39229 Latin America and Caribbean Region Sustainable Development Working Paper 26 Using Strategic Assessments for Environmental Mainstreaming in the Water and Sanitation Sector The Cases of Argentina and Colombia December 2005 By: Ernesto Sánchez-Triana Santiago Enríquez The World Bank Latin America and Caribbean Region Environmentally and Socially Sustainable Development Department (LCSES) Sustainable Development Working Paper No. 26 Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia December 2005 ---------------------- Ernesto Sánchez-Triana Santiago Enríquez The World Bank Latin America and the Caribbean Region Environmentally and Socially Sustainable Development Department Ernesto Sánchez-Triana is Senior Environmental Engineer in the Environmentally and Socially Sustainable Development Department (LCSES) of the World Bank's Latin America and Caribbean Regional Office. Mr. Sánchez-Triana has led the preparation of policy-based loans that aim to incorporate environmental considerations into economic and sectoral policies, as well as the conduction of comprehensive assessments that aim to identify and correct the institutional weaknesses that contribute to environmental degradation. Mr. Sánchez-Triana is the author of numerous publications on environmental and energy policy, political economy, and the use of economic instruments for environmental protection. He holds a Ph.D from Stanford University. Santiago Enríquez is a Consultant in the Environment Department (ENV) of the World Bank. He supports the policy strategic environmental assessment (SEA) work in the Environmental Institutions and Governance Team, analyzing mechanisms to better integrate the linkages between environmental protection, poverty reduction, and economic growth. His professional experience includes collaborating in international efforts to address transboundary and global environmental challenges. Mr. Enríquez holds a Master's Degree in Public Policies from Harvard University This paper was a background paper for a World Bank study, Integrating Environmental Considerations in Policy Formulation: Lessons from Policy-based SEA Experience (Report No. 32783), published in 2005 by the Environment Department. It was prepared under the overall guidance of Kulsum Ahmed, Team Leader of the Institutions and Governance Program (ENV) and Task Team Leader of the abovementioned Bank report. The authors wish to acknowledge the comments and contributions received from numerous colleagues both inside and outside the World Bank. The inputs of John Redwood, Abel Mejía, Juan David Quintero, Menahem Libhaber, and Ventura Bengoechea were critical in documenting the reviewed cases. In particular, we are grateful to Kulsum Ahmed and Leonard Ortolano for their helpful comments to previous versions of this paper. We also extend our appreciation and gratitude to the Norwegian and Finnish Governments for their support of Mr. Enriquez's consultancy, through the TFESSD Trust Fund. Special thanks are due to Janice Molina who assisted with the editing of the report. ______________________________________________________________________________________ The findings, interpretations, and conclusions in this document are those of the author, and should not be attributed to the World Bank, its affiliated organizations, members of its Board of Executive Directors or the countries they represent. Additional copies may be obtained from Ernesto Sánchez-Triana (esancheztriana@worldbank.org or tel. 202-473-6952). Cover photo credit: World Bank Photo Library ii Contents Acronyms .................................................................................................................................. iv Foreword..................................................................................................................................... v 1. Introduction ............................................................................................................................ 1 2. Strategic Environmental Assessments (SEA)....................................................................... 1 3. An SEA for the Argentina Water Sector Reform Project .................................................. 3 Compilation of environmental information........................................................................ 5 Identification of sectoral priorities...................................................................................... 5 Incorporation of the perspectives of multiple stakeholders, including the most vulnerable groups ............................................................................................................... 7 Identification and assessment of institutional weaknesses and failures that hinder effective environmental management................................................................................. 8 Development of public policies that mainstream environmental considerations ............... 9 Mechanisms that promote social learning for continuous policy improvement............... 10 Epilogue............................................................................................................................ 11 4. An SEA for the Colombia Water Sector Reform Project................................................. 11 Identification of sectoral priorities.................................................................................... 12 Incorporation of the perspectives of multiple stakeholders, including the most vulnerable groups ............................................................................................................. 13 Identification and assessment of institutional weaknesses and failures that hinder effective environmental management............................................................................... 14 Development of public policies that mainstream environmental considerations ............. 16 Mechanisms that promote social learning for continuous improvement.......................... 17 Incorporation of SEA recommendations into project design............................................ 17 Epilogue............................................................................................................................ 17 5. Conclusions ........................................................................................................................... 18 References ................................................................................................................................ 21 iii Acronyms BOD Biochemical Oxygen Demand CAR Corporaciones Autónomas Regionales (Regional Autonomous Corporations) [Colombia] DAMA Departamento Técnico Administrativo del Medio Ambiente para Bogotá (Bogotá's environmental agency) DPL Development Policy Loan DRI Fondo de Desarrollo Rural Integrado (Fund for Rural Investment) [Colombia] EA Environmental Assessment EIA Environmental Impact Assessment EL Environmental License EMS Environmental Management System ENHOS Ente Nacional de Obras Hídricas y Saneamiento (National Entity of Water and Sanitation Works) [Argentina] FINDETER Financiera de Desarrollo Territorial (Fund for Urban Infrastructure Development) [Colombia] FIS Fondo de Cofinanciación para la Inversión Social (Fund for Social Investment [Colombia] FNR Fondo Nacional de Regalías National Royalties Fund) [Colombia] GDP Gross Domestic Product GOA Government of Argentina GOC Government of Colombia MINDESARROLLO Ministerio de Desarrollo Económico (Ministry of Economic Development) [Colombia] MMA Ministerio del Medio Ambiente (Ministry of Environment) [Colombia] NGO Nongovernmental Organization OP Operational Policy PPP Policy, Program, or Plan PPS Planes de Provisión de Servicios (Service Provision Plans) SEA Strategic Environmental Assessment SGRH Subsecretaría de Recursos Hídricos (Undersecretariat of Water Resource Management) [Argentina] SRNyDS Secretaría de Recursos Naturales y Desarrollo Sustentable (Secretariat of Natural Resources and Sustainable Development [Argentina] TOR Terms of Reference TSS Total Suspended Solids WSS Water and Sanitation Sector iv Foreword Environmental sustainability is increasingly seen as a strategic source of productivity and economic growth. Incorporating environmental considerations in policies and programs has been one of the challenges for the Bank. Environmental mainstreaming has led the Bank to adopt innovative approaches to advance its core mission of reducing poverty while keeping attuned to the region's social and economic demands. In this context, the use of policy strategic environmental assessments (SEAs) has gained increased recognition as an instrument with the potential to add value during the preparation of Bank­supported policies and programs, by helping to identify the windows of opportunity to enhance the positive impacts of policies through open and transparent decision-making processes that incorporate the perspectives of multiple stakeholders and address the trade-offs between environmental protection and other socially desirable goals. During the preparation of Water and Sanitation Sector Reform Programs in Argentina and Colombia, SEAs went beyond their use as instruments to ensure compliance with the Bank's environmental safeguards and to qualitatively transform the programs that were implemented. In particular, the approach that was adopted in both cases introduced a methodology through which environmental considerations were systematically incorporated into sectoral policies. This methodology combined sound analytical work with the establishment of instances where the voices of multiple stakeholders could be heard. This working paper reviews these experiences and aims to provide insights about how a policy SEA might be conducted and the benefits that the use of such instruments may bring. John Redwood Director Sector Management Unit Environmentally and Socially Sustainable Development Latin America and the Caribbean Region The World Bank v 1. Introduction continue to support the implementation of SEA recommendations through a broader This paper reviews the Strategic Environmental dialogue among different stakeholders. Assessments (SEAs) that were prepared to incor- porate environmental considerations in Water and The paper consists of five sections. Section 2 Sanitation Sector (WSS) reforms in Argentina provides a brief overview of SEAs and their and Colombia.1 2 In both cases, the SEAs limitations in assessing the environmental adopted an innovative approach that aimed to effects of policies. Section 3 describes the overcome the challenges faced by traditional reform project in Argentina and the way in SEAs, while providing an assessment that was which the SEA was conducted to support the methodologically rigorous and responsive to project's objectives, while Section 