlantic hydrographic region. Overall, most The following challenges relate to the quality and precipitation occurs between November and March, quantity of Peru’s water endowment. resulting in large areas with water deficits lasting more than half of the year (map 4.2). Peru has a seasonal Demand Outpaces Supply in variability of 2.9 and an interannual variability of 4.20, which equates to 20 percent and 115 percent greater Key Economic Regions than the LAC averages, respectively. Historical data Peru is blessed with ample renewable water indicate that annual precipitation can vary significantly resources, but this volume is unevenly distributed in key productive basins, ranging from a 40 percent away from the country’s most populated and decrease to a 50 percent increase between years. economically active areas. The country’s renewable Peru has built dams, reservoirs, and interbasin water resources are estimated at 1,800 BCM/year transfer systems in an attempt to address the with around 30 percent of this coming from renewable high climate variability and uneven distribution groundwater (540 BCM/year), and the balance from of water resources; provide a more stable water surface water (1,260 BCM/year). Consequently, water supply to households, industry, and agriculture; availability per person in Peru is 54,563 cubic meters generate electricity; and control floods. The overall (m3) per year, three times the LAC average. Due to the storage capacity in dams is about 5.77 BCM/year geographic position of the Andes highlands, the vast or 0.5 percent of surface renewable resources, and majority of the country’s rainfall accumulates to the interbasin transfer systems divert 950 million cubic east, in the Atlantic hydrographic region whereas the meters per year (MCM/year) from water-abundant Pacific hydrographic region—home to 65 percent of the 22 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Map 4.1  The Pacific, the Atlantic, and the Titicaca Hydrographic Regions and Their River Basins Source: National Water Authority (Autoridad Nacional del Agua). https://snirh.ana.gob.pe/observatoriosnirh/. 23 Map 4.2  Peru’s Water Balance, by Month Note: Red and orange areas show water deficits, whereas blue areas signify a water surplus. This figure captures seasonal and regional variability in the country, where the Sierra and Selva regions also experienced water deficits. to water-scarce regions. However, amid the country’s occurs in the dry Pacific hydrographic region. When limited water storage capacity and water governance considering evapotranspiration and human demands, the challenges, sustaining future growth will be constrained. water availability per person in the Pacific results in a little over 1,000 m3/person/year. This contributes to the Growing water demands Pacific region being on the threshold of being classified and key water users as water scarce in terms of the Falkenmark water stress indicator.3 In Lima, with a population of 10 million In the past three decades, water withdrawal has people, the water availability drops to 90–100 m3/ doubled in Peru, placing mounting pressure on Peru’s person/year, which is classified as absolute water water endowment as demands from competing scarcity according to the Falkenmark water stress users grow. The agricultural sector (specifically indicator.4 irrigated agriculture) uses most of the water, accounting for 89 percent of withdrawals (higher The current number of water basins in deficit than the LAC average of 70 percent). This is followed are expected to increase amid climate change by withdrawals for domestic use, which amount and future increases in demand, affecting key to 9 percent, and for the industry, mining, and economic regions. Applying the water balance other sectors that total 2.3 percent. conducted for this diagnostic, today Peru has 72 river basins that are experiencing a net water deficit (total Demand is highest in the dry demand exceeds supply in annual terms), of which Pacific basin—and will intensify most are in the Pacific region (map 4.3). Climate change is expected to increase temperatures, which with climate change would also drive up water demand by increasing High demand meets low precipitation levels in the evapotranspiration, resulting in new water-deficit Pacific hydrographic region. Peru withdraws about basins and further deficits from climate variability 26,000 MCM of freshwater a year for consumptive uses. (refer to box 4.1). While water storage and While this is just 1.4 percent of the national renewable transfers are being used to counter these deficits water resources, about 81 percent of water abstraction at the moment, current developed capacity will 24 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY not be sufficient to support economic growth and and productive (map 4.3). The water deficit is most development. pronounced in the Rimac Basin, which is home to the capital city, Lima, and its 11 million residents. For several Watersheds that experience the greatest water months of the year, Lima relies on water transfers from deficits are also those that are the most populous the water-secure Atlantic hydrological region to meet Table 4.1  Consumptive Use of Surface Water by Sector and Watershed (MCM/year) Hydrographic region Total Agriculture Domestic Industrial Mining Others Total 26,081 23,166 2,320 249 273 73.3 Pacific 21,154 19,042 1,779 171 156 6.6 Atlantic 3,767 3,017 494 78 111 66.7 Titicaca 1,160 1,107 47 0.08 6.0 — Source: Plan Nacional de Recursos Hidricos, 2015. Note: “Others” includes livestock, recreation, and tourism. Map 4.3  Watersheds with Current Surpluses and Deficits Note: Red and orange areas show water deficits, whereas blue areas signify a water surplus. This map captures seasonal and regional variability in the country, where the Sierra and Selva regions also experienced water deficits. 25 Box 4.1  Water Balance Assessment through the Lens of Climate Change and Climate Variability The water balance assessment conducted for this Water Security Diagnostic considers local precipitation data and existing storage capacity, counterbalanced by evapotranspiration data (obtained from satellite images) and water demand for drinking, industry, agriculture, and livestock, calculated from various local databases. This analysis considered three types of water balances: (i) the natural water balance (including precipitation and real evapotranspiration), (ii) the natural water balance (applying water demands); and (iii) water balance projections for 2030 and 2050 with climate change projections obtained from the National Meteorology and Hydrology Service (SENAMHI) and climate variability. Applying a spatial disaggregation (pixel) of about 5 kilometers allowed the model to cover all the basins in Peru. Maps B4.1.1 and B4.1.2 capture the water deficit changes once climate change and climate projections are applied to the water balance model. Currently, 72 basins out of 231 are experiencing water deficits. Overall, climate change will lead to a net increase in temperatures and demand (evapotranspiration). This directly impacts water balances with nearly all basins likely to lose net resources and experience increased deficits Map B4.1.1  Representative Concentration Pathway 8.5 Scenario in 2030 26 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.1  Continued in the dry months. This suggests that less-well-endowed areas are likely to experience increased water stress and risk, which Peru will need to prioritize, ensuring that water does not become a serious impediment to economic growth or poverty alleviation. Peru’s water balance indicates that six additional basins could experience water deficits when applying the Representative Concentration Pathway (RCP) 8.5 projections (map B4.1.1). If there is a 40 percent decrease in precipitation in a given year across the country due to increased interannual variability, only 60 out of the 231 basins will maintain a water surplus (map B4.1.2). Historical data indicate that a precipitation reduction of 40 percent is a realistic scenario. Map B4.1.2 Interannual Variability in 2030 27 its water needs. As a result, the agriculture sector is (US$/m3) is tracked through SDG indicator 6.4.1 as a the most threatened by water scarcity, especially along proxy to assess sustainable withdrawals from economic the north coast, where it is the most productive and activities (agriculture, industry, and services) and supply contributes the most to exports. of freshwater to address water scarcity. Increasing water use efficiency over time means decoupling a Agriculture, manufacturing, mining, country’s economic growth from its water use; in other and municipal (domestic) sectors’ words, the economy can continue to grow without needing more water (FAO and UN Water 2021). Peru inefficient water use places additional improved its overall water use efficiency or water stress on decreasing water resources productivity from US$10.0/m3 in 2012 to US$11.7/ Agriculture, the biggest water consumer, productively m3 in 2017. However, this value is lower than the LAC uses only about 35 percent of its water to grow food, regional average of US$21.3/m3. while the rest is lost to runoff and percolation. Mining wastes about 75 percent of the water that is drawn (and this figure could be higher, given the prevalence The growing population is another of illegal mining in the country), causing significant stressor on available water resources water pollution. Industry loses about 50 percent of Although the rate of Peru’s population growth water from its operations, whereas the municipal has slowed, the population is nonetheless sector loses about 30–50 percent of water due to growing in number, directly driving an increase ruptures and leaks in the water network and reservoirs. in demand for domestic supply and indirectly Achieving water savings provides a great driving demand for industrial and agricultural opportunity to increase water availability to uses. The inefficiency of Peru’s irrigation and drinking sustain future demands. As water shortages have water systems is intensifying this stress, resulting in become more and more severe due to the increasing overexploitation of water resources. In many areas, population, climate change, and other factors, underground aquifers are being depleted at a rate increasing water efficiency and minimizing losses could faster than they can recharge. Overall, the decline of represent cost-effective and readily available solutions total renewable resources per capita over the period compared to the complexities of developing new 1992–2017 is below the regional average (figure 4.1). water supplies. In the case of irrigation, technological Demand is growing precisely where water improvements, while beneficial and indispensable, do resources are already scarce. The peri-urban areas not always translate into real water savings. They need around Lima have experienced exponential growth as a to be linked to reductions in water consumption. result of internal migration. Internal migration has been Reducing water losses provides an opportunity to primarily driven by rural poverty, political conflict, and increase water economic efficiency (also known the effects of climate change (see box 4.2). Peru has as water productivity or water use efficiency by also received an influx of about 1.2 million displaced the SDGs). Changes in water use efficiency over time Venezuelans, approximately 80 percent of whom have Figure 4.1  Percentage of Decline in Total Renewable Water Resources Per Capita, 1992–2017 Uruguay EI Salvador Argentina Chile Brazil Colombia Peru Nicaragua Mexico Costa Rica Paraguay –50 –40 –30 –20 –10 0 Percent Source: FAO 2019. 