One of the surprising results of Chilecracia, a novel platform in which Chileans rank demands for change, is the very high priority given to “the deprivatization of water.” At the time of writing, deprivatization of water ranked 4th out of 109 listed demands, beating out noteworthy proposals such as health care reform, mandatory sentencing for crimes of corruption, and even constitutional reform. Why is this?
Immediately preceding the current unrest, Chile was captivated by the plight of residents of the central district of Petorca, which has been affected by severe water scarcity in recent years. Smallholders lack water to plant crops, livestock are dying by the thousands, and residents in certain parts have had to live with 50 liters of water per day delivered by tanker truck, as household wells have run dry in the face of a decade-long “megadrought” affecting central Chile.
However, the water crisis long predates the current drought. The actual Petorca river dried up a decade earlier in 1997, and restrictions on groundwater extraction were put in place in 2004. Local residents and outside observers have explicitly characterized the water scarcity in Petorca as not a result of climate change, but rather legally-sanctioned over-extraction and illegal water diversions by large agribusinesses.
You may have even heard of this in the English-language press. The English-speaking world’s strange obsession with avocado toast repeatedly brought the case of Petorca to international headlines, giving birth to such gems as “Your Bottomless Hunger for Avocados is Causing Droughts in Chile.” The avocado industry, for its part, lays the blame largely at the feet of climate change and the megadrought.
While climate change is undoubtedly a component of what is known here as the <<crisis hídrica>>, Chile’s water crisis is inextricably tied to Chile’s legal framework of water rights—emplaced under undemocratic rule—which is truly unique in the world in the sheer scale of privatization. This system has not been able to cope with increasing stress on Chile’s hydrology, largely to the detriment of communities and smallholders. Recent high-profile incidents pushed water rights to the forefront of the public consciousness, and the resulting demands for reform of water rights dovetail with the principles behind the current social mobilization.
People write entire books on water issues in Chile, so here I heavily simplify the issue by highlighting selected laws and events that illustrate why Chileans are increasingly demanding greater state control over their water resources.
Previously in this series on the 2019 Chilean protests: Corruption | Cost of living | the Dictatorship | Pensions | Government misconduct | Constitutional reform
Chile has an objective water problem
4 Andean Cities Adapting to Glacier Retreat to Preserve Water Security
Chile is a long and narrow country that spans a huge variety of climate zones, from the super-dry Atacama Desert in the north of Chile to the hyper-humid cool rainforests of Patagonia. The majority of the country’s population of ~19 million is found in “central Chile,” which corresponds roughly to the area between 32°-42°S latitude; over 8 million people live in a narrow belt between 33°-35°S. The population of this belt—divided between the metropolitan areas of Santiago and Valparaíso—live in a semiarid Mediterranean climate reminiscent of Southern California (Koppen-Geiger zones Csa and Csb). Like Southern California, summers are hot and dry, and neither cities nor large-scale agriculture could exist without water piped in from the mountains.
Therefore, Chile has an intrinsic structural problem in its management of water, in that the majority of Chileans live in areas that are relatively dry. Any water stress that occurs in the semiarid region of Chile will therefore have an outsize effect on its population.
And of water stress there is plenty: Chile is currently in a decade-long “Megadrought,” characterized by nine consecutive years of lower than average precipitation in central Chile. This past austral winter was the driest in 60 years. The loss of over 10,000 head of livestock and significant declines in agricultural exports have led the government to declare an agricultural emergency to expedite farm aid.
Figure from Garreaud et al. (2019) The Central Chile Mega Drought (2010–2018): A climate dynamics perspective
The megadrought is linked to global climate change by the influence of the Southern Annular Mode (SAM) on South American climate. The SAM is a mode of climate variability characterized by shifts in the mean position and intensity of the southern westerly wind belt. In recent years the mode has consistently shown a tendency towards its positive phase, likely due to stratospheric ozone depletion and tropospheric warming. Positive SAM is associated with a zone of high pressure over the south Pacific, which blocks extratropical storms emanating from the far south and reduces precipitation in central Chile.
My personal research indirectly addresses the effects of the SAM over South America via Patagonian glaciers. Early results suggest glacier recession in Patagonia is associated with century- to millennial-scale persistence of positive SAM conditions over the last 11,000 years. This suggests that—even independent of human influence—the Chilean megadrought may represent the “new normal” climate, to which we must adapt.
