Lima is spending significant sums of money to upgrade and repair its water supply and distribution network, with the end goal of 100% coverage of potable water by 2016. However, with the lack of water access one of the principle obstacles to the continued growth of the city, coupled with an insufficient budget to cover many of the network’s expansions and improvements, Sedapal, the state-owned entity, is looking to increased private participation in its projects.
Sedapal’s current investment plan for the 2013-16 period details 148 separate projects with a combined projected budget of PEN8.52bn ($3.3bn). This includes 81 projects, which are estimated to be worth PEN5.68bn ($2.2bn), aimed at expanding coverage to those without regular water service. A further 67 projects, which are expected to cost about PEN2.84bn ($1.1bn), will be directed toward the rehabilitation and improvement of the existing network.
This new spending comes on top of the PEN439.89m ($170.4m) that Sedapal spent from August 2011 to January 2013. The state-owned firm has made significant strides in recent years, including the expansion of water service coverage from 90.3% of the population in 2007 to 93.4% in 2012.
However, despite the large amount of funding being spent on the city’s water network, many real estate companies and developers have expressed frustration with the pace of investment and expansion, citing the absence of water and sewage systems as a major hindrance to the ongoing growth and development of Lima.
“Water is definitely one of the most significant obstacles to the continued development of Lima in the short, medium and long term,” Marco Aurelio del Rio Arrieta, the CEO of Enacorp, a local real estate firm, told OBG. “Investment up until now has not been adequate, and unless the city takes a more proactive approach, the situation will only continue to worsen.”
Many critics have argued that that the price Sedapal charges for its water services is too low, meaning that the firm finds it difficult to raise adequate revenues to fund its many expansion projects.
A number of real estate developers have told OBG they would be willing to fund - partially or fully - certain expansions of the water distribution network as long as they will be guaranteed water supply. Indeed, given Sedapal’s budgetary issues, many of Peru’s property developers believe the only realistic way to meet the needs of an increasingly growing economy is through increased private participation in the sector.
“The government needs to take a closer look at public-private partnerships in the water sector as it is the only viable means by which these projects can be funded,” Gonzalo Sarmiento, the CEO of local real estate developer Centenario, told OBG. “We cannot allow the lack of water supply to continue to undermine private investment and the ongoing development of Lima.”
In addition to the low prices Sedapal charges for its services affecting the firm’s profitability, it must also contend with its dated distribution network, as well as illegal connections to the network, which resulted in an outright loss of 30.8% of its water in December 2012. While this represents an improvement compared to the 33.5% lost in December 2011 and puts it on par with other major metropolitan areas in South America, there is clearly still much work to be done.
It is not only private investors who have pushed for more projects in the sector. Rossina Manche, CEO of Sedapal, has openly and repeatedly expressed her desire to work with the private sector to better the city’s water infrastructure. “We are looking for creative solutions and to incorporate the private sector… as a state enterprise, we are slower than a private company could be,” Manche told local press in December 2012. “Sedapal cannot be an impediment to the continued growth of the city. To the contrary, we need to seek alliances and partnerships that allow us to move at the same speed as the current rate of demand.”