7
Institutional Issues

In Mexico, water use has been historically tied to the principal that water resources are the property of the state and thus should be a free, constitutional right for every citizen. This concept comes from land reforms established in 1917 in Article 27 of the Mexico Constitution. Since 1988, Mexico has undergone a revolution in the laws allocating its water resources and regulating its quality. Recent reforms are designed to promote private water rights, allow for the privatization of management of water supply and wastewater services and incorporate new principles, such as a requirement to conduct cost-benefit analysis in the application of regulatory standards. A new position of Federal Prosecutor for the Environment has been established that reflects the sense that the environment, itself, is entitled to representation in the government. There is also increased emphasis on various water conservation measures including water reclamation. These changes have created an environment where water policies can be more easily and rationally reformed than in the past. This chapter discusses the institutions that control allocation of water in the Mexico City Metropolitan Area (MCMA), and then considers institutions involved with water quality. The information on institutional developments in the MCMA is not readily available in published form. In this regard, the committee has benefited from direct communication with responsible authorities and material provided to it by the National Water Commission, the Ministry of Health, the National Supreme Court, the Ministry of Environmental and Urban Development, the Department of the Federal District, and the Federal District Water Commission.



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Mexico City’s Water Supply: Improving the Outlook for Sustainability 7 Institutional Issues In Mexico, water use has been historically tied to the principal that water resources are the property of the state and thus should be a free, constitutional right for every citizen. This concept comes from land reforms established in 1917 in Article 27 of the Mexico Constitution. Since 1988, Mexico has undergone a revolution in the laws allocating its water resources and regulating its quality. Recent reforms are designed to promote private water rights, allow for the privatization of management of water supply and wastewater services and incorporate new principles, such as a requirement to conduct cost-benefit analysis in the application of regulatory standards. A new position of Federal Prosecutor for the Environment has been established that reflects the sense that the environment, itself, is entitled to representation in the government. There is also increased emphasis on various water conservation measures including water reclamation. These changes have created an environment where water policies can be more easily and rationally reformed than in the past. This chapter discusses the institutions that control allocation of water in the Mexico City Metropolitan Area (MCMA), and then considers institutions involved with water quality. The information on institutional developments in the MCMA is not readily available in published form. In this regard, the committee has benefited from direct communication with responsible authorities and material provided to it by the National Water Commission, the Ministry of Health, the National Supreme Court, the Ministry of Environmental and Urban Development, the Department of the Federal District, and the Federal District Water Commission.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability WATER QUANTITY INSTITUTIONS In Mexico, institutional power is most heavily vested in the President and the federal agencies. According to Article 27 of the Constitution, the President is granted the power to regulate the extraction and use of the nation’s waters, to establish areas where water cannot be extracted and, through his designated agents, establish rules for issuance of permits for water use under terms mandated by laws passed by the Congress. The executive branch of the Mexico government includes several ministries, which correspond to the departments of the executive branch of the U.S. government. The Ministry of Agriculture and Water Resources (Secretaría de Agricultúra y Recursos Hidráulica, or SARH) is the most important ministry for allocating water. The National Water Commission was created by Congress and works in concert with SARH to carry out water allocation. The Commission operates with advisors from other ministries. It is divided into five sub-categories: 1) Planning and Finance; 2) Irrigation Works Infrastructure; 3) Urban and Industrial Infrastructure; 4) Research; and 5) Water Administration. The last category includes record keeping, granting of permits, and the overall process of water allocation from an administrative standpoint. The Commission maintains six regional offices, each represented by a regional administrator appointed by the Commission director. The Basin of Mexico is its own region. Within this region are the Federal District, and the States of Mexico, Hidalgo, Puebla, and Tlaxcala (see map in Figure 2.1). Each of the represented states has a state regional director; however, these state regional directors, while not unimportant, exercise less power because of the tremendous financial and institutional power of the Federal District under a special law allocating water in the Federal District. In the Mexico City Metropolitan Area, the key institutions are the Federal District, the National Water Commission—because of the substantial number of wells in the area and the transbasin diversions into the basin—and the State of Mexico. The Federal District is not a state, but in fact is an entity of the federal government and thus is regulated pursuant to special federal legislation. Accordingly, the Regente of the Federal District is named by the President. Institutionally and politically, the Federal District has the most influence in the MCMA compared to State of Mexico. Within the Federal District, the distribution of water and the water infrastructure are controlled by the district’s water utility or Dirección General de Construcion y Operacion Hydraulica. The collection of water bills, meters and service is handled separately by the Treasury Department of the Federal District. In that portion of the Basin of Mexico governed by the State of Mexico, the National Water Commission delivers water in bulk to the state water utility, the Comisión Estatal de Agua y Saneamiento. The state utility is responsible for