28 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.2  Considering Peru’s Climate-Migration Nexus Even though the exact nature of the climate-migration nexus in Peru is not completely understood, there is broad agreement that climate impacts on ecosystem-based rural livelihoods are likely to increase internal migration from rural to urban areas, from the Sierra (highlands) toward the Costa (coast) and, to some extent, toward the Selva (rainforest) (figure B4.2.1). When and where people move will depend partly on governance efforts and the severity of climate impacts (IDMC 2018; Juřicová and Fratianni 2018). Water quality is an important consideration in migration patterns. Industrial, agricultural, and mining activities often result in wastewater spills and polluted runoff that make water bodies unreliable for thriving livelihoods, particularly in rural areas. Farmers employ various strategies to cope with the negative effects of climate change and water pollution. When they experience extremely high temperatures or prolonged heat waves, they tend to adjust their inputs (Aragón, Oteiza, and Rud 2021), sell livestock, and increase the number of hours they work on off- farm activities. Rainfall shocks also change the water conservation behaviors of small farmers: a year of high rainfall results in farmers reducing fertilizer use and water-conservation practices the following year (Tambet 2018; Tambet and Stopnitzky 2021). By contrast, droughts prompt farmers to use between 7 and 9 percent more fertilizer. Coping strategies vary depending on what is available to the farmer. Factors such as access to credit and extension services help make water-conservation practices more effective. Policies that help farmers and vulnerable households adopt better adaptation strategies can lower the tendency to migrate and reduce economic and social disruption. Figure B4.2.1  Migration Patterns in Peru Due to Climate Change, 2002–17 Cajiamarca –3.9 Loreto –3.0 Puno –1.8 Huancavelica –1.7 Áncash –1.5 Piura –1.3 Junin –1.1 Huánuco –1.0 Cusco –1.8 Lambayeque –1.7 Ayacucho –1.7 Amazonas –1.7 Pasco –1.7 Apurimac –1.5 San Martín –1.3 Tumbes 0.0 La Libertad 0.0 Moquegua 0.2 Ucayali 0.4 Madre de Dios 0.4 Constitutional Province of Callao 0.6 Ica 0.7 Tacna 0.7 Arequipa 2.5 Lima 13.9 –6 –4 –2 0 2 4 6 8 10 12 14 16 Net migration (%) Sources: Bergmann et al. 2021; INEI 2020b. Note: Dark blue indicates negative net migration (more people moving out of the region to another); turquoise blue indicates positive net migration (more people moving into the region). 29 settled in Lima’s urban and peri-urban areas. In addition enhances the country’s resilience to seasonal water to further stressing Lima’s limited water resource scarcity and drought (WRG2030 2019). The groundwater endowment, the expansion of peri-urban areas has use fee has to date collected US$20 million, but more created delivery challenges as many peri-urban needs to be done for service providers to implement residents live beyond water supply networks. groundwater management activities. Groundwater is Poorly Understood Climate Change and and Unsustainably Used Increasing Climate Variability The sustainable use of Peru’s groundwater Threaten Economic Growth, reserves requires a deep understanding of current Development, and Stability data relating to aquifer volume, water quality, recharge rates, and withdrawals. To date ANA Between 2003 and 2019, Peru experienced monitors only 47 out of 95 potentially important 61,708 emergencies due to intense rains, aquifers, representing less than 1 percent of renewable floods, droughts, earthquakes, and landslides. groundwater. Forty-three of these aquifers are in By the end of the century, the northwest region of the relatively small Pacific hydrographic region. The South America, where Peru is located, is expected aquifers that exist below the rest of Peru’s substantial to experience an increase in the number of days surface have either not been identified or are not being per year of extreme heat and cold, with additional monitored. This lack of data hinders technical decision- loss of glacier volume and permafrost in the Andean making and paves the way for unsustainable water mountains causing reductions in river flows and, withdrawals, as was the case with the Ica aquifer, potentially, high-magnitude glacial lake outburst where 335 MCM of water is extracted but water use floods (IPCC 2021). rights are only granted for 134 MCM (ANA 2019). Climate change is expected to drive up Those aquifers for which information exists temperatures, accelerate glacial melt, exacerbate show risks of being overexploited and several rainfall variability, and increase the risk of water- are already facing depletion. The Ica, Villacurí, and borne diseases across the country in decades Lanchas aquifers along the Pacific coast are being to come, intensifying the pressure that water overexploited due to limited enforcement of water use resources already experience due to pollution, rights, poorly monitored use, and illegal extractions poor management of water resources, and (table 4.2). A ban has now been placed on drilling inefficient irrigation. The resulting water stress and new wells into the Ica aquifer, and there is a limit on scarcity will have knock-on effects across all sectors the volume of water that existing wells may withdraw. and in all parts of the country. However, these restrictions have not been effective In rural areas, water scarcity will negatively affect to control overexploitation. In Villaruri, the water use the productivity of rainfed agricultural areas. granted exceeds the exploitable reserves, indicating This, in turn, will increase competition for water and limitations in applying water allocations. drive internal migration to urban areas as small-scale In a step toward ensuring the sustainable use farmers seek improved food security and alternative of groundwater reserves, Peru enacted a tariff incomes. The number of farmers migrating is already for groundwater management and monitoring on the rise (Bergmann et al. 2021). High-lying areas services in 2017. This is one of the world’s first will additionally face an increase in unwanted insects groundwater use fees, which help to guarantee that as climbing temperatures in higher-altitude landscapes groundwater will remain as a buffer resource that expand their habitable area. Table 4.2  Available Reserves and Exploitation Levels of Ica, Villacurí, and Lanchas Aquifers (million cubic meters) Aquifer Exploitable Exploitation Overexploitation Water use Assignable volume groundwater (actual water rights granted (exploitable reserves— reserves abstraction) water use rights) Ica 189 335 146 134.14 54.86 Villacurí 63 228 165 87.8 –24.8 Lanchas 17 34 17 3.5 13.5 Source: Autoridad Nacional del Agua. 30 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY In the cities, utilities will struggle to bring water Historical trends are becoming unreliable and the and sanitation services to underserviced urban uncertainty of climate change models complicates and peri-urban areas—a situation that will be service providers’ and water-related agencies’ decision- exacerbated by rapid population growth in these making regarding costly infrastructure development. nodes due to internal migration. Already, a million Decision-making under deep uncertainty is one way people lack access to adequate water and sanitation to make long-term investment plans in an uncertain services in the capital city, Lima. Lack of adequate context, through analyzing multiple scenarios and sanitation will aggravate health-related issues, selecting adaptative strategies (box 4.3). However, especially when coupled with heavy rainfall events that the adoption of this and other alternate methods is cause sewage to overflow and enter drinking water slow since they depart from traditional planning and sources. capacity-building measures. All sectors that depend on water will likely be negatively affected by climate change. The Pollution is Imposing Economic energy sector is especially vulnerable to changes in Costs by Further Limiting the Water discharge patterns and soil erosion due to rainfall Endowment Available to People, variability, which may affect the availability of water for hydroelectricity generation (Climate Change Action the Environment, and the Economy Plan). These changes may encourage Peru to replace Only 25 percent of Peru’s monitored water bodies hydropower with natural gas. Indeed, the share of have “good” ambient water quality, that is, they natural gas in the electricity mix increased from are not harmful to people or ecosystems. This is 17 percent in 2000 to 34 percent in 2020. In parallel, lower than the average of 59 percent for water hydropower generation decreased from 80 percent in bodies in LAC. The main cause of water pollution in 2000 to 57 percent in 2021. urban areas is the discharge of point source domestic wastewater into surface water bodies, which reduces Floods and drought have a greater the availability of freshwater to people, ecosystems, impact on the poor than on the wealthy and the economy. In global terms, wealthier people are 10 times Only about 60 percent of wastewater generated more resilient to climate-related shocks than poor by urban households is treated at wastewater people because their assets, savings, and income facilities before being released into the allow them to better confront economic damages environment.5 This is influencing ambient water (Hallegatte et al. 2017). They have greater financial quality, that is, the quality of naturally occurring water capacity to mitigate losses. In contrast, poor people are in lakes, rivers, and aquifers, taking into consideration largely unable to cover these damages, in part because both natural influences and human activities. of the low value of their assets, their high dependence Further, the performance at wastewater plants on welfare income, and the poor targeting of recovery varies greatly. A third of Peru’s monitored wastewater programs. In Peru, the population that suffers the most treatment facilities fail to meet the country’s maximum from floods and droughts is concentrated in remote effluent requirements (the maximum amount of areas of the country, particularly in the northern contaminants allowed in the treated wastewater that highlands (in the department of Cajamarca) and in is released into water bodies) (SUNASS 2020). An the Selva (in the departments of Loreto, Ucayali, and analysis of pollution hotspots shows that high levels San Martin), where the incidence of poverty is high of domestic wastewater pollution are concentrated (World Bank 2021a) and surface flooding and mass around cities along the Pacific coast (figure B4.5.1), movements are common. jeopardizing biodiversity and placing human health at The greater the resilience, the quicker people in the unacceptably high risk (see box 4.5). country can bounce back from a disaster shock, and Other sources of pollution include mining the lower the resilience, the more likely it is for a effluents, use of agrochemicals in intensive disaster to create long-term poverty traps. Slow agriculture, and oil production. Agricultural implementation of disaster risk mitigation disperse pollution has the most substantial impact policies, coupled with limited safety regulations, on water quality in inland areas as the nitrogen, protocols and early warning systems, are limiting sediments, and pesticides present in the runoff are Peru’s resilience to climate change. This is a captured over a large area upstream (map 4.4). particular concern for hydraulic infrastructure. Meanwhile, the impact of mining is pronounced Climate change and climate variability make it very both inland and along the coast (map 4.4), with difficult to plan the sustainable use of water resources. mining concessions often overlapping with areas 31 Box 4.3  Robust Decision-Making in the Water Sector: A Strategy for Implementing Lima’s Long-Term Water Resources Master Plan The strategy helped to assess and prioritize investments in the water and sanitation utility’s (SEDAPAL’s) master plan and to define an investment strategy that is robust, ensuring water reliability across a wide range of future conditions while also being economically efficient. This strategy has two key characteristics of a robust plan: • It is no-regret. It identifies investments and projects that are useful no matter what the future brings. • It is adaptive. It guides decision-makers on how to implement future investments and projects as climate, demand, and other conditions evolve. The strategy is defined in a decision tree in figure B4.3.1. It consists of a set of near-term, no-regret investments that SEDAPAL can embark upon now; signposts of specific project feasibility, streamflow, and demand conditions SEDAPAL should monitor in the medium and long term; and sets of deferred projects that SEDAPAL should implement if the signposts are triggered. On completion, the study helped SEDAPAL (i) perceive that not all projects included in the master plan were needed to achieve water reliability, and the utility could save 25 percent (more than US$600 million) in investment costs; (ii) focus future efforts on demand-side management, pricing, and soft infrastructure—a refocusing that is difficult to achieve in traditional utility companies; (iii) gain the support of regulatory and budget agencies through careful analysis of the alternatives; and (iv) postpone lower-priority investments, and analyze future options based on climate and demand information that simply is not available now. Figure B4.3.1  Strategy for Implementing Lima’s Water Resources Master Plan Near-Term Mid-Term Long-Term Mid-Term, Full Feasibility 50% Budget, Full Project Feasibility • Cañete trans/WTP (No additional projects) • Casacancha Res Climate and 75% Budget, Full Project Feasibility • Chosica Res/Graton WTP Demand? • Chancay GW • Chancay Res/Hural WTP • Lima Sur Desal • Jacaybamba Res 75% Budget, Full Project Feasibility ll Fu Project and Additional Actions Feasibility? • Chancay GW • Chancay Res/Hural WTP Near Term • Lima Sur Desal • Jacaybamba Res Lim • Atarjea WTP • Additional actions beyond Master Plan ite • Lurin WTP d • Pomacocha Res/Huachipa Climate and WTP demand? 