Within Chile, however, complaints of water scarcity predate the megadrought (pdf). To understand why even under ideal hydrological conditions people struggled with water scarcity it is necessary to consider Chile’s peculiar system of private water rights and management.
Chile’s management of water is unique in the world in its extremist commitment to the neoliberal model
The core of Chile’s problems with water lies in the Political Constitution of Chile, which was enacted under the dictatorship of Augusto Pinochet. As a brief reminder, the constitution is widely considered to be problematic, if not outright illegitimate, as it was approved under military rule in a process (pdf) that was marked by widespread voter intimidation, manipulation, and outright fraud.
The key clause pertaining to water is in Article 19, which discusses individual rights. Specifically, within Article 19.24—which governs individual rights to property—it is stated that:
“The rights of individuals over water, recognized or constituted in accordance with the law, will grant their holders their ownership”
What this means is that water can be owned by persons or entities, at which point it is treated as any other kind of private property in the eyes of the law.
The details of this system—which water expert Carl Bauer identified as without precedent in the world—are laid out in the Water Code (<<Código de Aguas>>). I outline below some of the signature features of the system.
Water is owned by the state, but is also private property. This is a highly semantic distinction, and works somewhat like this. All water in Chile is technically nationalized, as water is considered a “national asset for public use” (Article 5). However, Article 5 goes on to state that “usage rights will be granted to individuals according to the water code.” Essentially, the only way to actually extract water in commercial amounts is through state concessions to private entities. What this means in practice is that the General Directorate for Water (DGA; <<Dirección General de Aguas>>) auctions off state water rights to concessionaires (Articles 130, 146), who then “own” the water as their own property and can do with it what they please.
Individuals may also directly ask the DGA to grant them water rights (Article 140). At the very beginning of the new system, rights to extraction were given out for free to anyone who went through the process of registration.
Water rights may also be gifted directly to individuals by the President (Article 148).
Any entity can acquire water rights, regardless of where they reside and regardless of intended use. This set the stage for later problems with water speculation (see below).
Groundwater rights are decoupled from land rights. When you buy land in Chile, you do not receive rights to the groundwater below your property. Anyone can “prospect” for groundwater (Article 58), and if they find it, they then have priority to claim rights over the water (Article 58.2, 60).
The DGA is responsible for enforcing the Water Code (Articles 172-173), but has very little power to do so (pdf). In addition, the DGA may limit extraction of groundwater if extraction exceeds the recharge rate of an aquifer (Articles 62, 65); however, in practice this rarely occurs, and in some noteworthy cases the DGA has done the opposite by overselling water extraction rights.
This is a truly radical departure from nearly every other nation on earth, where water is considered—at least in part—a public utility, if not a basic human right. Instead, in Chile nearly all water is treated as a tradable commodity, with all the advantages and disadvantages that stem from that.
Speculation, prices, foreign ownership, and scarcity are the principal complaints
Perhaps surprisingly, massive privatization of Chile’s state-owned water services did not take place under the dictatorship; rather, privatization of sanitary services only began in earnest in 1998, under the left-wing government of Eduardo Frei Ruiz-Tagle and continued by his socialist successor, Ricardo Lagos. During the period of 1998-2004, majority stakes in state-run utilities were either divested or conceded to private holders.
Let’s approach the decision to privatize water rights from a position of good faith. That is, let’s assume that the creators of the 1981 Water Code—as well as the left-wing governments that effectively put it into action—thought that privatization would actually better serve the public (rather than simply serving as a vehicle to legally benefit those organisms wealthy enough to purchase water rights). Given that the Water Code was written while the Chilean economy was being reshaped by the “Chicago Boys,” it’s also fair to say that the writers believed that privatization would lead to greater capitalization, efficiency, and prosperity. This motivation fits well within the framework of economic liberalism promulgated by the Chicago school of economics, whose influence cannot be overstated when considering Chile’s modern economy.
So how does the Water Code hold up to these lofty standards?
The Water Code’s radical commitment to “neoliberal” principles has some major practical problems when viewed from the perspective of the public good. While creating a water market was undoubtedly successful in increasing capitalization in the water sector, capitalization does not necessarily equate to development. This problem is embodied by the persistent problem of water speculators, who purchase water rights as pure investment vehicles with no intention of developing the infrastructure necessary to use the resource. If I have the money to buy water rights and sell them on to others for a profit, that’s great for me, but not so great for the development of the nation. The initial formulation of the Water Code failed to address the water speculation at all, and 2005 reforms proved ineffective. Concern over ongoing water speculation in the context of the modern drought continues today.