4 offers a the needs of the governments. similar description for the case of Colombia. Section 5 presents the paper's conclusions. This paper argues that typical SEA method- ologies, consisting mainly of an extension of Environmental Impact Assessment (EIA) me- 2. Strategic Environmental thodologies, are not adequate for effectively Assessment (SEA) influencing the policy-making process. The unique characteristics of the policy process The SEA practice was initially based on an require a different approach that takes into extension of EIA methodologies conducted to account the decision-making context and that address the environmental impacts of groups fully understands the constraints and opportu- of investment projects clustered in programs, nities for environmental mainstreaming. as well as of land-use zoning and regional plans (Dalal-Clayton and Sadler 2004).3 Good The cases presented in this paper offer such an practice SEAs have been described as consist- approach. The paper further argues that, in ing of: order to effectively influence high level deci- sion making associated with policies and sec- (i) Definition of the environmental toral reforms, SEA advocates will need to objectives of the policy, program, tailor the assessment to fit policy design, ad- or plan (PPP) and identification of dress political economy considerations, and the best PPP alternative to meet those objectives;4 1 A Strategic Environmental Assessment is "the (ii) Identification of key environ- formalized, systematic, and comprehensive proc- mental considerations that would ess of evaluating the environmental effects of a influence decision making and policy, plan, or program and its alternatives, including the preparation of a written report on how they would be appraised the findings of that evaluation, and using the (scoping); findings in a publicly accountable decision mak- ing," Therivel et al. 1992. This is not a univer- sally accepted definition of SEA, but one that is widely cited. 3 Barry Dalal-Clayton and Barry Sandler, Stra- 2 Environmental mainstreaming aims at integrat- tegic Environmental Assessment: A sourcebook ing "environmental concerns into broader opera- and reference guide to international experience tional and analytical activities. At the project (IIED), 2004, available at: level, this entails moving beyond `safeguarding' http://www.iied.org/spa/sea.html. the environment through compliance with `do- 4 This paper uses the following definitions: "a no-harm' policies to `doing good' for the envi- policy may be considered as the inspiration and ronment." Andrés Liebenthal, Promoting Envi- guidance for action, a plan as a set of coordi- ronmental Sustainability in Development: An nated and timed objectives for the implementa- Evaluation of the World Bank's Performance, tion of the policy, and a program as a set of World Bank Operations Evaluation Department projects in a particular area." Wood and Djed- (2002). dour (1992) in Therivel and Partidario (1996). 2 LCR Sustainable Development Working Paper No. 26 (iii) Establishment of environmental problem, policy, and politics.6 Government indicators to describe baseline en- agencies tend to modify their policies incre- vironmental conditions and pre- mentally and it is only in response to a crisis dicted impacts, compare alter- or a larger focusing event that they are able to natives, and monitor implementa- introduce policy reforms. Several policies may tion; be available to respond to the focusing event, (iv) Description of the baseline envi- but the alternative that will be implemented ronment and future scenarios in will be one that is technically sound, adheres the absence of the PPP; to the values or political views of the admini- (v) Prediction of PPP impacts on the stration, and perhaps more importantly, has a baseline environment; "champion" who is willing to invest resources (vi) Evaluation of impacts and com- to build consensus around it. The "stream of parison of PPP alternatives; politics" refers to changes in the political land- (vii) Identification of mitigation meas- scape, such as changes in public opinion, ad- ures aimed at minimizing negative ministrations, or congressional composition impacts and enhancing positive that may result in certain types of policies impacts of selected PPP; and being perceived more favorably. (viii) Monitoring to assess PPP progress in meeting its goals, identification Thus, whether a specific policy is actually of negative impacts that require selected for implementation does not depend remediation, and provision of solely on its technical soundness, but on its feedback for future SEAs.5 compatibility with decision makers' political or normative views, and the nature of the However, the application of such methodolo- event that causes public opinion to focus on gies faces significant limitations when applied the policy issue. In this context, scientific in the policy context, because it is "based on knowledge is but one of many considerations the assumption that the provision of better that policy design must incorporate, and SEA information on the environmental impacts of practitioners become policy champions who plans or policies will result in decision makers advocate for specific policies and whose inter- taking environmental aspects more seriously ests compete with those of other groups.7 than would be the case without SEA, and that this will lead to decisions that will turn out to Moreover, policies are usually implemented in be better for the environment." (Kornov Lone a gradual manner, interact with existing mar- and Wil A.H. Thissen 2000:197). Neverthe- ket or institutional8 failures, and elicit behav- less, policy making is characterized by uncer- ioral responses that are difficult to foresee. As tainties and interactions among multiple a result, even if a policy is designed and im- stakeholders in which information plays a limited role. 6 John W. Kingdon, Agendas, Alternatives, and Kingdon (1995) argues that a specific policy Public Policies, Harper Collins, 1995 (2nd Edi- only becomes feasible when three "streams" tion). The importance of crisis and leadership in the converge to create a window of opportunity: adoption of policy reforms has been repeatedly analyzed in the literature of political economy of economic reforms. See Dani Rodrik, "Understanding Economic Policy Reform," Journal of Economic Lit- erature, Vol. 34, No. 1 (Mar. 1996), 9­41. 5 While some publications, such as Therivel and 7 Kornov and Thissen (2000). Partidario (1996) and Therivel (2004), continue to 8 Institutions are defined as "formal and informal embrace similar methodologies, others, including rules and their enforcement mechanisms that shape Dalal-Clayton and Sandler (2004), argue that SEAs the behavior of individuals and organizations in have evolved so rapidly and in so many directions society." Douglass C. North, Institutional Change: that it is no longer possible to embrace only one A Framework of Analysis, 1994, available at: methodology. http://econwpa.wustl.edu/eps/eh/papers/9412/9412001.pdf Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 3 plemented based on the best available infor- opment of a new approach adapted to the spe- mation, the direction and magnitude of the cific policy context. This methodology was associated environmental impacts will often later refined and applied to a similar program depend on case-specific factors, such as geo- in Colombia. In both cases, the SEAs suc- graphic or institutional conditions. Gueorguie- ceeded in shifting policy makers' attention va and Bolt (2003) review the literature on the from the environmental impacts of civil works environmental impacts of World Bank struc- that could be addressed through technical tural adjustment loans and find that the im- specifications to the more significant eco- plementation of the exact same policy was nomic externalities10 that could only be ad- often associated with opposite environmental dressed through the environmental mainstreaming effects even within the same country. For in- of institutional reforms. Although the SEAs ad- stance, the application of a homogeneous sub- dressed different types of externalities, this paper sidy in Tunisia was associated with reduced focuses predominantly on those associated environmental pressures in the country's with policy failures and stresses how an exten- northern region, but with intensified deforesta- sion of the EIA methodology would have been tion in the south (Geourguieva et al. 2003). inadequate to address the sector's most sig- nificant environmental priorities. The inability to predict the environmental impacts of policies and the limited role that information may play in the policy context 3. An SEA for the Argentina imply that a traditional EIA methodology Water Sector Reform would be difficult to carry out and that, even if completed, it might not succeed in incorporat- Project ing environmental decisions into the policy- making process. Thus, SEAs should follow a Public management of water utilities in Ar- flexible, adaptive, and learning approach to gentina during the 1980s was characterized by deal with the dynamics and unpredictability of low technical and managerial capacity, over- decision processes, and must broaden their staffing, and numerous other inefficiencies. scope to include an analysis of the positions, Macroeconomic problems and adjustment interests, and interrelations for decision mak- programs resulted in the reduction of invest- ers and other relevant actors that may provide ment and operational budgets, contributing to insights for the development of feasible solu- the sector's further deterioration.11 By the tions (Kornov and Thissen 2000). early 1990s the sector faced serious challenges including extremely low water supply and The cases reviewed in this paper illustrate how sewerage rates of 70.6 percent and 34.3 per- the Government of Argentina (GOA), the cent, respectively; insufficient investment to Bank, and other stakeholders who worked finance the operation, maintenance, and ex- together to prepare the SEA for a policy re- pansion of water and sewerage systems; and form project in Argentina found that a tradi- inefficient utility operation, as evidenced by tional EIA methodology could be applied only to the temporary impacts associated with WSS civil works, but could not address the more Learning and the State: The Case of Economic serious environmental impacts associated with Policymaking in Britain," Comparative Politics, the sector's institutional weaknesses. To move Vol. 25, No. 3 (Apr. 1993), p. 278. forward, various stakeholders engaged in a 10 A negative externality is a cost that one eco- social learning9 process that led to the devel- nomic agent imposes on another but does not take into account when making production or consump- tion decisions. OECD, Environmentally Related 9 Social learning can be defined as "a deliberate Taxes in OECD Countries: Issues and Strategies, attempt to adjust the goals or techniques of policy 2001 in response to past experience and new informa- 11 The World Bank, Argentina Water Sector Re- tion." Peter A. Hall, "Policy Paradigms, Social form PID, April 15, 1997. 