MIGA in Ecuador MIGA-supported Project to Deliver Water to a Quarter Million of Ecuador's Poorest

MIGA-supported project to deliver water to a quarter million of Ecuador's poorest

March 3, 2003—Segundo Rodriguez is a middle-aged carpenter and resident of Isla Trinitaria, one of Guayaquil, Ecuador's largest and oldest slums. Rodriguez says he doesn't know what it means to be healthy. Along with thoUnited Statesnds of his neighbors, his water is delivered by a special truck called a "tanquero," at a cost of up to seven times the average price paid by those with municipal water service. There are other costs as well. The water is stored in open plastic barrels that are breeding grounds for parasites, and resulting illnesses often go untreated.

Isla Trinitaria is on the brink of receiving municipal water services for the first time-potable water, sewage, and storm drainoff-thanks to a guarantee issued by MIGA in March 2001. "Water is going to make my life different," Rodriguez says. "The fact that I can simply take a shower without having to scoop water from a bucket will make an enormous difference."

Guayaquil is Ecuador's largest urban concentration, with a population of just over 2 million. As the country's main industrial hub, it attracts many rural citizens looking for a better way of life. For many years, a lack of potable water and sanitation services had been a critical problem for the city. Massive rural immigration throughout the 1990s further taxed the already weak water system. Today, the population is still growing, but not at the uncontrolled rate experienced before.

"Guayaquil is a big city that attracts many people from the countryside. Providing clean water to the increasing number of city dwellers is a great challenge for the municipality," says Luis Chiriboga Parra, the city's vice mayor.

Just over two-thirds of the city's residents currently receive municipal water services. Those left without are typically in the poorest neighborhoods, which are also burdened with a lack of sanitation infrastructure. The impact of a high incidence of water-related diseases, ranging from malaria and dengue fever to gastrointestinal disorders, is felt on many levels.

The problems are partly a result of the migratory influx, but also of serious operational problems experienced by the former municipal water provider, which by the early 1990s had reached a crisis level. An uneconomical tariff and subsidy system contributed to the problems and left little money for maintenance and upgrades. At the recommendation of the World Bank and Inter-American Development Bank, municipal water and sanitation services were fused in 1994 and became the Empresa Cantonal de Agua Potable y Alcantarillado de Guayaquil, or ECAPAG. But the problems continued and the new entity sought out private sector help.

Two years ago, International Water Services (Guayaquil) BV of the Netherlands won a contract to operate and improve the delivery of Guayaquil's water and sanitation services. It wasn't long before they came knocking on MIGA's door for a guarantee.

Political risk coverage was required for the project to move ahead, says Yvon Mellinger, general manager of Interagua, International Water's local subsidiary: "MIGA's coverage is extremely important because at the time the project was first getting started, the country didn't have a very good political risk history, and shareholders were worried. We looked at other agencies, but liked the idea of using MIGA because of its link to the World Bank. MIGA is different from other agencies. It has more experience, gives us a better chance of getting proper treatment, and offers a very different type of protection."

The signing of the $18 million MIGA guarantee for the rehabilitation and expansion of water services marked a number of important firsts, including the first time a private sector company would become involved in the provision of water services in Ecuador, as well as MIGA's first coverage of a water services project and of a performance bond. The guarantee covers International Water's equity investment in Interagua for up to 15 years against the risks of expropriation and war and civil disturbance. The 30-year contract also required Interagua to post a bond as collateral to ensure that it would meet the contractual requirements set forth by ECAPAG. MIGA guaranteed the bond against wrongful call.

With the signing of the concession, ECAPAG took on the new role of autonomous sector regulator to enhance accountability. Its primary functions are to ensure that the investor fulfills its contractual obligations and that residents of Guayaquil receive adequate service. Duties include oversight of quality, technical control and supervision, economic and financial supervision, tariff setting, and claims resolution.

The contract, signed in August 2001, calls for Interagua to operate and maintain the potable water, sewage, and water drainage services, and to invest as needed to upgrade and expand services. ECAPAG retains full ownership of the existing assets.

The contract requires 55,238 new water connections to be made, all in low-income areas based mostly in the southern part of the city, at the end of a five-year period. Based on the average household size of five, that means an estimated 276,190 people will have access to safe, clean water and sanitation services once the connections are complete. Overall, the municipality hopes to have 90 percent coverage of water services in 10 years, and 60 percent of sewage in the same time period.