50% Budget, Limited Project Feasibility (No additional projects) Mid-Term, Limited Feasibility • Chancay GW • Chancay Res/Huaral WTP New actions beyond Mater Plan • Lima Sur Desal • Additional actions beyond Master Plan Future conditions Legend Wetter Implement no-regret projects Feasibility undetermined Monitor uncertainties Full feasibility Drier Limited feasibility Less More demand demand Source: Kalra et al. 2015. 32 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.4  Applying the Decision Tree Framework (DTF) to the Chancay-Lambayeque River Basin Plan in Peru The water resources system of the Chancay-Lambayeque Basin is a complex system experiencing challenges due to rapid population growth, economic development in the context of water scarcity, and increased risk of flooding and environmental degradation. While there has been progress toward integrated water resource management in the region, there is an ever-growing need for a basinwide assessment of water resources, focusing on the medium- to long-term risks associated with population growth, water and land use changes, and climate change.  To address these needs, the World Bank developed the DTF to assess the robustness and resilience of the Chancay- Lambayeque system to an uncertain future and guide/prioritize the most cost-effective intervention options. The DTF consists of a four-phase cascade process whereby after the first phase each can be activated only if applicable.  • Phase I aims at defining and describing the context of the analysis, including potential climatic and nonclimatic uncertainties for the study region, the performance indicators to be considered, critical performance thresholds for the system, and adaptation options. • Phase II (initial analysis) utilizes simple sensitivity analysis techniques to identify uncertainty factors for the system of interest based on the performance indicators and thresholds. If the system is determined to be sensitive, then Phase III will commence.  • Phase III (climate stress analysis): The water resource system is stress tested for a wide range of possible future scenarios (performance indicators are calculated for each scenario). If sensitivity of the system to the different scenarios and uncertainty factors is confirmed, Phase IV will be conducted. • Phase IV (climate risk management analysis) assesses how different intervention options improve the system’s performance in terms of robustness and resilience.  The DTF is a pragmatic decision-making process for risk assessment in the field of water resources, and its usefulness has been demonstrated, among other cases, in Upper Arun (Nepal), Mwache (Kenya), and Cutzamala (Mexico). Source: Taner et al. 2019. Map 4.4  Water Pollution Hotspots for Agriculture and Mining Source: Deltares 2021. Note: Map panels show the share of river length in each basin where the relative Impact from agriculture and mining exceeds 0.5, half of the nationwide 99th percentile of impact. 33 Box 4.5  Domestic Wastewater Pollution Hotspots Pose a Danger to Public and Ecosystem Health Insufficiently treated domestic wastewater has contaminated several basins along the Pacific coast, endangering the health of residents in this highly populated region. Biological oxygen demand (BOD) and coliform bacteria are proxy measures of water quality, used for testing pollutants linked to domestic wastewater contamination. Coliform bacteria are linked to pathogens, while BOD measures the amount of oxygen required by the bacteria that break down organic material. BOD is a good indicator of the volume of organic pollution in freshwater bodies. Several watersheds in the Pacific basin have registered high levels of BOD and coliform bacteria (map B4.5.1), creating health risks for residents of this populous region. These risks are intensified in rural areas, where only 4 percent of drinking water is chlorinated. Low rainfall in the Pacific basin also limits the potential of rainwater diluting or washing away the pollutants. Coastal streams lack the assimilative capacity to cope with the high level of wastewater discharge. They are at a high risk for loss of species due to their low water quality. Map B4.5.1  River Basins where Biological Oxygen Demand and Coliform Bacteria Exceed Threshold Concentrations Source: Deltares 2021. Note: Areas where BOD and coliform are highly concentrated present a public health risk. 34 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.6  Water Pollution and Its Consequences for Sustainable Livelihoods and Food Security in Peru Using a novel approach to estimate the contribution of water to sustainable food production in developing countries (Fan, Lin, and Hu 2019), Wang et al. (2021) estimated the impact of water pollution on food security and sustainability in Peru. The approach consisted of merging data from Peru’s National Household Panel Survey (ENAHO 2004–19) with water quality data (2000­ –17) and data from the national environmental information system (SINIA). These sources contain the indicators needed to estimate the longitudinal effect of water on sustainability of food systems based on Fan, Lin, and Hu’s (2019) conceptual model (figure B4.6.1). The methodology is based on a three simultaneous equation system, where the explanatory variables are: the service ratio of tap water (the total number of residences with tap water service divided by the total number of residences); the water quality index; the ratio of wastewater being treated (the amount of wastewater being treated before discharge divided by the amount of wastewater generated); the share of renewable energy in total power supply; the price of energy; the average farmer’s salary; and the agricultural food prices index. The estimates solved the main outcome of sustainable food, with multiple specifications and local area (basin) and time fixed effects. By solving the water equation, the model helps estimate how important factors like water quality affect the sustainable consumption of water, and how that effect in turn explains changes in overall food consumption. The results of the analysis showed that a 10 percent increase in water pollution reduces water consumption of all sectors in urban areas by 34.5 percent, resulting in an overall decline in food consumption of 9.9 percent in a 15-year period. The impacts are similar in magnitude for rural areas: a 10 percent higher water pollution rate (lower water quality index) results in a decline of 33.7 percent in water consumption, and of 8.2 percent in food consumption over the same period. These estimates suggest that providing safe, nutritious, sufficient, and affordable food is important for sustainable livelihoods and food systems. Because farming is affected by the degree of soil, groundwater, and environmental pollution, increasing investments in agriculture technology and irrigation could maintain the proper functionality of the ecosystem and, hence, food systems. Figure B4.6.1  The Web of Sustainability Water Waste water quality treatment Sustainable Water resource water Access to demand tap water Sustainabitity Agricultural Electricity production demand Sustainable Sustainable food energy Farmer Energy salary price Food Share of green price energy Source: Fan, Lin, and Hu 2019. 35 of water scarcity, exacerbating water insecurity and people’s health. To date, the mining sector’s and giving rise to social conflicts. Gold mining and approach to managing such concerns has resulted oil production contribute significantly to declining in high levels of social conflict, exacerbated by water quality in the Atlantic basin, while a high the fact that mining revenues are typically not used level of noncompliance has been reported in the to reduce poverty in mining regions (ITA 2021; Mulé Titicaca hydrographic region. Natural contamination 2018). This has placed water—especially water caused by the continuous weathering of the highland resources management and efficiency—on the mineralized region pollutes the water with metallic policy agenda. deposits of arsenic, antimony, copper, lead, and zinc. At the time of writing, an estimated US$30 billion worth of new mining projects were in limbo Pollution from mining is due to water-related social conflicts (Schneider, Walton, and Kozacek 2016). Sixty-six percent of the triggering social conflict 132 socioenvironmental conflicts reported by the Mining concessions, which use significant amounts Ombudsman’s Office in January 2022 were related of water, often overlap with areas of water to mining, of which about 25 percent were related scarcity, especially along the coast (map 4.5). Local to access and contamination of water sources communities are concerned about the impact of mines (Defensoría del Pueblo 2022). Attempts made to on the availability of water for other uses and on levels resolve these conflicts, only resulted in piecemeal and of water pollution, which endangers the environment short-term solutions. Map 4.5  Mining Concessions and Areas Susceptible to Water Risks Sources: Estimates based on mining inventory, 2018; INGEMMET data, 2019; IPE 2019. 36 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Even though most water-related conflicts are Given the water stress already experienced in the concentrated around mining, activities by Pacific region, and the seasonal and interannual other sectors also give rise to competition and variability of freshwater in other parts of the country, controversy. Disputes include complaints from farmers this storage capacity will not ensure water about cities discharging untreated wastewater in rivers, security in the face of extreme droughts and and conflicts between farmers and hydropower water floods that occur increasingly due to climate users on the management of dam discharges. change. Investments in integrated water storage measures are therefore needed to address seasonal The following challenges relate to Peru’s water and interannual variability. governance and infrastructure: Limited Storage Capacity and Insufficient Attention toward Securing The low productivity of existing hydraulic the Safety of Existing Large Hydraulic Infrastructure Are infrastructure, particularly dams, also needs to Compromising Efforts to boost Water Security be addressed. Existing dams are affected by soil erosion from uncontrolled activities in the upper Storage helps manage hydrological risks and watersheds, causing a higher rate of sediment variable water supplies over time. Despite efforts accumulation in dead storage than the rate for which during the 1980s and 1990s to address seasonal the infrastructure was designed, reducing the dams’ and interannual variability in river runoffs, Peru’s storage capacity and productivity. For example, the surface water storage capacity is insufficient, Poechos Dam (Peru’s largest dam) and the Gallito ranking well below global benchmarks (figure 4.2). Ciego Dam, both considered hugely important for The country’s total artificial dam capacity is only about storage and regulation of flows, have lost more 184 m3/person, well below the average of 2,500 than 50 percent of their total capacity in less than m3/person for Latin America. Portugal and Peru have 50 years and 34 years of operations, respectively similar degrees of climate variability, but whereas (Brissete and Chen 2019). The decline in dam capacity Portugal’s water storage capacity is 1,134 m3/person, has made agriculture and hydropower production Peru’s is 184 m3. Worsening climate change is driving vulnerable, compromising future food and energy up demand and reducing the volume of available security.  