4 LCR Sustainable Development Working Paper No. 26 inadequate revenues, low productivity, and the Bank's Operational Policy (OP) 4.01, substantial water losses.12 would need to examine the project's potential negative and positive environmental impacts, Unable to provide the necessary investment to compare them with those of feasible alterna- address the sector's problems, and in accor- tives (including the "without project" situa- dance with the efforts that Argentina had initi- tion), and recommend any measures needed to ated to limit the State's participation in the prevent, minimize, mitigate, or compensate for provision of goods and services that could be adverse impacts and improve environmental more efficiently provided by the private sec- performance.14 As part of its efforts to assist tor, in 1990 the Government launched an am- the SGRH, the Bank considered the complex- bitious privatization program that initially ity of the challenge because: (i) the project focused on the country's larger cities. How- would finance civil works with widely differ- ever, by the mid-1990s, the sector's privatiza- ent characteristics and therefore with widely tion program was under considerable stress different environmental impacts; (ii) dissimilar because water utilities were unattractive rela- and dispersed environmental regulations at tive to other recently privatized sectors such as various government levels meant that each telecommunications and energy. Regulatory subproject would be subject to different envi- failures generated legal uncertainty, and im- ronmental standards; (iii) institutional weak- provements in the coverage and quality of nesses impaired environmental management services had not met the population's expecta- generally and in the sector; (iv) there were no tions. In order to move forward with its pro- sectoral criteria and methodology for project gram, the Government of Argentina requested environmental analysis and assessment; and World Bank assistance to expand sectoral (v) private sector participation required a clear reforms to medium-size cities (with 50,000­ definition of environmental requirements and 500,000 people) and address the emerging responsibilities.15 issues of earlier reform efforts in larger cities. The government officers and Bank specialists While preparing the program, the Undersecre- working on the project realized that an ap- tariat of Water Resource Management proach other than a project-specific EIA was (SGRH) determined that the project's potential needed and that conducting an SEA at that environmental impacts called for an Environ- stage of the project opened the opportunity to mental Assessment (EA),13 which, based on focus on more significant environmental prob- lems resulting from policy and regulatory 12 The World Bank, Argentina Water Sector Re- distortions (Quintero 2004). A Sectoral Envi- form PAD, May 1999. ronmental Assessment was thus proposed as a 13 The World Bank, Argentina Water Sector Re- methodology that could: (i) define the sector's form, Identification Mission Aide­Mémoire, Octo- requirements for environmental assessment; ber 14­26, 1996. The project was classified as (ii) cost-effectively implement mitigation and Category B, based on the Bank's categorization environmental management measures and system where a proposed project is classified as monitoring programs; (iii) define the capaci- Category A if "it is likely to have significant ad- ties of the sectoral entities to undertake envi- verse environmental impacts that are sensitive, diverse, or unprecedented," Category B if "its ronmental activities; and (iv) define needs for potential adverse environmental impacts on human training, capacity building, environmental populations or environmentally important areas-- including wetlands, forests, grasslands, and other natural habitats­are less adverse than those of 14 The World Bank, Operational Policy 4.0­ Category A projects," and Category C if "it is Environmental Assessment, January 1999, revised likely to have minimal or no adverse environmental August 2004. impacts." Of the above categories, only C requires 15 Juan David Quintero, Aspectos Ambientales, no further environmental assessments. The World Annex 1 to the Argentina Water Sector Reform, Bank, Operational Policy 4.01­Environmental Identification Mission Aide­Mémoire, October 14­ Assessment, January 1999, revised August 2004. 26, 1996. Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 5 guidelines, and other components of institu- data from the relevant authorities. The second tional strengthening.16 was collected during field visits to some of the areas that could benefit from the WSS re- As the leading WSS authority, the Ministry of forms. The government officers, Bank task Economy had not even considered that the team members, and consultants visited the sector could be associated with environmental localities of La Campana, Comodoro Rivada- problems beyond those associated with the via, and Catamarca and requested the input of construction of infrastructure works. For this local authorities, water operators, and other reason, the Ministry was initially reluctant to stakeholders on their perceptions of the sec- accept the Bank's proposal but later acceded tor's principal challenges. These field visits when it was assured that the SEA would not were crucial in determining the main regula- delay project preparation and implementation. tory issues that hindered service expansion However, as the SEA gathered evidence about and private sector involvement in the sector, the linkages between the environment and the as well as in providing an accurate description water and sanitation sectors, the Ministry of the WSS situation. championed the conduction of the assessment and the inclusion of its recommendations in Nevertheless, gaps in data and inconsistencies the project's design (Quintero 2005). in available information constrained the prepa- ration of the SEA. Argentina lacked a system- The SGRH contracted a group of consultants atic database that would allow for the to prepare an SEA. The team consisted of a quantification of water quality and pollutant lawyer and two engineers with expertise in the discharges from point and nonpoint sources. sector and in economics. The SEA is de- Most of the existing information had been scribed below (Alcaraz, Sánchez-Triana, and produced for specific projects, with samples Calcagno).17 taken infrequently from a limited number of sites, and for short time periods. Compilation of environmental information Identification of sectoral priorities The SEA was prepared on the basis of two The SEA was initially conceived as an exten- types of information. The first consisted of sion of the EIA methodology to comply with the Bank's safeguards. However, this method- 16 ology posed significant problems. Given the A Sectoral Environmental Assessment is defined as "an instrument that examines environmental project's early stage, it was clear that the pro- issues and impacts associated with a particular ject would finance civil works to expand water strategy, policy, plan, or program, or with a series and sewerage coverage, but the specifications of projects for a specific sector (e.g., power, trans- and locations of the infrastructure to be devel- port, or agriculture); evaluates and compares the oped were still unknown. Furthermore, the impacts against those of alternative options; as- SEA needed to establish baseline indicators to sesses legal and institutional aspects relevant to the assess the impacts of different alternatives, but issues and impacts; and recommends broad meas- this task could not be completed because of ures to strengthen environmental management in the lack of reliable baseline information. Fi- the sector. Sectoral EA pays particular attention to nally, the assessment would have provided potential cumulative impacts of multiple activi- ties." The World Bank, Operational Policy 4.01, measures to mitigate environmental impacts. Annex A, January, 1999. Sectoral environmental However, the institutional capacity of the assessments are usually considered SEAs. Kjorven country's environment and water and sanita- and Lindhjem (2002). tion sectors needed to be strengthened to en- 17 Silvia Alcaraz, Ernesto Sánchez-Triana, and sure that they could effectively undertake such Alberto T. Calcagno, Análisis Ambiental Sectorial, measures. Informe Final (Buenos Aires, Argentina: June 1997). 6 LCR Sustainable Development Working Paper No. 26 In response to these challenges, and following ronmental perspective, the fundamental prob- the terms of reference, the SEA began by iden- lem was that water providers relied on trans- tifying three types of negative externalities porting the resource from increasingly distant that were closely linked to the sectors' priori- sources to increase water supply, instead of ties and that the consultants needed to assess: attempting to reduce losses or manage demand inefficient use of water resources, deteriora- to avoid the overexploitation of water bodies. tion of water quality, and effects stemming Such practices aggravated the water deficit from the construction and operation of water that affected two-thirds of the country. In fact, and sewerage systems. These externalities ample evidence in watersheds such as the were selected because they were quantifiable Bermejo and Salí-Dulce Rivers highlighted and because the SGRH anticipated that they how resource scarcity resulted in intense com- would be significant. petition and ongoing conflicts among water users. Conflicts over water use in the Atuel Inefficient water use constituted the most se- River between the Provinces of Mendoza and vere problem because water losses at the na- La Pampa were only resolved through Su- tional level were estimated at 53 percent of preme Court intervention. This underscored water production. Losses were caused by leak- the need for institutional conflict resolution ages in plants, distribution systems, and mechanisms. homes, as well as by extensive use of water for municipal and emergency services. In ad- Lack of sewerage, untreated wastewater dis- dition, residential water, which represented charges from sewerage, and inadequate dis- around 70 percent of water consumption in posal of solid waste were closely correlated cities, was also plagued by inefficiencies with water quality deterioration. Communities