"Our goal at Interagua is not only to provide water and sewerage services in accordance with the contract, but to also help improve the living conditions of the people of Guayaquil and the sustainable development of the local environment," says Mellinger.

Other new connections, about 100 a month, are installed on empty lots in already serviced areas. One criteria for service connection is that plots have to be registered by the municipality and land ownership legalized. Illustrating the synergies between the company and the local government, the mayor has accordingly instituted a program to allocate 40,000 lots to low-income citizens, to help them achieve service and to discourage squatting.

The involvement of the private sector was an important improvement for the city, says Rodrigo Andrade Rodriguez, president of ECAPAG's Board of Directors. "The benefits of private sector involvement are technological efficiency, access to financing, and money to rehabilitate the infrastructure." But the biggest benefit is that the "concession acts like a vaccine against politicization."

"The private sector alone can't do it-it has to be a combination of public and private," adds Mellinger.

Let the water flow

Interagua chose to begin the expansion program in the community of Isla Trinitaria, a slum of some 100,000 residents located on an island in Guayaquil. Residents currently get water two ways: They buy water on the other side of the river and bring it over by hose and pump. The hose is then taken door-to-door and individual plastic barrels called "tanques" located inside the houses are filled. Residents who don't have access to water by hose are forced to buy water from "tanqueros," water trucks that periodically come around.

The city of Guayaquil has three water stations where trucks rumble in throughout the day to fill their often dirty tanks with water. The price per barrel or "tanque" is 70 cents for 200 liters, and a small family goes through 15 tanks a month. This translates into $3.5 per cubic meter, compared with the 24 cents per cubic meter they'll pay for the first 15 cubic meters of water consumed when connected to the municipal system. Interagua has no control over the tanquero prices.

The work to install potable water and sewage connections in Isla Trinitaria, including engineering and procurement, began nearly two years ago. Conditions in the slum are tough and construction is a little slow-going right now. Rain fills the channels being dug out by the workers and the ground tends to crumble when the pipes go in. But the project is still on target. The first segment of the work is scheduled to be complete by August of this year, with some 8,500 families-or 42,500 individuals-set to receive service.

Ulises Gomez, a small shop owner is cautious about the change: "I've lived here for 12 years and with the new water connections, we're hoping for a real improvement. But, the bread can burn in the oven door, meaning, who knows. We have to be optimistic and think that things can change."

In addition to the monetary issue, there are serious health consequences of having “trucked” water. People often leave their water barrels uncovered. Chlorine, which some people add to their water, doesn’t address all health issues, and people don’t boil the water either. The open water containers and lack of proper sewage disposal also provide stagnant pools that become breeding grounds for mosquitoes that carry malaria and dengue fever, both life-threatening illnesses that can have an impact on survivors for many years.

Fifty-eight year old Juana Tambrano has lived in Isla Trinitaria for about 10 years. She shares a simple, clean one-bedroom house with a swarm of mosquitoes. “This service is very necessary,” she says. “The water is dirty, filled with bugs. Sometimes we go five days without water. Then we have to collect rain water or go to friends to get some. It takes a lot of time.” When asked about the biggest benefit of the new service, Tambrano says: “Water itself is the benefit. You can’t do anything without it—wash, drink, clean.”

“You can’t just measure the impact from an economic standpoint,” adds Fernando Alvarado, Interagua’s communications officer. “You also have to look at qualitative improvements in the way people are living, their health. Illnesses are common in the slums. People are often sick, listless.” Typical illnesses include diarrhea, dysentery, cholera, typhoid, and diseases caused by parasites.

New standards ensure better water quality…

In accordance with the contract, Interagua monitors and reports on the quality of raw and potable water, and residential and industrial effluents. The company has already invested an estimated $100,000 in the treatment plants alone since taking over.

Among the improvements are better, safer disinfection of water, resulting in less water-related illnesses. Equipment improvements have made a difference in the labs, which test samples of the water drawn from all parts of the river for heavy metals and other contaminants. New bacterial testing equipment allows technicians to better culture specimens, which improves the accuracy of analysis and treatment. The labs also analyze industrial waste to make sure large companies aren’t contaminating the water source. Violations are reported to the municipal authorities. Interagua has also introduced ongoing, comprehensive monitoring of effluent discharges in the River Guayas.