Over the (austral) winter, the municipality of Osorno suffered a total water shutoff for almost two weeks after the water company Essal spilled oil into the Rahue river, which Essal used as a water source for Osorno. Soon after service was restored, Essal subsequently raised the price of water in Osorno in order to recoup costs incurred from the oil spill (which was of their own making).
How did Osorninos feel about all this? During the beginning of the unrest in Chile, Essal's offices in Osorno were some of the first to be put to the torch.
Another obvious issue is that—while there is competition in the bidding for water rights—it is very difficult to have competition in the delivery of water as a service. The municipal water industry is a classic example of a natural monopoly, due to logistical barriers to entry for competitors. I mean, just imagine: competing pipes, competing sewers, it would be a nightmare. That’s why most countries treat the water industry as a public utility, and regulate it as such. Not so in Chile. In terms of municipal water, as water is considered private property, water companies are essentially private monopolies in closed markets in which you are compelled to participate. Since the Constitution endows private property protections to water rights, there is very little that the government can do to regulate prices. Perhaps as a result, 7 of the 10 cities in Latin America with the most expensive water are found in Chile. Within this context, it’s worth noting that Chile’s cheapest municipal water is in the hands of SMAPA, the nation’s only publicly-owned water utility.
Finally, the principal sources of capitalization in Chile’s water market have not come from within, but without. There are no restrictions on foreign ownership of water rights, the end result being that the vast majority (~92%) of potable water in Chile is supplied by companies in which foreign entities hold majority stake. Both Aguas Andinas and Essal—the companies implicated in major service interruptions across the country—are owned by Grupo Agbar, a Spanish company. The Japanese Marubeni Corporation holds majority stake in Aguas del Altiplano, Aguas Chañar, Aguas Araucanía, and Aguas Magallanes. Bizarrely, the largest foreign stakeholder in Chile’s water system is the Ontario Teachers’ Pension Plan, which is exactly what it sounds like, and which holds majority ownership over Essbio, Essval, and Aguas del Valle.
On top of philosophical objections to rampant speculation, the strongest criticism of the water system lies in its perceived contribution to the present water crisis. Even before the drought, over-exploitation of groundwater due to the DGA’s profligate sale of water rights was implicated in severe water shortages in the northern city of Copiapó. Illegal extraction of water is a persistent problem, with the DGA’s lack of regulators cited as a limiting factor—as of June 2018, there were five “fiscalizadores” assigned to the Región de Valparaíso, where illegal extraction is frequently cited as a root cause of the ongoing crisis in Petorca. Although the DGA’s lax enforcement of illegal extraction of water is a significant contributor to localized water scarcity, it’s reached the point where merely increasing the regulatory capacity of the DGA is insufficient to resolve the water crisis, due to the accelerating legal sale of water rights during the megadrought.
My colleague Matias Taucare put together this figure in September. I’ve partially translated his commentary below (see his facebook post here for the entire post, which also contains his sources).
“The graphics shown here correspond to a time series of stations located in the comunas of San Felipe-Los Andes (Región de Valparaíso) from 1980 to 2019, showing (from top to bottom): monthly precipitation, hydraulic discharge of the Aconcagua River, and depth to the water table. Also, the last graphic shows the evolution of groundwater extraction (EAS) PERMITTED by the General Directorate of Water (DGA). It is surprising that, during the period of the “MEGA-DROUGHT” (highlighted in orange) that has affected central Chile, more groundwater extraction rights have been given out…
“I’m not going to get into technicalities, but if [Minister of the Environment Carolina Schmidt] says that talk about changing the Water Code is a hindrance to resolving the water crisis…bullshit! Before you even consider climate change, you have to consider the management of water resources…which is regulated by the Water Code (since 1981).”
In such cases where water rights are oversold, just establishing a non-zero environmental flow would involve massive expropriation of water rights—even if these very rights are to water that does not even exist. Even simple changes such as ensuring rivers do not run dry will quickly run into a minefield of constitutional issues…unless the Constitution itself is changed.