freshwater. Box 4.7  Cerro Verde Public-Private Partnership Success Story: Collaborative Approach Reduces River Pollution and Stress on Water Sources through Circular Economy Principles Cerro Verde, one of the world’s largest copper mines, is located in an arid region near Arequipa, Peru’s second-largest city. In 2015, after years of operation, the mine’s operator, Freeport-McMoRan, implemented a large-scale project to increase water supply to nearby communities. As part of the planning process, Cerro Verde held more than 20 community forums, posted information on social media to ensure transparency, and worked with universities in shaping its environmental impact plan. Extensive engagement between Cerro Verde and Arequipa’s public water and sanitation utility (SEDAPAR), civic leaders, municipal and regional leaders, federal officials, and development agencies led to an ambitious, win-win solution for the company and the region’s water challenges—a new wastewater treatment plant under a public-private partnership. Cerro Verde designed, financed, and built the facility and continues to operate it. Under the 29-year contract between Cerro Verde and SEDAPAR, it was agreed that there would be a gradual increase in the facility’s capacity, with a final expansion in 2036. In exchange for its US$500 million investment, Cerro Verde received treated wastewater effluent for its mining processes, underpinning the circular economy approach. The mine expansion was successfully completed on schedule—with no days lost to social protests—and within the planned budget. Thanks to this partnership, 750,000 people now have access to clean water, reducing waterborne diseases. The plant ensures that 99 percent (up from 10 percent in 2013) of Arequipa’s wastewater is treated, which has greatly reduced pollution in the nearby Chili River. Due to the proper treatment of sewage, the river’s depleted fish stocks recovered in a few years. Source: Energy Resource Governance Initiative Toolkit, https://ergi.tools/. 37 Figure 4.2  Peru Dam Storage Capacity versus Other Countries and Regions Low- to middle- income countries 1,788 Latin America and 2,500 the Caribbean Romania 567 Malaysia 712 South Africa 537 Ecuador 450 Chile 706 Peru 180 0 500 1,000 1,500 2,000 2,500 Storage capacity per capita (m3) Building large, new hydraulic infrastructure that swift, large-scale action. An important dam requires interbasin water transfers from relatively safety regulation that targets public dams has been water-abundant basins could have unintended issued since 2019. This needs to be followed up consequences and increase conflicts among by similar regulations for private dams and legal stakeholders. When exploring this as an option, it is provisions that ensure adequate implementation and important to engage in genuine public participation enforcement of safety obligations by dam owners in which the potential trade-offs are discussed, and and operators. informed by detailed technical, economic, environmental, and social studies. Project proposals should also closely consider climate risks and include mechanisms to ensure Centralized and Inadequately the distribution of benefits. Good water governance is essential for such proposals to succeed. Managed Water Governance is Hindering Policy Rollout For historic reasons, Peru’s dam safety is not optimal—and climate change will likely increase and Effectiveness the risk. As in many other Latin American countries, Over the past two decades, the GoP has dams in Peru are aging and their safety is at risk. With demonstrated its commitment to strengthening the passing of the Decentralization Framework Law the water sector by developing policies on water in 2002, the O&M of major hydraulic infrastructure resource management, water and sanitation (including dams) was transferred to regional and local services delivery, irrigation, and disaster risk governments and water user boards. This created a mitigation. However, implementation of many of legal vacuum regarding who should be responsible these reforms is lagging due to: (i) limited institutional for ensuring the safety of the infrastructure. New capacity to enforce, coordinate, and incentivize policies operators did not have the resources or technical at the local and regional levels; (ii) limited financial and capacity to follow dam safety regulations. The political commitment to consolidate water governance passing of the 2009 Water Resources Law put ANA at the basin level; and (iii) frequent political in charge of coordinating actions to preserve the changes (between 2018 and 2021, the Peruvian safety of large public and private dams in partnership presidency changed four times). Wider governance with basin councils. As a first step, ANA initiated a challenges are thus undermining the implementation national inventory of 730 dams, but to date, complete and effectiveness of policies in the water sector information is available for only 273 of them. The (OECD 2021). inventory revealed that only 39 dams had adequate ANA, the government entity responsible for monitoring instrumentation, and plans were underway overseeing SNGRH, is located under MIDAGRI, to modernize the instrumentation of an additional limiting its capacity to act independently. Although eight dams. ANA is tasked with integrated, multisectoral water Attention to dam safety has improved in recent resources management across all hydrological basins, years. However, addressing maintenance and being structurally located within MIDAGRI hinders its safety problems of existing dams requires ability to impartially consider broader allocation issues 38 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY among competing sectors and users and environmental platform that coordinates water-related policies and social consequences. In addition, ANA is burdened and efforts between various ministries and with irrigation sector matters that reduce its capacity community organizations. The SNGRH’s intersectoral to carry out its regulatory functions. This is problematic coordinating mechanism, which is chaired by the as ANA is responsible for granting, amending, and minister of the MIDAGRI and includes representatives terminating water usage rights and determining the from national, regional, and local governments, is fees for water usage rights. At present, the agricultural not functioning satisfactorily. Its members meet sector uses 89 percent of the country’s freshwater only occasionally, and when meetings take place, its resources, yet in many regions, the fee for water use decisions are not binding because of the low level of is too low to incentivize efficient water use. Moreover, representation. In addition, participants in the system research indicates that ANA is not performing optimally typically fail to include allocations for integrated water in issuing technical justifications for granting water use resources management in their annual budgets. To be rights. While new water use rights should be issued effective, the board needs support from the highest only when the water balance in the basin or aquifer level of government. is positive, ANA has continued to issue provisional water permits while studies on the availability of the resource are being carried out. This practice promotes Disaster risk management (DRM) cropland expansions in areas facing water scarcity and policies are not being fully compromises the availability of water for other formal implemented at the local level water uses. Peru has made substantial progress in DRM; Although ANA’s 2015 National Water Resources however, the implementation and coordination Plan supports decentralization and an integrated of policies and instruments have been slow and approach to water resources management, ineffective at the local level. Peru has a DRM implementation of the plan’s governance model regulatory framework that incorporates prevention has been slow. The plan places responsibility for and mitigation through economic instruments to local water resources management with river basin foster resilience, resilient infrastructure planning, councils and tasks ANA’s local and regional offices and risk management plans. However, the level of with overseeing the councils. Nevertheless, the implementation is limited at the local level and with establishment of ANA’s regional and local offices service providers. For example, of the S/. 555 million has been slow, and only 12 of the 29 potential basin collected (US$154 million) through water tariffs for the councils have been formed. While the plan takes an adoption of nature-based solutions and to improve risk integrated approach to water resources management management in urban water utilities, only 20 percent that involves a wide range of stakeholders and has been used (box 4.8). Moreover, only 40 percent considers water quantity, quality, continuity, and culture of urban water utilities have DRM plans (World Bank as well as climate change adaptation, agricultural 2021a). This situation is problematic given the high interests predominate. The river basin councils are vulnerability of these systems to hydrometeorological typically overrepresented by agricultural users, limiting and seismic events. the voice of nonagricultural users with regard to budget A World Bank (2021a) study indicates that the allocations and revenue collected from water user following weaknesses are hindering adoption of fees as well as decisions regarding interbasin transfer risk management plans at the local level: projects. • The national DRM policy does not fully articulate ANA does not have adequate financial resources water-specific policies, causing confusion among to operate effectively. While the budget allocation municipalities and service providers on how best to for water resource management increased with develop and implement risk management plans. the creation of ANA in 2008, it is still insufficient to • Local governments and service providers have not retain qualified personnel and incentivize improved been able to generate planning instruments to performance in ANA’s decentralized entities. Various increase the resiliency of water management. For ongoing studies (mostly financed by the World Bank example, only about 11 percent of the municipalities and the Inter-American Development Bank) are have approved land management plans, which exploring strategies to ensure sufficient financial complicates water and sanitation master planning resources for participatory, integrated, basin-scale water and overall service provision due to increased urban resources management. informal settlements in vulnerable areas. In addition, physical inventories of water and sewage networks ANA has noted that SNGRH is struggling are low, complicating vulnerability assessments and to achieve its mandate as a multisectoral targeted mitigation measures. 