Water Management Reform Could Attract €15.7 billion in Investments by 2021

A comprehensive reform of Spain's water management model would attract €15.7 billion in investment over the next seven years and create 23,700 new jobs, according to a new report by PwC for ACCIONA, entitled "Water Management in Spain: Analysis of the Sector's Current Situation and Future Challenges".

The report estimates that water sector reform would have an aggregate impact of €12.6 billion to GDP. Other benefits include an estimated €2.5 billion in savings from the elimination of wasteful or inefficient water consumption and an additional €13.3 billion in cost savings from efficiency gains and reduced water leakage from broken pipes. Moreover, CO2 emissions would be reduced by nearly two million tons by 2021.

The main challenges affecting the water sector in Spain include water scarcity, an investment deficit compared to the EU average, a weak regulatory framework and the absence of a nationwide water market, according to the report. To address these problems, PwC suggests a new, stable regulatory framework to "attract investment by specialised operators that would boost the economy and generate employment". The reforms would, in addition, "foster the internationalisation of water companies, where Spanish industry already has solid credentials, and it would guarantee compliance with EC water legislation (especially in the investment-heavy areas of sanitation and purification), thus averting the possibility of fines".

Investments in water account for 0.11% of gross domestic product (GDP) in Spain. That is below the European Union average of 0.27%, putting Spain in twelfth place on the list of EU countries. In addition, the large number of government agencies that oversee water-related matters, and the absence of a stable, predictable regulatory framework, contribute to the sector's inefficiency. The PwC's report recommends "the creation of a new legislative and regulatory framework that vests the sector with stability and predictability and contributes to attracting investments and to helping make water consumption economically efficient and environmentally sustainable in the long run".

Suggested initiatives include the introduction of a mandatory national method for calculating city water rates; rewarding the early adoption of this methodology with economic incentives; a clearer definition of municipal control over water to avoid oversight overlap from competing government agencies; and the promotion of economies of scale.

The report also advocates giving price commissions and similar regional organizations greater powers to supervise the correct application of the national methodology. It suggests that companies or agencies related to the management of water infrastructure should separate their legal, accounting and operational departments; and it suggests the creation of a water regulator with powers over market participants.

Public-Private Partnerships

The PwC study states: "The growing scarcity of water is forcing us to change our conception of this resource and the model we use to manage it."

"The new paradigm conceives of water as a basic resource for human life that must be managed as a scarce economic asset of increasing value," the report says. Water is regarded as a basic good to which consumers must have access "under accessible, fair and equitable conditions". And because water is a scarce asset, "we must guarantee long-term asset replacement and maintenance". Moreover, water must be regarded as a key environmental asset.

The paradigm change is fostering the adaptation of regulatory frameworks, which are being updated to respond to the sector's new challenges. This has engendered new models of public-private cooperation in water management. There are many reasons for this new public-private: project financing is easier (as water projects require heavy investments), and it reduces the level of government indebtedness. The technical expertise of private operators in the water management business is also expected to enhance efficiency.

With the right regulation and supervision, the water sector would be "capable of guaranteeing affordability, economic sustainability and operating efficiency", according to the report. Public private partnerships would strengthen cooperation throughout the water cycle, with specialized operators managing all the activities in the sector's value chain, including collection, treatment, distribution, sewage and sanitation.