stemming from wasteful end technologies, without sewerage engaged in practices that lack of maintenance of water systems, and were associated with aquifer contamination unsustainable consumption habits. Wasteful and nonpoint pollutant discharges into surface water consumption was largely caused by waters. Sewerage expansion without wastewa- imprecision or lack of water measurement, ter treatment posed significant environmental which was as low as 0.39 percent of total wa- challenges, because the system collected pol- ter consumption in Santa Cruz, 1 percent in lutants from dispersed sources and conducted Salta, and 2 percent in San Juan. In addition, them to a particular body of water in which nonpayment of water consumption was a pollutant concentrations generated serious common practice that authorities typically environmental risks, including soil and water ignored. As a result, the amount that utilities contamination. collected annually represented 29 percent of the invoiced amount at the national level, and Only an estimated 5 percent of the total vol- less than 5 percent in localities such as Santa ume of sewage effluents received treatment at Cruz. the national level. Treatment capacity was constrained by lack of resources and planning. Inefficient water use was found to have pro- Existing treatment plants often lacked ade- found implications for the WSS. From an eco- quate resources for their operation and main- nomic standpoint, it implied a waste of scarce tenance, and their capacity was regularly resources that could be used to satisfy other exceeded, leading to inefficient functioning needs, including meeting water demands from and spillages that affected bodies of water. communities without access to safe water or Lack of adequate planning for industrial de- producing goods that use water as an input. velopment meant that industrial wastewater For utilities, water losses implied a constraint was often mixed in the sewerage with residen- on their income streams, which reduced their tial wastewaters. Industrial wastes affected the profit margins and created a dependence on functioning of pumping systems, and could public funds and subsidies to cover opera- even nullify treatment systems. The utility tional deficits and investments. From an envi- Aguas Argentinas conducted an inspection Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 7 from May to September 1994 and found that only 15 percent of industrial effluents com- Incorporation of the perspectives of plied with legal discharge limits. multiple stakeholders, including the most vulnerable groups Inadequate disposal of industrial and urban solid wastes was identified as another major The project constituted an opportunity to de- source of water contamination, particularly in velop a strategy to provide basic urban ser- urban areas. Dumping and use of informal vices to the poor--a strategy that was missing landfills was associated with the presence of in Argentina. Thus, the SEA made it possible leachates in aquifers. The severity of the prob- to conduct an assessment of how the sector's lem was illustrated by the open-air dumps of challenges affected poor households. The ana- the Río Matanza Riachuelo Watershed, where lytical work conducted as part of the SEA the total volume of solid wastes was in the identified how poor households without access order of 900,000 m3. Moreover, practices such to water and sanitation were affected by the as dumping of sludge and other by-products environmental impacts associated with the generated by wastewater treatment plants were sector and contributed to environmental deg- widespread and created significant environ- radation. However, the high incidence of wa- mental health risks. terborne diseases was not explained entirely by this lack of access to basic services, but by The degradation of bodies of water had nega- its interaction with other socioeconomic char- tive consequences for economic activities, acteristics such as low income levels, lack of ecosystems, and most significantly, for public education, and inappropriate hygiene. Chil- health. An assessment conducted several years dren under the age of five faced particularly earlier by the World Bank found that the oc- severe risks because they could not wash their currence of diarrhea, in addition to causing own hands and depended on the practices of pain and suffering, was linked to health care other family members to interrupt the transfer costs and premature deaths, with an associated of pathogens between their hands and mouths. cost of some US$7­65 million per year.18 The SEA also looked at the factors that limited The third type of externality, the construction the expansion of coverage to poor communi- and maintenance of water and sanitation infra- ties. Despite the inclusion of coverage expan- structure, was associated with impacts that sion goals in concession contracts awarded included noises and odors, and non-aesthetic during the first phase of the privatization pro- impacts for the surrounding neighborhoods. gram, water and sanitation services did not These impacts were moderate and temporary, reach poor areas. Poor households faced high and therefore did not require as much attention connection costs that had to be covered in a as those associated with water quality and lump payment they could not afford. In addi- quantity. However, it is likely that a traditional tion, concession contracts set tariff schemes EIA methodology would have only focused on through which the costs of new connections this type of impacts. could not be recovered. As a result, utilities tended to postpone investment until the end of the concession period. In addition, the conces- 18 The World Bank, Argentina, Managing Envi- sion's limited duration and the absence of ronmental Pollution: Issues and Options, 1995. clauses that ensured the purchase of new in- Based on an estimated 970,000 cases during 1993 stallations by municipalities meant that con- and a cost of US$90 per case, with US$30 spent on cessionaires had no incentives to expand treatment and the remaining US$60 representing coverage beyond contractual goals. Finally, foregone wages. The methodology used was "Hu- nonpayment for water meant that, while poor man Capital" which does not consider pain, suffer- households lacked access to water, more afflu- ing, and emotional distress, and thus provides more ent households received the service almost for conservative estimates than the Willingness To Pay free. methodology. 8 LCR Sustainable Development Working Paper No. 26 the upper basin which affected the rest of the Even poor households with access to water activities downstream. Irrigation activities in services were affected by a regressive tariff the lower basin were also constrained by water system. Due to the absence of metering systems, shortages, but competition, overlapping, and the tariffs were based on the area where users re- coordination problems hindered the definition sided, rather than on actual consumption. As a and enforcement of property rights. result, many low-income households had to pay similar or higher tariffs than high-income house- For water utilities, the general implication holds, even though actual water consumption was stemming from institutional weaknesses was likely to be lower. In fact, it was estimated that an that, although they were undoubtedly affected investment of US$55­120 by poor households to by the absence of clearly defined property install a metering system could be recovered in the rights (both for water quality and quantity), short term, because payment for actual consump- the lack of binding regulations to minimize tion would significantly reduce their monthly water their environmental impacts and the inability fees. to include the costs of sound environmental management as part of the tariffs left them with no incentives to internalize the environ- Identification and assessment of mental externalities generated by their activi- institutional weaknesses and failures ties. that hinder effective environmental management Institutional weaknesses were partly explained by the structural changes that Argentina was The aim of the institutional assessment was to undergoing. Simultaneous reforms resulted in evaluate the regulatory and organizational the privatization of most of the state­owned factors that contributed to inefficient water infrastructure, as in the case of water and sani- use, degradation of water resources, and the tation, and in a greater decentralization that impacts associated with the sector's civil transferred substantial responsibilities to the works. The assessment found several disturb- provincial governments. In the environmental ing characteristics, including: (i) a fragmented sector, the new framework embedded in the legal framework that did not regulate many of 1994 Constitution assigned to provincial gov- the activities causing the deterioration of water ernments property rights and management quality; (ii) weak environmental organizations responsibilities for natural resources and the at the national and provincial levels that could environment. The national government's role not develop, apply, or enforce environmental was limited to developing environmental stan- protection laws; (iii) jurisdictional overlaps, dards that the provincial governments could coordination problems, and scattered respon- apply and serving as a coordination mecha- sibilities that resulted in conflicts among water nism across jurisdictions. users; and (iv) negligence of environmental considerations by WSS authorities and utility However, the Secretariat of Natural Resources operators. and Sustainable Development (SRNyDS), Argentina's national environmental authority, The Salí-Dulce provided the prototypical ex- was still in the process of integrating the na- ample of how institutional weaknesses re- tional environmental and natural resources sulted in a loss of social welfare. The river policy and lacked the capacity to develop most crossed two jurisdictions and its water was of the necessary environmental standards. allocated to multiple uses such as industry, Furthermore, numerous environmental respon- agriculture, drinking water supply, electricity sibilities remained dispersed among six other generation, fishing, tourism, and conservation national agencies and the lack of a consoli- of a provincial reserve. Problems with the dated environmental authority hindered inter- environmental sector resulted in water pollu- institutional coordination. Environmental poli- tion from industrial and agricultural sources in cies were also scattered in instruments such as Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 9 the National Sanitation Plan, but most of them focused on technical standards at the project