39 Box 4.8  MERESE—An Innovative Mechanism to Increase Water Supply Resilience through Nature-Based Solutions Recognizing the need to prevent the environmental deterioration of ecosystems, particularly in the face of water scarcity, desertification, and deforestation, the Peruvian government introduced an innovative legal framework (Law 30215) for payments for environmental services called “Mechanisms of Compensation for Ecosystem Services” (Mecanismos de Retribución por Servicios Ecosistémicos, MERESE) in 2014. Within this legal framework, the National Superintendence of Sanitation Services (Superintendencia Nacional de Servicios de Saneamiento, SUNASS), developed and approved an innovative regulatory structure that allows water utilities to invest in nature-based solutions to protect water sources by improving water quality and availability. To finance MERESE, SUNASS requires water utilities to earmark 1 percent of their revenues from water tariffs toward protection of water sources. MERESE recognizes that upstream communities should be remunerated for the implementation of nature-based solutions, such as reforestation and watershed restoration. It places particular emphasis on promoting the strategic participation of rural communities and women as key actors in the governance and management of water resources. Today, 40 out of Peru’s 50 water utilities have incorporated a MERESE fund in their tariff scheme, and 7 water utilities are executing projects funded through MERESE. The implementation of MERESE is a good step toward fostering greater accountability when it comes to safeguarding water sources. However, execution has been slow and its full potential is yet to be realized. The challenges MERESE faces include the complexity of Peru’s public investment system, limited implementation of a monitoring and evaluation system to calculate expected hydrological benefits, limited engagement with local communities, limited local government participation, and difficulties in compensating communities directly. The role of executing units (nucleos ejecutores) in ramping up nature-based solutions The Government of Peru formed núcleos ejecutores in 2020 to facilitate community participation in the execution of the public budget for the rollout of nature-based solutions for irrigation and water management. Nature-based solutions reinforce resilience, food security, and climate change adaptation with consequences for human health and improved social development. Supporting the technical capacities of execution units can be an effective avenue for streamlining nature-based solutions for sustainable irrigation and ecosystem health. Source: Based on contributions from the SUNASS website and local interviews. • Vulnerability reduction, prevention measures, and Vulnerables, MIMP), has started working toward planning are not prioritized by service providers enhancing gender equity in both policies and and local governments. Moreover, local entities public administration. Including women in lack the financial capacity, human resources, and decision-making spaces and in water-related management tools to carry out the actions and project implementation not only creates more investments necessary to significantly reduce the vulnerability of water and sanitation systems. employment opportunities for women, but also improves service outcomes. Women’s voices in water governance could be strengthened Efforts to Close Water and Although women play an integral part in water Sanitation Services Gaps management given their traditional roles in Have Been Slower in Rural agriculture, households, and the community, and Peri-Urban Areas institutional arrangements rarely reflect the fact The lack of focused planning, the need for that women are disproportionately impacted by innovative and appropriate solutions, and the lack of access to water and inadequate water limited coordination between the different sectors quality. Women are often excluded from water-related and government levels pose the main challenges decision-making and rarely occupy management to achieving universal access to WSS services positions in water sector entities. in Peru. Over the past 20 years, Peru has made The Peruvian government, through the leadership remarkable progress in closing the WSS basic service of the Ministry of Women and Vulnerable gap; from 2000 to 2020, access to water services went Populations (Ministerio de la Mujer y Poblaciones from 70 to 93 percent and access to sanitation services 40 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.9  Lack of Women’s Voices in Governance (in Numbers) 22 of 78 municipal technical areas for water reported women in leadership roles. 7 out of 93 water-related community organizations have a woman as president. 8 out of 170 registered water user organizations are managed by women. 25 out of 314 general managers of water utilities in the last 10 years were women. Sources: SUNASS 2018, 2021; UBC 2020. Figure 4.3  Countries in Latin America and the Caribbean with Least Access to Basic Water Services in 2020, in Millions of People Haiti, 4 Rest of the Region, 7 17 million people in Latin America and the Caribbean lack basic drinking water services Peru, 2 Venezuela Colombia, 1 (Bolivarian Republic of), 2 Brazil, 1 Source: WHO/UNICEF JMP 2021. went from 54 to 79 percent. This advance is aligned and Selva (Amazon) regions. These regions also with a significant increase in government investment in registered high levels of poverty with 50 percent of the sector. Progress in closing the gaps, however, has the population in rural Sierra considered poor and been much slower in rural and peri-urban areas, where 39 percent in the rural Selva. technical and management solutions are more complex ii. Thirteen percent of the rural population—close to a due to geographic, sociocultural, and political conditions, million people—defecates in the open. as well as low population density and logistical iii. Eight percent of the population relies on untreated difficulties (World Bank 2021b). surface water, which is often polluted (figure 4.5), Two million Peruvians lacked basic drinking and only about 4 percent of the rural population has water services in 2020, exacting a toll on human access to chlorinated water. development in the country. Compared with its When it comes to rural areas, Peru ranks behind regional neighbors, only Haiti performs more poorly on most of its regional counterparts in terms of this metric (figure 4.3). providing safely managed rural water services. Although the coverage and quality of water Only Honduras lags behind the country in terms of and sanitation services vary widely between safely managed rural water services; however, because geographic regions, rural areas show concerning it performs well on basic water services, it outperforms characteristics: both Peru and Nicaragua in terms of overall rural water access (figure 4.5). i. Sixty percent of those who lack access to water and sanitation services live in rural areas. Almost Lack of coverage is also a concern in peri-urban half of this group—47 percent—are indigenous areas of large cities, where high population populations located mostly in the Sierra (Andes) density, lack of access to safe water, and high 41 Figure 4.4  Water and Sanitation Ladders in Peru, 2020 a. Drinking water b. Sanitation 100 2 100 2 4 8 3 4 8 13 4 10 10 80 2 80 9 37 22 20 42 Population (%) Population (%) 26 60 60 5 59 40 40 59 60 64 51 53 20 20 22 0 0 National Rural Urban National Rural Urban Safety managed Basic service Safety managed Basic service Limited service Unimproved Limited service Unimproved Surface water Open defecation Source: WHO/UNICEF JMP 2021. Note: There is no estimate available for rural access to safely managed sanitation. Box 4.10  Levels of Safely Managed Water and Sanitation Services The Joint Monitoring Programme for Water Supply, Sanitation and Hygiene of the World Health Organization and United Nations Children’s Fund defines safely managed drinking water as coming from an improved source located on premises, available when needed, and free from microbiological and priority chemical contamination. Basic water access means there is access to an improved source within 30 minutes (round trip), while limited drinking water means there is access to an improved source over 30 minutes away (round trip). To make an estimate of safely managed services, information on the use of improved drinking water sources is combined with information on the accessibility, availability, and quality of drinking water. Estimates are based on the minimum value of these criteria. As show in figure B4.10.1, the criteria that is limiting the volume of safely managed water in Peru is “free from contamination.” Basic sanitation means having a private, improved facility that separates excreta from human contact. Limited service means there is an improved facility shared with other households. An unimproved facility is one that does not separate excreta from human contact. Safely managed sanitation services are defined as the use of an improved sanitation facility that is not shared with other households and where excreta are disposed in situ or transported and treated offsite. To make an estimate of safely managed services, information on use of different improved sanitation facility types (sewer connections, septic tanks, latrines, and other) is combined with information on containment, emptying, transport, and treatment. Source: WHO/UNICEF JMP 2021. 42 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.10  Continued Figure B4.10.1 Safely Managed Drinking Water, by Area 100 90 80 70 60 Percent 50 40 30 20 10 0 Accessible on Available when Free from Safely managed premises needed contamination National Rural Urban Figure 4.5  Safely Managed and Basic Drinking Water Services in Rural Areas of Latin America, 2020 100 19 24 80 48 56 45 34 60 47 Percent 71 59 21 40 81 72 46 51 53 20 39 40 41 19 22 0 as ru a a e ala ay r il ca do az gu bi am Pe ur Ri gu em m ua Br ra nd rin sta ra lo ca Ec at Ho Pa Co Su Co Ni Gu Safely managed service (rural) Basic (or at least basic) service (rural) levels of exposure to sewage create a favorable incremental cost of service provision between three climate for infection and water-related diseases. and six times more expensive. About 10.5 million people in urban areas lack access to safely managed drinking water and 9.4 million to Schools and health care centers safely managed sanitation facilities. Most of the urban are an overlooked priority underserved population are in the peri-urban areas of large cities characterized as low-income, informal In the quest for universal access, schools and settlements. Reaching this population becomes clinics—which deliver crucial developmental very expensive and technically difficult, making the services to the public—need to be prioritized 43 Box 4.11  Sanitary Emergency Program in Lima’s Public Schools: A Collaborative Approach to Replicate As part of the World Bank’s COVID-19 emergency response, a Bank team provided support to Peru’s Ministry of Education and Lima’s water utility (Servicio de Agua Potable y Alcantarillado de Lima, SEDAPAL) in designing a Sanitary Emergency Plan for Water Supply, Sanitation and Hygiene (WASH) in Lima’s schools. The plan seeks to extend and improve basic WASH infrastructure and services in schools in Lima’s densely populated areas and to offer policy recommendations to promote multilevel and multisectoral coordination toward this goal. It also includes recommendations to improve solid waste management. The plan proposes four concrete policy actions: (i) the Ministry of Education; Ministry of Housing, Construction, and Sanitation; and Ministry of Economy and Finance would approve resolutions to promote coordination between the Ministry of Education’s regional departments and urban water utilities (EPSs); (ii) a policy would support preventive and corrective maintenance and cleaning of sanitary facilities in public schools; (iii) policies would control water demands and promote payments from public schools to EPSs; and (iv) policies would include solid waste management on educational facilities’ premises. This program was part of the overall response to the COVID-19 emergency in Peru, and the Ministry of Education is working on replicating this initiative in other regions with the support of the 2030 Water Resources Group. in multisectoral water and sanitation services 25,000 community organizations provide services and planning. Half of all health care centers do not have are responsible for 24 percent of the total population access to basic water services and almost none have (World Bank 2017a). This fragmented landscape access to basic sanitation services—which for health limits economies of scale in the sector, reduces the care facilities are defined as improved, usable, staff- efficiency of service provision, enables greater political dedicated, and gender-segregated services that include interference, hinders effective regulation, and increases menstrual hygiene facilities and are adapted for people costs for the