...at affordable prices
In order to avoid the social discontent that would inevitably be caused by a sudden price increase, ECAPAG has implemented a plan that allows for gradual price increases based on a number of factors. The plan, which underwent extensive technical studies, gradually modifies tariffs to cover the cost of services through a formula that is adjusted for inflation every three months while taking into consideration energy costs and income indexes. The tariff plan will be revised every five years, based on Interagua's investment plans as well as agreed qualitative and quantitative coverage criteria.

Payment is on a sliding scale. There are eight different consumer groups, with the three lowest-consuming groups subsidized by the five other groups. Low-income customers currently pay about 24 cents per cubic meter, while industries pay about $1.20 per cubic meter. The average cost is 53 cents per cubic meter. To get a sense of the scale, most upper middle-income customers consume 200 liters per person per day. Lower-income customers, who have smaller houses, usually without appliances, use much less. They end up paying less than $5 a month.

The cross-subsidy program is designed to make the service affordable to low-income customers. "The subsidy cannot and should not disappear," adds Jose Luis Santos, general manager of ECAPAG. "There will always be a need to subsidize lower-income customers." A phone tax and small drainage maintenance tax currently provide additional subsidy funds. If the current system doesn't work, ECAPAG says it will consider other ways of subsidizing the service.

"People in Guayaquil are pragmatic," says Mellinger. "They're not ideologically opposed to the private sector. Of course, progress always helps."

In 2002, Interagua increased the number of registered and billed customers by 12 percent. By the end of 2003, Interagua plans to have installed 50,000 new meters. They’ve also reduced prices by paying for bulk generator services for energy.

How the water system works
Interagua's water system consists of three water plants that capture, filter, and distribute water to the city of Guayaquil. The entire system is capable of treating 13.8 cubic meters of water per second, and currently treats 11.8 cubic meters per second. Treatment includes an underground sand filtration system.

Internal leakage is one of the project's biggest problems. People are used to water dripping from pipes and used to be billed on estimated consumption, never per the amount they actually used. Interagua actually visits customers with high bills to help identify internal leaks, and provides discretionary bill rebates after clients have fixed the problem. The company is working to repair leaks, but is still losing 75 percent of treated water, although this is down 5 percent from the time Interagua took over.

Storm drainage and sewage also see improvements
Guayaquil is a flat city, sitting just five meters above sea level, and is most at risk of flooding during the rainy season of February to April. Storm drainoff canals and gullies typically fill with vegetation and trash, which creates a problem for drainage and ultimately creates breeding grounds for mosquitoes. There is environmental fallout as well, as trash is carried into the river.

Interagua is changing the culture from one that was reactive to one that plans maintenance. The company now has a regular maintenance program that over the past two years has cleared 162 km of canals of vegetation and debris. Another 4.2 km of new canals have been built. As a result, the city has seen a significant reduction in pluvial flooding. Some of the work, including the construction of drainage canals, is being reimbursed under a municipal tax mechanism.

Together with community leaders, Interagua has instituted an "El Nino Prevention" campaign, which focuses on mitigating the impacts of flooding by keeping drainage canals and sewers free of litter. The campaign has also enlisted a cadre of volunteers to help clean canals and storm drainage canals of debris.

Sewage treatment is another part of the project. There are three main outlets that take effluents to the Guayas River, using a basic screening process. The river has a high dilution and absorption capacity, and is considered a healthy river. The concession allows Interagua to maintain this basic process for the first five years. But the next five-year plan may call for investment in more extensive, and expensive, sewage treatment, which Interagua believes will be the main issue in dialogue with the government.

Client outreach not an afterthought
Since its inception, the project has had a strategic identity campaign in place to let the public know about the company, service, and expansion plan, as well as to educate them on how to conserve water. The campaign has so far involved print, digital, and face-to-face communications, including grassroots visits to 150 schools, 300 community meetings, and 10,250 individual homes.

“These visits all take place before the work begins,” says Alvarado. “We want the community to know exactly what we plan to do and get their input, so there’s as little disruption to their neighborhoods and lives as possible.”

Interagua is also taking various steps, including the introduction of a new customer service office and improvements to the Call Center, to increase its responsiveness to clients. The goal is for inquiries to be answered in just one call or visit. The company is also trying different ways to get people to pay their bills on time, and has introduced new collection services and incentives such as price reductions and prize giveaways for those with current accounts.

For more on Interagua, visit www.interagua.com.ec/.