Utilities Water treatment Mexico

Hugo Rojas: 17 years of Mexico’s water refund program – has it succeeded?

Wednesday, 28 October 2020

The Rights Refund Program was set up to help municipalities secure additional revenue to provide water services. Hugo Rojas Silva of ANEAS reviews its history.

Converting a payment instrument

In Mexico, the providers of drinking water and sanitation services lack sufficient resources to cover their operating costs. As a result, they face severe difficulties in covering their debts due to the exploitation, use or mining of national waters.

Back in 2002, this was addressed by the Rights Refund Program. Originated from an effort by the federal government to regulate the debts from water service providers, it also included the waivers included in the period 1997-2001.

Issued in January 2002, a presidential decree modified the Federal Law of Rights. This allowed payments for rights of water utilities to be invested in shares to improve network efficiency, as well as drinking water and sanitation infrastructure. This was necessary as there had been warnings of investments into the water sector decreasing.

At the time, the National Water Commission said: “The program is innovative because it converts a payment instrument in a financing source since the resources paid by the providers of the services are reimbursed for investing in the sector in a specific and efficient way, with the effect multiplier that doubles the investment.”

“The goal was to secure an additional source of revenue to help municipalities tackle the responsibilities of water.”

The goal was to secure an additional source of revenue to help municipalities tackle responsibilities of water, sewerage and sanitation services given to them in 1999.

Success in increasing rights

Since its inception, the level of financial return to taxpayers (operating agencies) of the Rights Refund Program has fluctuated. However, there is no doubt that the program succeeded in its primary objective of increasing the rights to finance.

Discarding the first year of program operation, the return reached its highest investment point in 2008 and the lowest in 2014. These amounts are added to the state and municipal counterparts for an equal amount. The total return of the program since its inception is 27,215.8 million pesos (US$1.3 bn).

The total amount of investment is in the order of 54,431.6 million pesos in 17 years (US$2.6 bn), which is 3,201.85 million pesos per year (US$153.5m) on average. This is very relevant. To put it into a context today, it represents half of the Water and Sanitation Program in terms of the investment amount, including counterparts.

Guidelines not met

It is also relevant to note that the refund amounts should increase according to the logic of efficiency tax. Yet, despite annual increases to inflation for the payment of water rights, there remains a problem: non-increase in the collection.

To give an example: from 2015 to 2019 the increases were 2.2%, 3.3%, 6.6% and 4.7%, respectively. However, from 2006 to 2015 collection had an increase of 42 per cent.

In 2015, when the process was passed to the Secretariat of Finance and Public Credit, there was a loss of 21 per cent of resources. One of the reasons may be that action programs weren’t requested, or that the guidelines were not met.

Proposed modifications from ANEAS

For several years, ANEAS has proposed modifications to the program including:

  • Agility in the return processes, so that the utilities can exercise the actions of an effective and efficient way
  • Greater communication with the Secretariat of Finance and Public Credit for the authorization of the return of resources
  • On the part of the operating agencies, comply promptly with the payment of rights, and meet the delivery times of the program documentation
  • Prioritize above all the objective of the creation of the program: to increase the culture of payment of rights (with all that this implies), and with it turn it into a source of investment financing of water, sewerage and sanitation works, as well as efficiency improvements, to improve the quality of life of families in the municipalities.

It is necessary to reverse the loss of program efficiency so as not to fall into the risk of decline and portfolio overdue of duty payments.

Better still, it is necessary to boost investments in the face of the environment adverse budget in which we live.

- Hugo Rojas Silva is the general director of ANEAS.

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