Significant reform of the Water Code is impossible without constitutional change
An ongoing dialogue in my circles concerns the necessity of a new constitution. A prevalent perspective is that the majority of structural issues facing Chile are provoked by laws, and not the Constitution. According to this perspective, reform to individual laws and codes is the most important step to enact social change; the Constitution, while problematic, does not directly cause the problems people are now rallying against, and therefore shouldn’t be reformed.
I feel like this perspective fails to take into account that laws and codes are subordinate to the Constitution of Chile, which is the supreme law of the land. Therefore, certain changes simply cannot be made unless the Constitution is overhauled.
A very basic analogy can be drawn with gun rights in the United States. Private firearm ownership in America is protected by the present interpretation of the Second Amendment of the Constitution of the United States. Efforts at the national level to restrict firearms ownership would be (and have been) subject to immediate and ferocious constitutional challenges. From the perspective of those who wish to change firearm laws in the United States, the Constitution is a barrier to reform. Repeal or alteration of the Second wouldn’t necessarily directly affect individual gun rights at all, but would rather permit the changes in laws that would affect said rights.
Within Chile, the constitutional barrier to the change of laws played out in the recent debate over abortion. Recent congressional efforts to alter the absolute ban on abortion under all circumstances—put in place by the military junta in a 1989 amendment to the Sanitary Code—have been met with fierce and repeated constitutional challenges based on Article 19.1 of the Constitution, which states among other things that “the law protects the life of the unborn.” The constitutional challenges have met with mixed results, but have been effective in stalling effective implementation of the proposed changes.
Major constitutional barriers also impede reform to Chile’s system of water management. Article 19.24 is key here, as it strictly protects private property rights, including those of water. Specifically, the only way for the government to take control of property rights is via the process of expropriation, which is both costly in terms of remuneration to the property owners, and a term charged with history and emotion.
Expropriation is one of those “third rail” terms in Chilean politics. The mere mention of the phrase evokes memories of Chile immediately pre- and post-coup d’etat. Chile’s landowning class retains painful memories of the expropriation of large estates during the Agrarian Reform of the 1960’s and 70’s, in which over 10 million hectares of privately-owned land was seized and redistributed by the government. Preventing further expropriations was a key objective of the junta, and in addition to counter-reforms, the new Constitution and accompanying law set strict limits on the government’s ability to seize private property. Since water rights are considered private property per Article 19.24 of the Constitution, any government change that would affect the distribution of water rights may be interpreted as expropriation, and will therefore be subject to the laws—and remunerative costs—of expropriation.
The legislature will generally bend over backwards to avoid the mere implication of possible redistributive measures. The reforms to the Water Code proposed in 2014 that would impose a 30-year limit on water concessions and give the state additional power to manage water in times of crisis would have only applied to contracts made after the reforms would have been passed, precisely to avoid the political and constitutional problems associated with any legal change that could run afoul of constitutional limits on expropriation. Despite the extremely limited scope of the reforms, the bill died in the Senate.
Hence, constitutional reform.
Multiple efforts have been made to amend the Constitution with the goals of redefining water as a public utility and amending Article 19.24, which would permit effective expropriation of water rights without incurring the remuneration and legal challenges involved with the expropriation of private property. A common alternative proposal is to simply elevate the nationalization of water to the constitutional level. To reiterate, the Water Code states that water already is nationalized, but the Constitution overrides this by enshrining property rights over water. Elevating the nationalization of water to the Constitutional level would not in itself solve the water crisis, but it would establish the framework by which the current private model of water rights could be challenged.
You can see the battle lines drawn now. On one side are the owners of water rights, who have accumulated a vast amount of private property of vital importance to the nation, albeit in complete accord with the law as established. On the other are the majority who, in light of the increasingly severe effects of the water crisis, believe at least some of these rights should be returned to the more direct control of the state. Overshadowing it all is a Water Code alone in the world in its extremist commitment to liberal economics, protected by the ghost of expropriation and cemented in place by a questionably-democratic Constitution.
In what was retrospectively a grim foreshadowing of things to come, a week before martial law was declared in Santiago residents of Petorca placed barricades on the road leading to the community from the main highway, protesting continued inaction towards resolution of the water crisis. The district governor—who is also the grandniece of Augusto Pinochet—condemned the demonstrations as a “terrorist attack” and ominously stated “in this way there will be no dialogue, and we will have only the iron fist.”