sector. Table 4.3 illustrates the variance in with limited mobility (WHO/UNICEF JMP 2021). At operational performance by company size. the same time, one in five public schools nationwide The EPS management indicators reveal that there does not have drinking water services, and one in are still great opportunities for optimization. Except three lacks adequate toilet facilities. This lack of access for SEDAPAL, which provides services to Metropolitan to adequate sanitary facilities in schools and health Lima, most EPSs show poor performance, particularly care centers disproportionately affects the capacity of the small ones. Given the coverage and service levels women, children, and people with disabilities to access in rural areas, small municipalities and community basic health care and educational services, potentially organizations’ performance is expected to be even limiting their development and well-being. more fragile. Water and Sanitation Service Providers The COVID-19 pandemic imposed an additional are Vulnerable to Shocks, Given Their financial strain on EPSs. Government response measures to help citizens deal with the emergency Operational and Financial Positions (payment deferrals, suspension of connection cutoffs, The operational and financial vulnerability of and distribution of free water to households without service providers puts at risk their capacity to access) led to a decline in revenues. To meet their provide secure WSS service to Peruvians. WSS short-term financial needs, utilities started postponing providers’ performance varies greatly across the routine maintenance and planned capital expenditures country and reflects the highly fragmented nature of while drawing on reserves and investment funds service provision. Currently, 50 urban water utilities earmarked for special projects. Because this could (EPSs) serve more than 85 percent of the urban compromise the utilities’ longer-term financial population (62 percent of the national population). In sustainability, the government set up a liquidity facility addition, there are 500 small municipalities that directly specifically for water and sanitation utilities during this manage services for approximately 14 percent of the time. However, recent data indicate that the utilities population (World Bank 2018). In rural areas, almost are not back to their pre–COVID-19 financial situation. 44 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Table 4.3 Performance Indicators by Water Supply and Sanitation Provider Size, 2019 Indicator SEDAPAL Large Midsize Small Benchmark companies companies companies Continuity (hours/day) 21 16 19 14 24 Micro-metering (%) 88 61 63 38 100 Nonrevenue water (%) 28 41 46 42 20 Operating margin (%)a 33 2 –7 –3 18–30 Pipe rupture (No./km) 0.2 0.6 0.8 0.8 0.2 Wastewater treatment coverage (%) 91 66 32 6 100 Source: SUNASS Benchmarking regulatorio, 2019 data from EPS (complete data from rural and small municipalities were not available for this study). a Operating margin was calculated with 2018 data. Table 4.4 Direct and Indirect Losses Due to Water Shortages and Intermittent Water and Sanitation Services   Economic cost Percent distribution Type of loss US$ (US$1 = S/. 3.6) to total cost System loss due to water scarcity 284,782,566 56.8 System loss due to intermittency 107,983,741 21.5 Loss due to unbilled water 94,116,509 18.8 Loss due to overpumping 14,513,421 2.9 Total 501,396,237 100.0 Source: Based on data from INEI (2020a). The majority of providers are unable to cover more than 56/m3/year per connection, potentially O&M costs or invest in improving their systems, incentivizing illegal connections and increasing given low, politically driven tariffs. Many municipal the incidence of household connection failures. It also utilities can be considered bankrupt because their includes the energy cost of pumping additional water long-term debts exceed their equity. In addition to to ensure that the sanitation system remains functional. operational inefficiencies, another key factor is low Service providers’ precarious situations are tariffs: on average, utilities apply an average tariff of aggravated by a lack of territorial/situational US$0.62/m3. This is well below the regional average planning and innovative approaches. For instance, of US$1.44/m3. This financial situation limits providers’ service providers oftentimes utilize unsuitable ability to engage in proactive maintenance, hire technologies for rural settings, creating technical and qualified staff, and invest in system improvements, operational problems down the line. In addition, service impacting service quality and decreasing the providers often select traditional solutions to extend providers’ operational and financial sustainability. As service to people living in difficult-to-access, peri-urban a result, consumers experience water shortages and areas, leading to expensive and hard-to-maintain intermittent services, and low-income, underserved solutions. However, innovative approaches that could populations usually pay significantly more than the improve the financial and operational performance average tariff. For example, in Lima, peri-urban of utilities are not utilized widely, given a lack of dwellers can pay water tankers up to 20 times more technical guidelines, incentives, and know-how, among than those receiving piped service from SEDAPAL in other obstacles. For instance, implementing circular network-served neighborhoods. water economy approaches would enable utilities to Water shortages and intermittent water services reduce their environmental and health impacts while cost utilities more than US$500 million each improving revenue. year—equivalent to about 10 percent of the total To achieve wastewater treatment goals, Peru health budget for 2020 (table 4.4). This includes needs to employ a financing strategy that will the opportunity cost of not being able to supply cover the significant up-front costs and to ensure 45 tariffs are adequate for utilities to cover O&M particularly in the Costa strip; and economic reasons costs. Wastewater management is a core function of such as lack of profitability and difficulty in accessing water utilities and ensures public health and healthy credit. ecosystems. However, poor wastewater management Much of the existing irrigation relies heavily on in Peru requires significant capital investment and gravity-fed furrow and flood systems, which are an O&M budget. According to the 2022–26 National characterized by their low efficiency. Sustainable Sanitation Plan, the government’s objective is to reach irrigation techniques that minimize water loss and are 100 percent of wastewater collection and treatment of able to apply water only where it is needed and in urban areas by 2030, requiring capital investments of precise volumes would improve irrigation performance, S/. 6,372 million (US$1.7 billion) (MVCS 2021). While boost agricultural productivity, reduce soil erosion and the government embarks on wastewater collection and pollution, and increase agricultural water efficiencies treatment programs, it is essential to consider several between 10 and 15 percent. However, in 2018 only interrelated challenges to ensure that investments are 12.8 percent of the area under irrigation (335,482 made most sustainably and efficiently. These include: hectares) used efficient irrigation systems (MIDAGRI i. A lack of effective project planning and execution, 2021a). Only 0.9 percent (S/. 21 million, or which creates technical and operational problems about US$5.7 million) of irrigation investment is down the line. focused on modernization (efficient irrigation). ii. The application of uniform or arbitrary water Nevertheless, efficient irrigation systems increased pollution control standards, which may result in by close to 60 percent from 2012 to 2018, mainly unnecessarily strict wastewater effluent criteria that due to investments from local governments. There is require costly wastewater treatment technology that great potential for the public and private sectors to is challenging to maintain and operate. collaborate on modernizing irrigation systems. In iii. Utilities cannot recover sufficient revenues to fund 2016, the National Agrarian Policy was implemented proper O&M of their wastewater facilities. to make agriculture more competitive and sustainable iv. Utilities currently have a limited focus on resource by, among other interventions, prioritizing the recovery. Wastewater is and should be considered modernization of water resource infrastructure. a valuable resource from which energy and Low irrigation efficiency leads to soil salinity of nutrients can be extracted and an additional source otherwise productive coastal soils. Soils become of water. Some recent regulations are providing the framework for water reuse in agriculture and saline when excess soluble salts accumulate in biosolids for soil amendment. Still, only about the topsoil layer, either due to naturally occurring 20 percent of treated wastewater is reused, and conditions such as parent rock weathering or due biosolids are seldom utilized. Studies from existing to human activities such as poor drainage, resulting wastewater treatment plants indicate that circular in salts not being washed away and increasing in economy approaches can significantly reduce O&M concentration over time. Low irrigation efficiency on costs. the Costa, coupled with the deterioration of drainage infrastructure, has resulted in the salinization of Inefficient Irrigation and Drainage about 25 percent of the coastal irrigated area’s soils Systems and Low Irrigation (300,000 hectares), increasing evapotranspiration losses and preventing crops from adequately absorbing Coverage Are Contributing to Low water, with negative consequences for yields and the Agricultural and Water Productivity development of certain types of crops. Irrigation currently accounts for almost 89 percent of water withdrawals in the country, yet between Low irrigation coverage is 30 to 45 percent of the water is used for the preventing Peru from reaching intended agriculture purpose. Nationally, irrigation its production potential water use exceeds 20,000 m3/hectare/year, which is significantly higher than in other countries such as Agriculture would not be possible on the Costa Chile, which uses less than half that amount. Only (coast) without irrigation. However, irrigation is 70 percent of existing irrigation infrastructure is used also needed in the Sierra (Andes) and Selva (Amazon), to produce crops, and 57 percent is in poor condition where 75 percent of agriculture is subsistence (Agricultural Census 2012). Various interrelated factors farming but only 41 percent of farmers have access contribute to this low rate of use: the growing scarcity to irrigation. Being able to complement rainfall with of water; seasonal and interannual variability of irrigation during the dry months is an important factor water resources; lack of technical capacity to conduct for improving productivity and encouraging higher- maintenance; salinization and swamping of arable land, value crops, which are generally more sensitive to 46 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY water stress. Together, productivity and higher-value Water user associations struggle with a crops contribute to development by reducing poverty lack of adequate institutional support in the populations that need it most. WUAs are responsible for distributing water The land that is under irrigation (22 percent) and the operational management of irrigation produces about two-thirds of the country’s systems. These associations are groups of private agricultural outputs, demonstrating the effect water users, including irrigators, who pool their irrigation has on productivity. Indeed, the irrigated financial, technical, material, and human resources regions of Arequipa and Ica yield on average 33.5 and for the O&M of a water system. These organizations 32.2 tons per hectare, respectively, while the rainfed coexist with other farming and other water user regions of Piura and Lambayeque barely produce organizations, sometimes creating confusion regarding 9.5 and 6.6 tons per hectare (MIDAGRI 2017). Crop their roles and responsibilities. management, local climate, and market access also