Note: This is an edited version of the paper I just handed in for a course. For the paper itself (along with the references, deleted here) email me. The first part will go through the background of the Chilean water market and the second will discuss my biggest issue with the water market.
In 1981 the authoritarian government of Augusto Pinochet overhauled Chile’s water market. The new Water Code (el Codigo de Aguas) shifted the previously state-run water sector to a new, free market model based heavily on the neoliberal ideas of Milton Friedman. The new water code instantly became the leading example of regulation by free markets, and neoliberal ideas in practice, in the world. The Chilean model was heavily promoted alongside the Washington Consensus in the developing world. By the late 1990s, however, there was increasing recognition that there were significant flaws with the Water Code and the World Bank, among others, began to examine the Chilean water sector more critically.
Criticism of the water allocation system focused on three weaknesses: (1) poor dispute resolution mechanisms; (2) a lack of water basin management frameworks; and (3) insufficient environmental protection. Within Chile, there was also concern over monopolistic and speculative behavior in the market for non-consumptive water rights. In 2005, these criticisms and the concern over speculation and monopolies led to a reform bill (Modifica el Codigo de Aguas) that adjusted the Water Code to address some of the flaws in the previous decree.
Thus, the current Chilean water market still serves as a leading example of the neoliberalization of natural resource management. But, where previously this system was praised, it is now recognized as having several critical flaws. A great deal of the scholarship on solving these flaws has focused on reforming the Water Code to weaken some of its strongest neoliberal tendencies and increase the involvement of the state. In the extreme case there have been calls for the re-nationalization of water. I argue that, in fact, correcting these flaws involves broadening the scope of the neoliberal tendencies of the Water Code, not weakening them. That is, articulating private rights in the Water Code for instream flows – defined as a right to a certain minimum rate of flow in the water body.
The Water Code defines water as a national good for public use (son beines nacionales de uso público) but water rights are unquestionably private property. These rights, once issued, are permanent, absolute, and are not tied to land titles. They can be traded, inherited, sold and are treated as any other type of real estate. Expropriation can only occur with explicit legislation and the state must pay market value for the rights. Furthermore, although the state – after the 2005 reforms – has the right to tax unused water rights, non-use of rights is not sufficient grounds to expropriate rights.
Water rights are issued by the Dirección General de Aguas (DGA), which must issue rights upon request if water is available and unclaimed. If there are multiple requests for the same water, the DGA is required to hold an auction. Requests for water need not specify to what use the water will be put. This has led several commentators to claim that the state does not prioritize one use above another and allows water to be put towards the most effective use as determined by the market. Others have criticized this stance, claiming that the code is not as fair as it appears. Indeed, the structure of Water Code implicitly values certain uses above others.
A final, critical part of the Water Code is the distinction between consumptive and non-consumptive rights. Non-consumptive rights were introduced into the Water Code as a means of encouraging hydroelectric development on rivers that had already had their consumptive rights allocated. These rights allow users to remove water from a body of water, use the water (ostensibly for hydroelectric generation), and return the water, unaltered, to the watercourse. Consumptive rights, on the other hand, allow the user to remove water from a body of water and use it however they like, with no requirement for return flows. There is also no beneficial use doctrine, as is common in other water regimes. Notably, consumptive and non-consumptive rights are the only two types of water rights outlined by the Water Code.
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