Development of public policies level, rather than the integration of environ- that mainstream environmental mental considerations at decision-making considerations levels. The SEA developed a set of recommendations On the other hand, the provinces' increased that distinguished between the temporary and responsibilities were not matched with addi- moderate impacts associated with the con- tional budgetary resources, and their capacity struction of civil works (which could have to develop and apply their own environmental been identified by a traditional EIA approach) standards varied greatly throughout the coun- and the more significant impacts on water try. As a result, regulations to control water quality and quantity that stemmed from insti- pollution were missing or were not operational tutional failures (for which a policy SEA was in many parts of the country, environmental needed). The SEA primarily targeted water responsibilities varied from one jurisdiction to utilities and WSS authorities with the aim of another, mechanisms for watershed manage- strengthening environmental management capac- ment were lacking and user conflicts arose ity within the sector. constantly, and the regulated communities had no certainty about what environmental stan- The incorporation of environmental clauses in dards were in place or the obligations that new concession contracts was proposed as the most regulations would impose on them. effective mechanism to ensure the minimiza- tion of environmental impacts by water utilities In the WSS, organizations struggled to trans- while the appropriate regulatory instruments and form the sector and seldom included environ- organizational capacity were developed. The mental considerations in their activities. The clauses included technical specifications to SGRH developed a National Sanitation Plan, address environmental impacts associated with which laid out a policy of transforming utili- infrastructure location, design, construction, ties into entities working under business prin- and maintenance. ciples and involving the private sector in the provision of services. Under this policy, the In addition, the SEA provided recommenda- National Entity of Water and Sanitation tions to address the institutional weaknesses Works (ENHOS) managed resources to pro- identified by the policy SEA. These included vide technical assistance, conduct EIA for additional measures to be included in the con- sectoral projects, and evaluate privatization or cession contracts, as well as recommendations concession projects. ENHOS had a unit in to strengthen the organizational capacity of charge of addressing the environmental im- utility operators and WSS authorities. pacts of the entity's activities, but its limited staff of two professionals could do little to In terms of clauses, the SEA sought the estab- incorporate environmental considerations at lishment of economic incentives to increase high decision-making levels. The Government service coverage and rationalize water con- also developed Service Provision Plans (PPS), sumption and pollution. In particular, the SEA which conditioned transfers from the national advocated the development of financial schemes government to the provinces on the involve- that poor households could use to pay their con- ment of the private sector in the provision of nection costs in monthly installments. It fur- public services. Although the PPS were ade- ther proposed that water tariffs include the quate to identify investment needs, establish cost of environmentally sound practices--such the responsibilities of regulators and service as adequate sludge disposal--and water use providers, and protect consumer rights, they charges. Water use charges would aim to re- paid little attention to the need for sound envi- flect the resource's opportunity cost and ronmental management. would increase during daily peaks or dry sea- sons to reflect resource scarcity. 10 LCR Sustainable Development Working Paper No. 26 finally used differed significantly from the one In order to ensure that water utilities had the that was initially contemplated for the envi- organizational strength to comply with the ronmental assessment. The participation of environmental clauses, the SEA outlined an different government officials, the World organizational strengthening program for wa- Bank, and other stakeholders contributed to ter utilities based on the adoption of Environ- the development of a different approach that, mental Management Systems (EMS). One of while analytically rigorous, was flexible the main components of the EMS was the enough to overcome the limitations faced by preparation of an environmental audit to de- the traditional EIA methodology. In addition, termine the utility's environmental liabilities the SEA succeeded in identifying the limited and the costs associated with environmental set of environmental priorities that were rele- compliance. The establishment of EMS would vant for decision makers and that were more allow the extrapolation of successful experi- closely associated with economic development ences to other municipalities. An annual award and poverty reduction. The Ministry of Econ- that recognized the quality of the supplied omy was initially reluctant to conduct an SEA, water and efforts to reduce environmental yet its involvement in the process helped to impacts would constitute an additional incen- identify how the Ministry could both contrib- tive for the adoption of sound environmental ute to and benefit from the assessment. management practices. Sectoral authorities could also disclose through newspapers the relative The importance of the SEA for social learning ranking of water utilities in terms of their envi- also pointed to the need to establish permanent ronmental performance. social learning mechanisms. To this end, the SEA provided specific guidelines for the im- In terms of strengthening WSS authorities, one of plementation of an environmental sector in- the key recommendations was to consolidate the formation system that would constitute the environmental unit in ENHOS and turn it into an basis for policy development and progress intersectoral coordination mechanism for envi- evaluation. The system would aim to over- ronmental mainstreaming. The unit would also be come the absence, insufficiency, and inconsis- responsible for the development of an environ- tency of information on the quality of water mental policy for the sector that would include resources, point and nonpoint pollution specific--preferably quantitative--objectives sources, and environmental indicators pertain- with clear deadlines for: improvement of cover- ing to natural, social, economic, and culturally age and quality of drinking water; sewerage and relevant aspects. The system would have the treatment services; preservation of water sources; dual purpose of providing information about efficient management of water resources;; and environmental trends that would support the quality of continental and marine waters. The unit development of future sectoral policies and of was envisioned as having a hierarchical status that enhancing accountability by informing stake- would allow it to hold discussions with decision holders about the impacts of existing policies. makers at the highest levels to ensure the com- Hence, the system would help to assess patibility of the sector's programs and projects whether the sectoral priorities identified by the with its environmental policy and objectives. SEA were being appropriately addressed or whether further policy improvements are nee- ded. Mechanisms that promote social learn- ing for continuous policy improvement In addition, the institutional reforms and the environmental clauses advocated by the SEA The SEA itself highlighted the importance of social learning.19 The methodology that was ies," Telecommunications Policy 27, (2003); George J. Busenberg, "Learning in Organizations 19Michael J. Zarkin, "Telecommunications policy and Public Policy," Journal of Public Policy 21, 2, learning: the case of the FCC's computer inquir- (2001). Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 11 aimed to clearly define the environmental vance in the implementation of the SEA rec- obligations of authorities and utility operators. ommendations. This definition was an initial step to identify the stakeholders responsible for environmental degradation so that sectoral policies could be 4. An SEA for the Colombia refined to address their harmful practices. Water Sector Reform Project Epilogue Colombia's WSS benefited from a stable in- vestment flow since the 1980s that led to rela- The elaboration of the SEA during the earliest tively high water and sanitation coverage rates stages of project preparation allowed the in- at the national level. Investment in infrastruc- corporation of environmental considerations in ture for the 1980­1995 period was in the order the final project design, one of whose main of 2­3 percent of the Gross Domestic Product objectives was the strengthening of the envi- (GDP), a figure matched only by Chile in the ronmental regulatory framework. The loan Latin American region. As a result, Colom- approved by the Bank included an environ- bia's water and sanitation coverage rates in mental institution building component that 2000 were around 90 percent and 85 percent represented around two percent of the total respectively, exceeding the rates of similar and project cost. The environmental component higher income countries such as Brazil and would finance the updating of crucial envi- Mexico.21 These high coverage rates con- ronmental standards, the preparation of guide- cealed the sector's serious challenges. These lines for EIA, the environmental auditing of included intermittent and poor quality services subprojects, and a prototype water quality resulting from political interferences in utility management diagnostic project for the Salí- operation and management; coverage rates Dulce River, which would help to develop the well below the national average in medium institutional capacity to manage watersheds and small cities, as well as in rural areas; sig- and avoid conflicts among users.20 nificant environmental impacts; and failures in the existing pricing schemes to address the The conduction of an SEA did not impose any needs of poor consumers.22 more constraints on project preparation than any other type of assessment that would have In 1994, the Government of Colombia (GOC) complied with the Bank's safeguard policies. launched a reform program aimed at restruc- On the other hand, it added value by demon- turing water utilities and incorporating the strating how problems with water quality and private sector in their operation and manage- quantity were at the very core of the sector's ment. By 2000, private sector involvement in challenges. The SEA was effective in influ- the sector's activities in large and some me- encing project design because it had a sound dium-sized cities was associated with an ex- methodology, its recommendations were con- pansion of coverage, increases in service sistent with the Ministry's views, and it con- continuity, and more efficient utility manage- tributed to addressing the situation of the WSS ment.23 The reform program brought encour- in Argentina. Nevertheless, the incorporation of the recom- 21 The World Bank, Colombia: Recent Economic mendations in the project design was not suf- Developments in Infrastructure (REDI), Balancing ficient to trigger the necessary institutional Social and Productive Needs for Infrastructure, reforms. Finally, the World Bank loan sets the Vol. II., November 2004. framework for making further efforts to ad- 22 The World Bank, Colombia: Water Sector Re- form Assistance Project PAD, September 2001. 