contribute to these differences. Despite covering more than 1.4 million hectares and serving almost 750,000 users, Irrigation coverage is not expanding at the same WUAs lack technical capacity and specialized pace as agricultural land. Between 2012 and 2018, equipment to carry out O&M functions, as Peru’s agricultural land grew by 4.6 million hectares well as get reliable information about the (MIDAGRI 2021b). By contrast, the area under irrigation availability and use of water resources. The expanded fractionally, from 2.599 million hectares limitations and deficiencies in their capacity adversely in 2012 to 2.62 million hectares in 2018. This is less affect the quality and sustainability of the services than half of the potential irrigation area of about they provide to farmers, mainly in terms of flexibility, 6.4 million hectares (FAO 2022). Several challenges continuity, efficiency, and uniformity of the irrigation are slowing the expansion of irrigation, including the service. variability of local conditions; insufficient coordination between various government levels; and limited public WUAs struggle to achieve financial and technical investment execution, with only 60 percent of the autonomy. The associations are generally financially planned budget being executed, on average, in the weak due to low water tariffs and collection rates. past decade. In the highlands, WUAs have either not established a water tariff or the tariff is too low to meet O&M Expanding irrigation and drainage coverage needs, even when combined with significant in-kind and increasing irrigation efficiency can increase contributions from users. Along the coast, efforts to water productivity (economic efficiency). Water build capacity have resulted in certain improvements. productivity (US$/m3) improved from US$0.44/ However, the sustainability of these organizations m3 in 2012 to US$0.60/m3 in 2018, mainly due to remains threatened by a lack of adequate institutional the expansion of more profitable and higher-value support. There is currently no entity responsible for crops for the international market, particularly along providing technical assistance or training to the WUAs. the Costa. Crops with the highest production value are grown in areas with the best irrigation security Women’s contributions are not adequately and other favorable factors, such as a conducive recognized, and women are disadvantaged climate and access to roads and markets. Although in access, training, and technical assistance Peru’s productivity value is similar to the LAC average services. It is estimated that 60–80 percent of the (0.62), Peru should aspire to having each value close world’s food is produced by women, who make to the average of upper-middle-income countries up 20 percent of the labor force in Latin America. (US$1.53/m3) (FAO 2022). Women are in charge of agricultural activities when Table 4.5  Types of Water User Organizations and Hectares Covered by Irrigation in Peru, 2019 Geographic area Water user’s Water user’s Water user’s Number of Hectares under associations commissions committees registered farmers registered users registered registered registered registered in committees Coast 66 743 1,259 305,273 898,713 Highlands 51 836 6,811 382,661 415,987 Amazon 11 113 521 36,109 103,988 All Peru 128 1,692 8,591 724,043 1,418,688 47 men migrate to seek other income. Despite this, Budget Execution and Funding Gaps in all 128 WUAs that exist in Peru (where women constitute 31.6 percent of the overall population), of Water Services are Hindering women hold only 10.1 percent of positions on the Achievement of National and boards of directors, and 0.79 percent of president or Sustainable Development Goals vice-president positions (Carrillo 2019). Peru has significantly increased its budgeted public expenditure for the entire water sector Public investment in irrigation since 2010, making it one of the countries that is characterized by its low invests the most in the LAC region, especially in the budget execution and limited water and sanitation subsector. Since 2010, water- attention to quality related budgeted expenditures increased from about S/. 6.1 billion (US$2 billion) to S/. 10.2 billion in 2020 Public investment in irrigation is characterized by (US$2.8 billion) (figure 4.6). This represents an annual its low-budget execution. Nearly half of the national water expenditure of 1.2 percent of GDP, above the public budget for agriculture was allocated to irrigation LAC region average of 0.83 percent. A large portion of between 2010 and 2020. However, this investment the budget goes to water and sanitation at 57 percent, has not translated to significant improvements followed by irrigation with 32 percent. Water resources in irrigation coverage or efficiencies. This is in part receive only 1 percent of the total budget. because only 59.7 percent of irrigation investments were executed, representing a small fraction of Despite significant budget allocation, challenges potentially viable irrigation projects. persist in Peru’s public investment system, hindering capacity to achieve significant progress Regarding the quality of public investment, there is toward water security. Low execution of the little information on the performance of many small- allocated budget in irrigation (figure 4.7) and water scale projects that are operating. No monitoring and supply and sanitation (figure 4.8), spending priorities evaluation system is available to help determine the not fully aligned with national sectoral policies, impact of irrigation investment. Many of the projects limited monitoring and evaluation of projects focused implemented at the local level lack technical readiness, on results, and application of solutions that are not relevance, and sustainability, which can be explained context specific are some of the challenges found by several factors: limited capacity and technical by the Water Security Diagnostic (box 4.12). As an assistance during the design process, lack of financial example of limited alignment with sectoral policies, and operational arrangements, and limited involvement water resources budget allocation is very low, and and mandatory contribution by project beneficiaries. about half of what is allocated to water resources goes Figure 4.6  Water Sector Budgeted Expenditures, 2010–20 14,000 12,000 10,000 Millions (S/.) 8,000 6,000 4,000 2,000 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Water and sanitation Water resources Irrigation Total water sector Source: MEF/SIAF 2020. 48 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Figure 4.7  Budget Execution of Irrigation Investments, 2010–20 4,000 80 3,500 70 3,000 60 Millions (S/.) Percentage 2,500 50 2,000 40 1,500 30 1,000 20 500 10 0 0 20 3 12 0 1 19 18 16 4 5 17 1 1 1 1 1 20 20 20 20 20 20 20 20 20 20 20 Budgeted Executed Percentage executed Note: This shows an abrupt decline between 2016 and 2020. On average, only 65 percent of the irrigation budget was executed over the six-year period. Figure 4.8  Budget Execution of Water and Sanitation Investments, 2010–20 8,000 80 7,000 70 6,000 60 Millions (S/.) Percentage 5,000 50 4,000 40 3,000 30 2,000 20 1,000 10 0 0 13 12 10 20 11 19 18 16 14 15 17 20 20 20 20 20 20 20 20 20 20 20 Budgeted Executed Percentage executed Note: This shows a steady decline between 2014 and 2020. On average, only 61 percent of the WSS budget was executed over the six-year period. Box 4.12  Inappropriate Solutions Cause Projects to Stall and Contribute to Low Budget Execution Too often, inappropriate solutions that are unable to meet the technical, management, and logistical solutions required by geographic, sociocultural, and political conditions in rural and peri-urban areas doom projects to failure from the outset. Unfinished water and sanitation infrastructure projects are a common sight in Peru. Between 2005 and 2015, the Government of Peru invested US$3 billion in 6,000 sewerage projects, 65 percent of which were abandoned at some point. This is not just a service delivery concern but also a public health matter. An analysis of the effect of unfinished sewerage projects on the mortality of children under the age of five found that unfinished water and sanitation works resulted in open ditches of unfinished sewerage systems becoming filled with stagnant water, to the point that every additional unfinished sewerage project increased under- five mortality due to waterborne diseases and accidents by 10 percent over baseline levels. Water cuts required during the installation of sewerage systems also forced the population to rely on unsafe sources of water and led to a decline in hygiene and sanitation practices. Source: Bancalari 2020. 49 to additional irrigation projects. In addition, mining reach universal WSS services by 2030. To finance these districts received higher allocations independent of investment needs, the plan is assuming that public their water-related gaps and needs. And, as indicated investment levels will continue, that budget execution in the section before, efficient irrigation is not will significantly improve, and that several public- prioritized despite its importance for the sector. private partnerships will come to fruition. Subnational governments represent the main In addition, other sources suggest different driving force behind larger sector spending in levels of funding gaps. The United Nations Children’s irrigation and WSS (see figure 4.9). The water Fund and Sanitation and Water for All with the Joint sector spending is decentralized in nature with local Monitoring Programme (JMP) data estimate6 that and regional governments undertaking most of additional investments needed in Peru are in the order the budgetary water sector spending. Since 2018, of US$1.3 billion on average per year from 2021 to budgetary local and regional resources (mostly funded 2030 for delivering universal safely managed water through ordinary budget resources [recursos ordinaries] and sanitation services. A recent study of the Inter- and mining canons) have accounted for more than American Development Bank (IDB 2021) estimates that 80 percent of irrigation investment (47 percent Peru needs an additional US$2.2 billion investments regional and 33 percent local). In the case of water per year on average from 2021 to 2030 to reach safely and sanitation, local governments accounted for managed water and sanitation for all.7 Therefore, 89 percent of the WSS investment. Strong coordination when compared with the current budget execution, and collaboration between national and subnational the funding gap to reach universal access to safely stakeholders are needed to ensure sector and managed WSS services by 2030 is between US$1.9 development policies are implemented. billion and US$3.2 billion per year. According to the national infrastructure plan approved in July 2019, Reaching basic water and sanitation water and sanitation is the second sector with the services and closing the financing gap largest financial deficit gap to meet the SDGs, after transport (MEF 2019). for meeting SDG targets 6.1 and 6.2 will require improving budget execution and To reach these levels of financing, Peru will need to accelerate various financing mechanisms; implement accessing other sources of financing cost-effective, innovative solutions; and improve public Investment needs and targets vary significantly budget execution, which is currently at 54 percent across the water subsectors, and only the water and for water supply and sanitation. Public funds could sanitation subsector provided information on required be complemented with loans from international investment needs to close the gap. The 2022–26 donor agencies and through government guarantees National Sanitation Plan estimates annual funding for mobilizing private investments. Public-private needs of S/. 10 billion (US$2.6 billion) per year to partnership approaches could be explored to incentivize Figure 4.9  Capital Investments, by Government Level, 2010–20 a. Irrigation b. Water supply and sanitation services 4,000 8,000 3,500 7,000 3,000 6,000 Millions (S/.) Millions (S/.) 2,500 5,000 2,000 4,000 1,500 3,000 1,000 2,000 500 1,000 0 0 10 11 12 13 14 15 16 17 18 19 20 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 National government Local governments Regional governments Source: Public Expenditure Review Study (World Bank 2021c). 