91688 the world bank Modernizing Public Water Services in Uruguay IBRD Results through a long-term partnership Synopsis IBRD worked with Uruguay to modernize its water utility, helping in its transformation from an inefficient monopoly into a more accountable public utility providing better quality water to more Uruguayans than ever before. Challenge the country’s public water & sanitation utility, OSE, has historically lagged behind other public service providers (in electricity, for example) in terms of operational perfor- Uruguay’s economy is one of the most prosperous and its mance and customer service. In part, this reflected the sen- society is one of the most equal in South America. After sitive nature of water and sanitation services, which made decades of relatively slow economic growth, the economy policy makers reluctant to push OSE too hard to improve grew by an average of 6.7 percent over the five years through its services. Finally, until recently, Uruguay lacked inde- 2008, reducing unemployment to 8 percent from 13 per- pendent and transparent regulation and a framework for cent and poverty to 25 percent from 42 percent. Against the accountability of public service utilities. this backdrop, Uruguay is now well-positioned to further expand universal public service provision and enhance its economic competitiveness as it becomes a regional trade Results and logistics hub. ÔÔ With the help of IBRD, Uruguay’s OSE has slowly Given Uruguay’s comparatively small size (its population evolved from a highly inefficient water utility into a is just over 3 million people), it is not surprising that its solid one over the course of the last two decades, public utilities—water, electricity and until recently tele- ÔÔ Labor productivity has improved to 4.3 employees/1000 communications—are monopolies in their respective sec- connections in 2006 from 12.7 employees/1000 con- tors, making it difficult to benchmark their performances nections in 1987. against other entities providing the same service. In addi- ÔÔ Water treatment capacity at the Aguas Corrientes tion, since these public utilities historically planned invest- treatment plant, which supplies water to roughly half ments, carried them out, and monitored their own service of Uruguay’s total population, increased to 630,000 provision in each sector, there were few entry points to m3/day in 2006 from 440,000 m3/day in 1988. Water push utilities to improve performance. While Uruguay has quality has improved significantly through the intro- made impressive strides to achieve universal access to ba- duction of re-chlorination stations at intermediate sic infrastructure services over the past two decades, access points in the transmission system, which has allowed to piped sewerage at about 53 percent remains relatively OSE to maintain chlorine residuals throughout the low when compared to Chile, Colombia, and Mexico, as distribution network. The expansion of water pro- well as several comparable Brazilian states. In addition, duction capacity has allowed OSE to connect over March 2010 2 Modernizing Public Water Services in Uruguay 235,000 additional people in metropolitan Montevi- deo alone. ÔÔ As a result of an internal benchmarking system estab- lished within OSE to compare performance across dif- ferent parts of the country, OSE has introduced quality of service indicators and improved its performance on several key fronts: attention to commercial and opera- tional claims as well as water quality are consistently rated excellent nationwide, while the speed with which water service is restored after a pipe break is excellent in almost all parts of the country. OSE’s indicators use a grading system from Uruguayan public schools and so are easily understood. These are regularly published in the press along with a commitment by OSE man- agement to reach defined performance levels by clearly- defined deadlines. This creates expectations for better and efficient one in which service provision is separated service among the general population and pressure from regulation and policy definition. IBRD’s long-term within OSE to meet those expectations. engagement fits well with the historical pace of reform in ÔÔ IBRD has financed 12,300 sewerage connections in 12 Uruguay—slow and cautious but with a high level of policy cities as well as three sewage treatment plants in Minas, continuity across administrations, ensuring steady improve- Treinta y Tres, and Durazno covering 60,000 people. ment over the long term. ÔÔ IBRD has financed the installation of 125,000 new wa- ter meters and the replacement of 80,000 old or faulty meters, increasing the fairness of water billing. Ibrd Contribution As a result of IBRD involvement, Uruguay has created a The Bank has supported development of Uruguay’s water more transparent and accountable water sector. OSE, which and sanitation sector for the past two decades through formerly acted as de facto policy maker and regulator in ad- three infrastructure investment loans: US$22.3 million be- dition to service provider in the water sector, is now part tween 1988 and 1999; US$27million between 2000 and of a wider system that includes an autonomous water and 2007; and an ongoing program for US$50 million since electricity regulator, and a separate policy-making agency, 2007. Additionally, it extended Uruguay a Technical Assis- created in 2006. tance Loan of US$6 million between 2001 and 2008 to im- prove regulation and accountability across public services more generally. Japan also contributed a grant for water sec- Approach tor regulatory reform. Parts of several development policy loans have also helped to advance the reform agenda: Uruguay has long valued a consensus-driven approach to problem-solving and has managed an impressive level of ÔÔ Water Supply Rehabilitation project (1988–1999) — continuity in sector policies across governments of differ- US$22.3 million. ent political stripes. The water sector is a case in point. Over ÔÔ OSE Modernization and Systems Rehabilitation proj- the course of governments from three different political ect, APL-1 (2000–2007) — US$27 million. parties over 20 years and with steady engagement by IBRD, ÔÔ OSE Modernization and Systems Rehabilitation proj- the Uruguayan water sector has been transformed from ect, APL-2 (ongoing since 2007) — US$50 million. one in which a monopoly utility set its own standards and ÔÔ Public Services Modernization Technical Assistance provided poor and inefficient service to a more accountable project (2001–2008) — US$6 million. IBRD RESULTS 3 With one (or at times two) investment and technical assis- iffs that are more than enough to cover all operation and tance loans under implementation at any one time over the maintenance expenditures and some investment costs, the past 20 years, IBRD has committed over US$2 million in sustainability of OSE’s existing assets is assured. The main supervision resources to Uruguay’s water (and more broad- challenge, for both the government and for OSE, is to raise ly public utilities) sectors which has allowed IBRD’s Latin additional resources to increase sanitation coverage and America region to field multi-sectoral teams including sec- sewage treatment to reach all Uruguayans. tor and macro economists, engineers, specialists in pump- ing technology, low-cost sewerage, financial specialists, Despite significant progress in terms of regulatory reform, social and environmental specialists and regulatory experts. the information asymmetries that often make it difficult for At critical junctures, (as with the presidential transitions in governments to hold public utilities accountable for results, 2005 and 2010) this long-term presence allowed IBRD to have been reduced but by no means eliminated. It is also produce short policy notes with snapshots of key sector is- worth mentioning that despite OSE’s operational improve- sues and possible policy options. ments through sustained commitment by the national gov- ernment and the Bank, other pieces of Uruguay’s 1990s reform agenda worked less well, including the goal of intro- Partners ducing private service providers into Uruguay’s water and sanitation sector alongside OSE to create competition and Government of Japan allow for performance comparisons. In 2004, Uruguayan voters approved a referendum that made water and sanita- tion services the exclusive purview of the public sector and Next Steps the only large private water and sanitation concession in the country (in the department of Maldonado) was rescinded. IBRD support for Uruguay’s water and sanitation sector Going forward, the government will therefore need to rely is continuing under the OSE Modernization and Systems on internal benchmarking (within OSE) and external per- Rehabilitation project, APL-2, approved in 2007. Given formance comparisons (through the regulator) to maintain OSE’s operational improvements over the past two decades the momentum for continuous improvement within the and the fact that OSE now charges water and sanitation tar- company.