23 Menahem Libhaber and Viivien Foster, "Urban 20 The World Bank, Argentina Water Sector Re- Water and Sanitation Sector" in Marcelo M. form Project PAD, Annex 2. Giugale, Olivier Lafourcade and Connie Luff 12 LCR Sustainable Development Working Paper No. 26 aging results in cities such as Cartagena and Deterioration of water resources and its sig- Barranquilla, but failed to reach smaller cities nificant negative impacts on human health and rural areas. Furthermore, the sector's were closely linked to the lack of access to regulatory framework remained inadequate, water and sanitation services. Poor households often constituted an obstacle to further in- with no access to basic services engaged in vestment, and neglected the sector's social and practices that included the use of electric or environmental considerations. manual pumps to obtain water, excrement disposal in latrines and septic tanks, and solid In this context, the GOC worked with the waste dumping, all of which contributed to the World Bank to develop a project that would: deterioration of groundwater quality.24 Some (i) support private service involvement in wa- of these communities had settled in flood- ter and sanitation services in 3 medium cities plains where inundations combined with in- with around 300,000 inhabitants, and 25 mu- adequate waste disposal to transport materials nicipalities with populations of up to 12,000; into surface waters, which were also affected and (ii) provide assistance to ensure the finan- by untreated sewage effluents. In the Bogotá cial sustainability of utilities where the private Savanna alone an estimated half million peo- sector had already been incorporated. The ple discharged their wastewater in septic tanks project would focus predominantly on the and latrines, or directly to bodies of water. Caribbean coastal region, which suffered from Untreated discharges generated sanitary risks the country's lowest water and sewerage cov- particularly for communities located in the erage rates. floodplains of cities such as Cartagena, Bue- naventura, Cali, and Bogotá. During project preparation, the GOC evalu- ated the environmental issues and require- Wastewater treatment capacity was extremely ments associated with the project. The Bank's limited, as only an estimated 0.21 percent of environmental specialist who was assisting the urban residential effluents were treated. GOC was familiar with the results of the Ar- Among the country's large cities, only Bu- gentina SEA and proposed that the same caramanga had an adequate treatment plant. methodology be used. Based on the Bank's Other plants had been built to service Bogotá advice, the GOC prepared the TORs and hired and Medellín, but they treated only a fraction a group of consultants with backgrounds in of the city's wastewater and had no effect on engineering, economics, and law to complete the improvement of water quality. The opera- the SEA in a three-month period. tion of wastewater plants was also affected by inadequate design, insufficient operation and maintenance budgets, and the discharge of Identification of sectoral priorities industrial waste into sewers, which nullified treatment systems. After conducting an in- The SEA focused on two types of negative spection, Bogotá's environmental agency, externalities associated with policy distor- DAMA, found that only about 20 percent of tions--deterioration of water quality and inef- industrial establishments met the legal dis- ficient water use--and on the impacts that charge limits. would be associated with the works financed by the Bank's project. The SEA focused on Inadequate disposal of waste, including sludge these externalities because they were quantifi- and other residues generated by the operation able and government information indicated of wastewater treatment plants, further con- that they were likely to be highly significant. tributed to the degradation of water quality. The available data indicated that only 43 per- 24 Water pumping contributes to water quality dete- (eds.), Colombia: The Economic Foundation of rioration when aquifers are overexploited, leading to Peace, The World Bank, 2003. salinization. Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 13 cent of the municipalities had solid waste col- lection systems and only 32 percent of the waste was disposed appropriately. Incorporation of the perspectives of multiple stakeholders, including the Deterioration of water quality sources was most vulnerable groups associated with negative impacts, particularly on human health. Data from the Ministry of The Ministry of Economic Development Health for 1991­99 showed that, although the (MINDESARROLLO) had previously ignored occurrence of illnesses had decreased over the the implications of environmental regulations years, it was still significant. Incidences of for investment in the WSS, but was willing to diarrhea had remained relatively constant at undertake an SEA as an input to the design of around 111 cases/1,000 inhabitants, but fell to the WSS reform. Because the SEA's prelimi- a rate of 87.8 cases/1000 inhabitants in 1997. nary findings proved that environmental regu- Based on these figures and an estimated cost lations were among the main reasons for the of US$90/case, the costs of diarrheal illnesses private sector's lack of participation in the were estimated at US$315­400 million per WSS, MINDESARROLLO advocated the year. The high incidence of waterborne dis- preparation of the assessment and the inclu- eases indicated that while coverage rates had sion of its recommendations in the project's expanded continuously during the 1990s, a design. On the other hand, the Ministry of large share of the population still lacked ac- Environment (MMA) was less enthusiastic cess to safe water and sanitation. In fact, the because it considered environmental assess- Ministry of Health estimated that only 42.25 ments to fall within its mandate and perceived percent of the urban population and 8.1 per- MINDESARROLLO's efforts as an intrusion cent of the rural population had access to po- on its turf. table water. In the end, both ministries decided to collabo- Inefficient water use was another source of rate in the preparation of the SEA. environmental impacts. Data provided by wa- MINDESARROLLO realized that it would ter utilities suggested that water losses repre- need MMA's cooperation to modify regula- sented an average of 41 percent of the water tory bottlenecks to private involvement in the produced. In cities with populations under sector. On the other hand, MMA acknowl- 50,000, the figure rose to around 60 percent. edged that it was better to participate in the Water losses in the country's 16 largest mu- SEA than to remain a passive observer. Inter- nicipalities were on the order of 600 million agency coordination went as far as to agree on m3, with a value of about US$370 million the formation of a committee that would dis- which represented over 85 percent of the prof- cuss the sector's priorities, oversee the imple- its of the utilities that serviced those munici- mentation of agreed solutions, build consensus palities. Water losses were caused mainly by on environmental aspects, and address emerg- leaks and lack of measurement. ing issues. Finally, the SEA observed the program's po- The SEA requested input from various addi- tential environmental impacts stemming from tional stakeholders. Two nationwide work- the construction and maintenance of water and shops were organized: first, to collect sewerage systems, which included high noise stakeholder perspectives on the scope of the levels, air pollution, and generation of solid assessment, and second, to present an ad- waste. As in the case of Argentina, these im- vanced draft of the report and solicit additional pacts were not as significant as those associ- comments. In addition, MINDESARROLLO ated with water quality and quantity problems, and MMA held consultations with government but represented the only type that an extension agencies, private utility operators, academics, of the EIA methodology would have identi- professional associations, nongovernmental fied. organizations (NGOs), and public defense 14 LCR Sustainable Development Working Paper No. 26 groups to build consensus around the SEA environmental agencies' decision-making report. process. Main problems with EIA regulations included: The SEA attempted to incorporate the per- spectives of vulnerable groups by identifying (i) Lack of a screening procedure25 the sector's environmental impacts that clearly meant that an EIA was needed for affected them. Similar to the case of Argen- any project, regardless of the mag- tina, lack of access to water and sanitation nitude of its impacts, its location, services was correlated with income levels, the sensitivity of the surrounding and as a consequence poor communities were ecosystems, or public opinion re- exposed to higher environmental risks. Expan- garding the project; sion of coverage to service these communities (ii) Absence of public participation in was urgently needed, but many regulatory the EIA scoping resulted in discre- instruments limited investment in these areas, tionary requirements for the prepara- as described below. tion and evaluation of environmental impact studies; (iii) Responsibility for the EIA's prepa- Identification and assessment of ration fell on the project's propo- institutional weaknesses and failures nent, thus generating conflicts of that hinder effective environmental interest; management (iv) The need for vast numbers of EIA coupled with an absence of primary The identification of sectoral priorities high- environmental data resulted in lighted the need to expand water and sanita- "mass" production of EIAs of poor tion coverage to reduce the mortality