50 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY Box 4.13  Government’s Private Sector Participation Approaches to Improve Peru’s Water Security Public-private partnership arrangements. Peru has a well-developed regulatory and institutional sector for private sector participation. Pro-Inversion promotes private sector involvement in public infrastructure through build, operate, and transfer (BOT) schemes, and since 2005, promotes an enhanced BOT concession structure (concesión co-financiada) whereby the Government of Peru provides financial support to mitigate the construction and performance risks associated with large infrastructure projects, providing the concessionaire with a guaranteed stream of payments to cover construction costs. Both the Huascacocha Bulk Water Supply Project and the constructed Taboada and La Chira wastewater treatment plants in Lima follow this BOT structure. Mobilize finance for development in local and international currencies. The Peruvian financial sector has the basic conditions to support the financing of water and sanitation projects through local banking, institutional investors, investment funds, and sovereign debt markets. To mobilize this group of financiers and investors, it is important to continue incorporating available payment models, developing new structures to add flexibility to investors’ risk profiles. The water sector has several matured projects that can be used to explore this model. Works for taxes. This is an innovative private sector partnership mechanism created in 2009 by the Government of Peru to promote private company investments in public infrastructure. To date, 16 million Peruvians have benefitted from the construction of 398 infrastructure works for a value of S/. 4,900 million (US$1.4 billion) (MVCS 2020), 15 percent of which went to water supply and sanitation investments. Other innovative approaches. Sale of bulk water in the coastal areas consists of selling bulk water from desalination/mining companies to water utilities to provide water to areas with less access to freshwater. Other initiatives include performance-based contracts to improve operational performance, policies to promote water reuse and biosolids markets, and corporate stewardship through financing of natured-based solutions. private participation. Public policies designed to 5 Data from (WHO/UNICEF JMP 2021). improve quality and efficiency of public spending, https://www.sanitationandwaterforall.org/tools​-portal/ as well as targeted interventions to reduce coverage tool/sdg-costing-tool. gaps and efficiency of water operators, will also be essential. Box 4.13 outlines several models for private 7 The data on the additional investments required are from different sources. The JMP estimates it to be participation in the water sector. US$1.3 billion based on a narrow set of least-cost sanitation technologies. The highest estimate of Notes US$2.6 billion comes from the National Sanitation Plan 1 This refers to the variation of available renewable water (2022–26), which incorporates all sanitation projects with resources within the year. a larger set of technologies and options. The UNICEF-SWA-​ JMP estimates (US$1.3 billion) represent 16 percent of the 2 This refers to the variation of available renewable water trade balance of the country in 2020; the IDB estimates resources between years. (US$2.2 billion) represent one-quarter of all 2020 imports 3 The Falkenmark indicator links freshwater resources with of consumer goods in the country. Calculated based the number of people in a given region to indicate the on data from: https://www.bcrp.gob.pe/eng-docs​ population’s pressure on water resources. 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Progress on Household Drinking Water, World Bank. 2021c. “Public Expenditure Review Sanitation and Hygiene 2000–2020: Five Years on Irrigation in Peru.” Mimeo. World Bank, into the SDGs. Geneva, Switzerland: World Washington DC. Health Organization (WHO) and United Nations Children’s Fund (UNICEF). https://www.who.int​ WRG (Water Resources Group) 2030. 2019. 2030 /­publications/i/item/9789240030848. WRG Annual Report 2019: Building Trust, Growing Resilience. Washington, DC: WRG World Bank. 2017a. Non-Lending Technical Assistance 2030. https://www.2030wrg.org/wp-content​ (NLTA) Peru Support to the Water Sector /uploads/2019/11/WRG-Annual-Report​ Modernization Program. Information from _Web_1_16_2020.pdf. C HAPT E R 5 A Way Forward: Nine Recommendations to Improve Water Security in Peru Peru has taken many important steps to stabilize its Nacional de Gestión de Recursos Hídricos, SNGRH) water resources, and economy, in a shifting world. for high-level approval. After approval, the PCM Increasing the efficiency of its water infrastructure and might want to establish a monitoring system to institutions promises tremendous future benefits, in track progress. terms of poverty reduction, sustainable development, ii. Improve the National Water Authority’s and human capital accumulation. technical and planning capacity to integrate risk management, improved information While the present work leaves many threads untied, systems and efforts to address climate change it offers nine concrete recommendations to accelerate into water resource management. Although Peru’s path to water security: ANA has made progress with the establishment i. Consolidate and implement integrated of the national water resources information water resources governance at the national management system, the development of six river and basin levels. To overcome its many water basin management plans, and the creation of a endowment challenges (high climate variability, technical dam safety unit, it needs to scale up these water pollution, and a mismatch between levels efforts to sustain water resources for current and of demand and water availability, among others), future generations. Peru will need to employ strong water governance First step: Finalize and approve updates to the and conduct reforms that utilize integrated water 2015 Water Resources Policy and begin updating resources management strategies at the local and the 2015 Water Resources National Plan to basin levels and ensure that there is coordination integrate water security and climate change and harmonization across water-related agencies. elements. First step: Reinstate the interagency water iii. Improve and expand wastewater commission to complete the water governance management to address water quality and implementation plan based on the findings from quantity in critical basins. Pollution due to the OECD Water Governance report and this WSD. economic growth and rapid urbanization has Once complete, the interagency commission decreased the quality and availability of water may submit the implementation plan to the resources, affected public health, and is posing Presidency of the Council of Ministers (Presidencia serious threats to the environment. Given that the del Consejo de Ministros, PCM) and the National main cause of water pollution is the discharge of Water Resources Management System (Sistema domestic wastewater into surface water bodies, 56 PERU: STRATEGIC ACTIONS TOWARD WATER SECURITY this diagnostic proposes the development of a project management capacity of national, local, and wastewater management strategy led by the regional agencies to implement public investments MVCS as a first step to overcome this challenge. in the water, sanitation, and irrigation sectors is key to accelerating efforts to close service gaps and First step: Develop a wastewater management expand access to irrigated agriculture. strategy and pilot, at the basin level, sustainable programs for wastewater treatment that utilize First step: Provide capacity building and technical circular economy approaches. assistance to strengthen project implementation units to support the design and implementation of iv. Utilize differentiated, territorial approaches water and sanitation and irrigation projects and to to increase access to safely managed water enhance the capacity of government staff. and sanitation services for Peru’s most vulnerable. Peru still has significant work to do to viii. Invest in integrated water storage solutions improve water and sanitation services in rural and and improve resilience of existing hydraulic peri-urban areas; reaching these areas, however, systems. Peru faces water stress in the Costa requires a differentiated, territorial approach that region and significant interannual and seasonal considers geographic, sociocultural, and political variability of surface runoff in the Selva and Sierra conditions and considers population density and regions. To build resilience to extreme droughts logistical difficulties. and floods, Peru must invest in integrated water storage measures and improve management of First step: Prepare and begin implementation of existing hydraulic infrastructure. a comprehensive water and sanitation policy and strategy for vulnerable populations in rural and First step: Develop an integrated water peri-urban areas that includes strong community storage strategy focused on ensuring risk-based participation in the selection of technical and management of existing hydraulic infrastructure, management solutions, promotes handwashing and increasing water storage capacity, and facilitating hygiene, and utilizes innovative financial strategies. multipurpose arrangements.1 v. Establish financial incentives to improve the ix. Build resilience, in the face of an uncertain efficiency, service quality, and sustainability future, into existing sector planning of water and sanitation service providers. instruments. Peru has a national DRM legal Despite several water and sanitation policies framework that focuses on improving prevention directed at improving performance of water of and building resilience to disasters, but adoption service providers, overall performance has not by water-related agencies at the local level has improved given low adoption and implementation been slow. of the policies at the local level. To ensure more sustainable WSS service delivery, the WSD First step: Develop a pilot program for local recommends aligning existing policies with water organizations, including river basin councils, financing incentives. water and sanitation service providers, and water user organizations (irrigation) to incorporate First step: Prepare, adopt, and begin DRM measures into existing sectoral planning implementation of a performance-based financing instruments and operational procedures. policy for water-related capital investments. These recommendations lay the necessary vi. Implement a comprehensive approach to groundwork for efficient, effective, and deliver sustainable, efficient, and equitable sustainable infrastructure investments. Key irrigation and drainage services. Although infrastructure improvements center on reaching irrigated agriculture is critical to achieving better food security, producing higher-value crops, and bolstering universal access to safely managed WSS services, the resilience of agriculture to climate change, expanding wastewater treatment to improve irrigation-related investments have not kept pace water quality, expanding access to efficient with the expansion of agricultural land in Peru. irrigation solutions, and increasing integrated water storage solutions to build resilience to water First step: Develop a detailed national irrigation strategy and plan that considers water storage, security challenges. It is important to not only tap equitable water allocation, modernization of new sources of funding, but to carefully plan their irrigation systems, and differentiated irrigation use in order to spend smarter. Future generations approaches to allow for the expansion of irrigation will benefit from every carefully planned step systems in undeveloped areas with irrigation toward sustainable development taken today. potential. Note vii. Strengthen capacity to effectively utilize budget allocation for water, sanitation, and 1 Operational and legal arrangements so that storage can irrigation services. Strengthening the technical and serve multiple functions and provide multiple services and uses. W22043