burden quality and little value; associated with the sector. Thus, the institu- (v) Limited public participation and lack of tional assessment sought to evaluate the effect provisions to encourage it made EIAs of environmental regulations on the expansion pro forma exercises; and of basic services. The assessment found that, (vi) The absence of regulations guiding despite Colombia's efforts since the late 1960s the roles of different government to develop a legal framework for environ- agencies in the preparation of EIAs mental protection, regulatory gaps abounded, exempted sectoral agencies from enforcement was low, and environmental participating in environmental deci- agencies remained weak at the national and sion-making processes. regional levels with a few exceptions. Three regulatory instruments were identified as ob- In fact, ELs often became "contracts" between stacles for the expansion of coverage: the en- environmental authorities and project propo- vironmental licenses (EL), environmental nents, where both agreed on pro forma obliga- charges for wastewater discharges (known as tions and compensation schemes to which the tasas retributivas), and the inefficient com- project had to adhere and which were not es- mand and control regulations of Decree 1594. tablished in any law. These highly discretion- ary procedures generated legal uncertainty, Law 99 of 1993 established the EL as a requi- because project proponents could not ade- site for infrastructure works, the establishment quately assess the resources and time that of industries, or the development of any eco- would be necessary to obtain the EL. nomic activity with potentially significant environmental impacts. The preparation of an EIA was one of the requirements for an EL 25 Screening refers to the procedure used to define request. Since EIA regulations were inade- whether the potential environmental impacts of the quate, ELs had become a hurdle for project project under consideration are significant and thus development while adding little value to the trigger the preparation and define the scope of an EIA. Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 15 tem to verify the accuracy of the Water pollution charges were used in Colom- declarations and penalize false re- bia at least since the late 1970s, when they porting; were introduced to control water pollution in (iii) The possibility of revising environ- the Cauca Valley. National legislation in- mental goals once they had been cluded provisions for the use of similar met, which reduced the incentives to charges at least since 1984, but it was not until invest in pollution abatement tech- the enactment of Decree 901 in 1997 that the nologies. Experiences in other coun- charges began to be applied in other regions tries showed that polluters would besides the Cauca Valley. Application and not attempt to meet environmental enforcement of environmental regulations goals because this would invite the were the responsibility of Regional Autono- setting of more stringent goals. In- mous Corporations (CARs). Thus, based on stead, polluters would tend to adopt the methodology defined by Decree 901, a strategy of reluctant compliance to CARs would: increase the probability of more le- nient goals in subsequent periods. In (i) Update their discharge records and de- addition, this feature meant that pri- fine a baseline for two parameters: vate investors had no way of know- Biochemical Oxygen Demand (BOD) ing how the charge would ultimately and Total Suspended Solids (TSS); affect the utility's finances; and (ii) Negotiate with stakeholders a five- (iv) The absence of a quality assurance year discharge reduction goal for each mechanism to ensure the precision, section of a watershed; sensitivity, and accuracy of envi- (iii)Charge a fee for each kilogram of the ronmental monitoring, and therefore selected parameters that registered the lack of a reliable system to as- point sources discharged into surface sess progress toward meeting the waters within the legal standards; and goal. (iv) Increase the fee semiannually until the reduction goal was reached. The charges were also troubling because of the incentives they created for environmental CARs were entitled to charge­generated reve- agencies. SCAR's directors could be reelected nues. In order to provide incentives for the and thus they tended to hire and award con- application of the charges, the national gov- tracts in exchange for support to their admini- ernment determined that many of the agen- strations, so as to increase their probabilities cies' operational expenses, including staff of remaining in office. In some cases the compensation, could only be financed by charges opened the opportunity to hire addi- charge revenues and several other instruments. tional staff, and revenues ended up being used for these expenses rather than for actions that The charge design contained serious flaws, would result in improved water quality as the including: law intended. These political economy consid- erations provided insights about the stake- (i) The selection of BOD and TSS as holders who were likely to oppose institutional charge parameters, because these reforms. were associated with water bodies' aesthetic characteristics and not with Decree 1594 of 1984 set the standards for the most significant environmental environmental quality and discharges into impacts, such as impacts to human bodies of water, and required an 80 percent health; efficiency removal for BOD and TSS. Meeting (ii) Reliance on voluntary declarations this standard required municipal investments to determine discharges of pollut- in secondary wastewater treatment plants that ants, without the existence of a sys- could only be financed with tariff increases of 16 LCR Sustainable Development Working Paper No. 26 over 100 percent, while not necessarily reduc- Development of public policies ing environmental health risks. The Decree that mainstream environmental also became a bottleneck for private invest- considerations ment in the sector as compliance with it repre- sented extremely high costs. To complicate The SEA developed an action program that matters further, the decree was incompatible identified the necessary steps to address the with the design of pollution charges, thus gen- sector's environmental impacts and their erating uncertainty about the environmental causes. Expanding water and sanitation cover- responsibilities of water users. age and increasing its reliability were neces- sary to reduce the incidence of waterborne Financing for the expansion of water and sani- diseases. Thus, the SEA recommended focus- tation coverage, which was mainly a munici- ing on policy reforms that included modifica- pal responsibility, constituted an additional tions to the water pollution charges and the problem. Municipalities lacked the financial water discharge standards of Decree 1594 with resources to invest in water and sanitation the aim of reducing the legal uncertainty gen- infrastructure, although they were provided erated by environmental regulations and at- with revenue generating mechanisms such as tracting private investment. taxes, tariffs, prices, and charges or resources for project cofinancing from several central The SEA also provided a proposal to correct funds.26 Most municipal authorities were re- the deficiencies associated with EIA regula- luctant to use these mechanisms because they tions. The proposal included mechanisms to were politically costly, and instead relied sim- categorize projects based on the importance ply on transfers from the national government. and magnitude of the environmental impacts, guarantee adequate public participation, ap- Municipalities could also access funds from praise environmental liabilities, and define the National Royalties Fund (FNR), consti- methodologies for the preparation of EIAs and tuted by a share of the royalties generated the definition of the scope of environmental from mineral exports. However, the FNR management plans. would provide financial resources to the de- partments and municipalities based on criteria Public consultations and information on WSS that were subject to various distortions. project characteristics would be distributed to obtain community endorsement. Additionally, Environmental authorities also had mandates public consultation would be divided into two to develop and manage water and sanitation stages. The first stage would target the popula- infrastructure, considered by law as "environ- tion and organizations in the area of influence mental investment." However, CARs had and obtain their input in developing the terms given priority to reforestation, forest conserva- of reference for the EIA. The second stage tion programs, and wastewater treatment sys- would target specific groups to share project tems, instead of investing in drinking water information, discuss and design measures to and sewerage. be included in the management and environ- mental monitoring plans, agree on mecha- nisms to ensure compliance with these measures, and incorporate community partici- pation in the preparation of the compensation and relocation plans. Organizational strengthening was also neces- sary to increase the reliability of water and 26 The funds included the Co-finance Fund for sanitation services. Hence, the program first Social Investment (FIS), Co-finance Fund for Rural targeted MINDESARROLLO and the munici- Investment (DRI), and the Co-finance Fund for palities, and water utility operators in a second Urban Infrastructure. Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 17 phase. Efforts at the Ministry, as the sector's continuous policy improvements would be leading authority, would be devoted to build- necessary. ing an environmental unit that could main- stream environmental considerations at the sector's highest decision-making levels. In the Incorporation of SEA recommenda- case of the municipalities, assistance would be tions into project design provided so they could incorporate and en- force the appropriate environmental clauses in The SEA process served as a vehicle to reach water and sanitation concession contracts. agreement between MINDESARROLLO and Support for water utility operators would help MMA. Both ministries would work jointly to them adopt integrated EMS. implement the SEA action plan, harmonize existing legislation--particularly Decrees 901 and 1594--, streamline EL processes for water Mechanisms that promote social projects, evaluate and mitigate environmental learning for continuous policy risks in operational contracts, and involve the improvement relevant authorities in developing new tariff schemes that would incorporate well-defined As in the case of Argentina, the SEA gener- environmental charges. ated value by establishing the basis for a social learning process. MINDESARROLLO did not The final project included an environmental realize the effects of environmental regula- component that contained most of the SEA's tions such as the water pollution charges and recommendations. The component had a the EL on sectoral reform when it requested budget of US$0.8 million (although the SEA the Bank's assistance. But as the SEA proved, estimated the necessary budget at US$1.2 sectoral reforms were likely to fail if they million), which represented about 1.1 percent were not accompanied by measures to address of the project's total costs. the distortions generated by these regulations. Moreover, the SEA's quantification of exter- nalities demonstrated that the sectoral invest- Epilogue ment should concentrate on the provision of potable water and the construction of sewer- The SEA provided key contributions to the age, leaving the construction of wastewater project's design, demonstrating that the sec- treatment plants and reforestation activities for tor's most significant effects were associated areas with local and particularly significant with human health and that some environ- problems. The multidisciplinary background mental regulations constituted obstacles to of the consulting team was crucial to under- expanding the basic services needed to address stand the intricate legal framework that gov- them. The SEA's contributions, which were erned the WSS, quantify the externalities critical to increase the probabilities of the re- associated with the sector, incorporate politi- form's success, could only be incorporated cal economy considerations, and understand into project design because the SEA was com- the sector's priorities. The SEA itself became pleted during project preparation. a benchmark for the environmental sector when it described its situation at the end of The implementation of the water sector reform 2000 and proposed institutional reforms that, project in Colombia helped to implement if implemented, would help to gauge progress some of the SEA's recommendations. Regula- in the sector's strengthening. These contribu- tory modifications faced obstacles, as the tions underscored the need for permanent so- beneficiaries of the status quo that the SEA cial learning mechanisms, particularly as the identified resisted the far-reaching reforms SEA's explicit treatment of political economy that would have been necessary to reduce bar- considerations suggested that status quo bene- riers to private investment in the sector. For ficiaries would resist policy reforms, and thus instance, Decree 3100 was enacted in 2003 to 18 LCR Sustainable Development Working Paper No. 26 replace Decree 901 and address the distortions included in the environmental component to of the water pollution charges. The modifica- be financed by the WSS reform loan of 2001 tions introduced by the new Decree were only (World Bank 2005). related to issues such as the way in which the charges were adjusted when the abatement goal was not met and allowing water utilities 5. Conclusions to charge their customers for the payment of the fee. Other, more relevant aspects, includ- The cases reviewed in this paper describe the ing the selection of the charged pollutants or use of a methodology that emerged in re- the methodology for setting abatement goals, sponse to the limitations of traditional EIA were left for future reforms. methodologies in addressing the policy-related environmental and social aspects of the WSS The SEA's diagnosis and recommendations reform project in Argentina. This methodol- were promoted by MINDESARROLLO be- ogy was later refined and applied to a similar cause they constituted technically sound pol- WSS reform in Colombia. The new methodol- icy proposals that were consistent with the ogy significantly enhanced project design in Ministry's regulatory views and targeted some both cases and has the potential to make simi- of the WSS's most serious problems. On the lar contributions to WSS reform projects in other hand, strong policy resistance from other Latin American countries. Based on the stakeholders within the environmental sector Argentine and Colombian experiences, an limited the scope of the proposed reforms and SEA methodology for WSS policy reforms resulted in a gradual modification of existing may be conceptualized as follows: policies. However, efforts to advance the pending reforms are ongoing as the Bank and (i) Identification of sectoral priorities. the Government of Colombia incorporated the The assessments identified the set of SEA's recommendations as a central part of key issues that are relevant for deci- their dialogue. The SEA's recommendations sion makers, focusing on quantifiable were echoed in the Bank's Policy Note on the and significant externalities that call "Urban Water and Sanitation Sector" (Lib- haber and Foster 2003).27 The SEA also con- for governmental interventions. This requires shifting the assessment's fo- stituted the basis for the assessment conducted cus from the temporary and moderate in preparation of a second loan: the Colombia Water and Sanitation Sector Support Project.28 impacts of civil works to the more ur- gent environmental and social prob- lems associated with the WSS sector. Finally, a Programmatic Development Policy Loan (DPL) for Sustainable Development has (ii) Incorporation of the perspectives of been approved by the Bank, and the conditions multiple stakeholders, including the that Colombia is expected to meet as part of most vulnerable groups. As the re- the loan include several of the outputs (such as viewed cases indicate, the sector's the amendment of the EL system) that were main challenges will often extend be- yond the sectoral authorities' jurisdic- 27 Menahem Libhaber and Vivien Foster, "Urban tion. Thus, support from various Water and Sanitation Sector," in Marcelo M. actors will be necessary to develop an Giugale, Olivier Lafourcade, and Connie Luff adequate diagnosis, design appropriate (eds.), Colombia: The Economic Foundation of policies, and increase the probabilities Peace, The World Bank, 2003. The policy notes of their implementation. However, in- consist of a diagnosis of a country's development teragency coordination rarely takes issues and policy recommendations that the World Bank provides as advice to incoming administra- place and the experience in the region tions. indicates that a third party is often 28 The World Bank, Colombia Water and Sanita- necessary to set it in motion. The tion Sector Support Project PAD, February 2005. World Bank is particularly well posi- Using Strategic Environmental Assessments for Environmental Mainstreaming in the Water and Sanitation Sector: The Cases of Argentina and Colombia 19 tioned to play that role.29 In addition, Thus, SEAs need to provide recom- the incorporation of the perspectives mendations for institutional strength- of vulnerable groups is critical, as ening to ensure that: a) the actions these groups tend to be most severely triggered by a specific policy are affected by environmental impacts. bound by rules that protect the envi- Assigning utmost priority to the con- ronment; b) the appropriate organiza- cerns of vulnerable groups is not only tions are able to identify the occurrence justified on ethical terms, but also be- of policy-related environmental exter- cause greater equality in access to ser- nalities; and c) authorities have the vices and in influence has been mechanisms to balance the interests of associated with lower poverty levels policy beneficiaries with those of and improved conditions for economic stakeholders affected by reforms to development.30 However, vulnerable craft appropriate responses. The as- groups lack the power and authority to sessment must also consider the barri- influence the policy process and thus ers to the development of adequate the Bank has a responsibility to ensure institutions, particularly political econ- that the "voice of the poor" is heard. omy considerations. (iii) Identification and assessment of insti- (iv) Development of public policies that tutional weaknesses and failures that incorporate environmental considera- hinder effective environmental man- tions. This paper demonstrated how agement. Strong institutions have in- the absence of environmental consid- creasingly been recognized as critical erations in the WSS was tightly linked contributors to sustainable develop- with the sector's main challenges. ment, particularly because they per- Additional empirical evidence has form the three fundamental functions shown the linkages between environ- of picking up signals about needs and mental degradation and other prob- problems, balancing interests, and im- lems such as poverty, widespread plementing solutions.31 The cases of illnesses, and economic growth. Ad- Argentina and Colombia illustrate dressing these linkages has increas- how weak institutions failed to pick ingly been recognized as a necessary up signals (or identify the sector's true condition for sustainable economic priorities), balance the interests of dif- growth.32 Hence, the SEA must aim to ferent water users and sectoral agen- incorporate environmental considera- cies, and implement sustainable tions at the highest decision-making solutions. In fact, some of the institu- level to avoid environmental impacts, tions analyzed by the SEA were gen- and capitalize on synergies--or ad- erating distortions that inhibited dress tradeoffs--between environ- solutions to the sector's challenges. mental protection and other development objectives. 29This opinion was expressed in presentations by Francisco Giner from SEMARNAT (Mexico), (v) Mechanisms that promote social learn- Claudio Lagone from MMA (Brazil), and Juan ing for continuous policy improvement. Pablo Bonilla, formerly from MAVDT (Colombia) As the reviewed cases exemplified, in- in the workshop "Environmental Policy in the stitutional reforms will rarely succeed in Latin America and Caribbean Region," April 1, meeting all of their stated objectives due 2005, Washington, D.C. to uncertainties, incomplete information, 30 David de Ferranti et al., Inequality in Latin America and the Caribbean: Breaking with His- tory? The World Bank, 2003. 32UN Millennium Project Task Force on Environ- 31The World Bank, World Development Report mental Sustainability, Environment and human 2003. wellbeing: a practical strategy, Earthscan, 2005. 20 LCR Sustainable Development Working Paper No. 26 opposing interests, and other character- Thus, policies will require continu- istics of the policy process. ous improvements to address these problems, as well as exogenous changes in the context where the policy is applied or in the problem that it aims to solve. 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