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Mexico City’s Water Supply: Improving the Outlook for Sustainability accepting the water, treating it, and distributing it to various counties in the state. The states and municipalities must request permits for ground water extraction from the National Water Commission. Private water companies are regulated and permitted in the same way as public utilities by the National Water Commission for distribution, extraction, or purchase of water. The interaction between the State of Mexico within the MCMA and the Federal District is surprisingly minimal. While cordial relations exist, they have two separate and distinct sets of infrastructure. On opposite sides of the same street one may find two separate water lines, one state and one federal. The state entities are different from the federal entities in that they receive very little direct funding and must rely on water fees to support their operation. When users do not pay their bills, which is often for the reasons discussed in Chapter 6, the states cannot pay the National Water Commission for their share of the overall infrastructure or for the water. Thus, each year there is a great deal of discussion of the amount of the subsidy to be provided by the National Water Commission because the state entities cannot pay the bill. In response to this problem, a number of measures, discussed below, are being put into place to protect the aquifer and conserve water by trying to make the system more efficient. Institutional arrangements for water allocation in the states of Hidalgo, Puebla, and Tlaxcala outside of the MCMA are similar to that of the State of Mexico. A New Water Strategy for the Federal District The Federal District Privatization Decree, issued in July 1992, creates a new Water Commission for the Federal District or Comisión de Aguas del Distrito Federal with the goal of improving the management of the public allocation of potable water, drainage, and treatment and reuse of residual waters. In this modernization effort, the decree allows the Water Commission to privatize the management and operation of water service in the federal district. The government hopes that this process will promote a new cultural appreciation that the water of the Federal District is a limited resource for which people of the area must pay. Under the new decree, the existing water utility will continue to maintain control of the major works, such as the transmission canal around Mexico City, but the new commission will take over the areas of water supply, treatment of water, drainage, and treatment of residual waters. In October 1992, the Federal District requested bids from private firms for the management of water distribution and billing in the district. Contracts were signed with the winning firms, and are designed to be implemented in three stages. The first is an updating of customer registers and installation of meters. The second will be the billing of customers by metered usage. In the third stage, private firms are expected to undertake the maintenance and repair of the

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Mexico City’s Water Supply: Improving the Outlook for Sustainability distribution system. In the first two stages, the contractor will be remunerated for specific tasks, such as installing meters or issuing bills. However, in the final stage, the city plans to sell water in bulk to contractors, and the firms, in turn, will sell water to the final consumers. The government plans to establish a preliminary schedule of water rates, which may vary among the four service zones according to demographic characteristics. The city eventually plans to base water rates on the contractor’s average total cost per unit volume of water supplied. At this stage, private firms should be in charge of operating and maintaining the water-distribution system and will (1) lose revenues if bills go uncollected, and (2) incur costs for leaks. The price at which the water will be sold to contractors is expected to be determined after there has been a period to operate under a “fee per task” system, the idea being to reduce uncertainty for both the city and the contractors. A distinctive characteristic of this scheme is that the district has been divided into four ‘zones’ with roughly equal numbers of users, and a separate firm was awarded the contract for each. Thus, there are four firms in operation during the period of the initial agreements. As of this writing, contracts have been awarded to a consortium of Mexican, French, U.S., and English firms. The Federal District now estimates that this billing and metering system may reduce water needs in the City by 30 to 40 percent, in part through the repair of leaks and in part from the reduced consumption expected to result from higher tariffs. This move towards privatization is not without precedent. The Mexican government has privatized more than 1000 public industries and services, including at least two wastewater treatment plants in the Federal District. The participation of private industry has already reached into airlines, telecommunications, highway construction, and banking. As the privatization initiative for the delivery of water within the Federal District moves forward, the National Water Commission, the Mexico City Water Commission, the Federal District, and the new private companies managing the distribution of water will need to coordinate and cooperate. It is at the national level that permits and water in bulk to the local distributors are allocated. Difficult questions will arise as to who should bear the cost of building the infrastructure, how water should be priced, and the practical measures for achieving efficiency in water use and distribution. New Federal Law on Water Rights On December 1, 1992, a new law was published which completely changed the method for allocation of ground water throughout Mexico. It provides that, based on hydrologic methods, a basin can be designated as fully appropriated. One can no longer put down a new well and get a new water right in a fully appropriated basin under this law. Rather, one must purchase the rights of an existing user. This change is expected to create a market for water rights. The

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Mexico City’s Water Supply: Improving the Outlook for Sustainability effectiveness of the law partly depends upon the knowledge of how much the previous user was actually using, and this presents a problem in the absence of meters. Nevertheless, there is a permit amount, and it is possible to back into this calculation by using hydrographic surveys and other methods. This law applies to potable water supplies as well. Prior to December 1992, any provider of potable water had to simply apply for a well permit and one would be granted. Now, the applicant must go out and purchase other users’ permit rights. If implemented properly, this new law should be useful in controlling ground water extractions in highly exploited areas by limiting the availability of permits. The law provides in a very vague way for consideration of impacts on third parties, but there are no provisions in regulation form which give meaning to this provision. As to well interference, the old law provided for a flat prohibition of the placement of a well within 500 meters of another’s well. Under the new law, the calculation will vary depending upon aquifer coefficients. Also important will be provisions for recording of permits, verification, and monitoring. Regional Water Planning Councils A further significant change brought about in the new national water law is a provision for the creation of regional watershed councils to help define the overall supply of water and provide local input into the management of ground and surface water. The councils are designed to work with the National Water Commission and state water commissions to set priorities for water use, to promote conservation, and represent the various user groups in the region. The Basin of Mexico constitutes a separate watershed and a council for this region will eventually be established. Mexico’s tradition of localized irrigation districts and agricultural cooperatives will provide a rich historic precedent for the development of these regional watershed councils. Local basin planning groups have already begun to bear fruit in the Lerma-Chapala basin where the private and public groups are working to develop plans for more efficient and fair utilization of that finite resource. The Federal District is attempting to convince water users, through education and promotion strategies, that to achieve better service, they must pay for metered water at prices reflecting its true cost. As the public pays more, it will demand a voice in the equitable distribution of water, and will want assurances that costs are being allocated fairly. The new regional water councils represent an important institutional development, because the user voices will be heard in these forums. The councils are designed to be a setting for open debate about the issues of water pricing, water rights, conservation measures, and infrastructure development.

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Mexico City’s Water Supply: Improving the Outlook for Sustainability WATER QUALITY INSTITUTIONS The national institution for protecting the environment, The Ministry of Social and Economic Development, has broad authority. Recent changes in the law have also given enforcement authority for water quality protection to the National Water Commission and to the Ministry of Health. Because of the dominance of these federal institutions, local or state health agencies have little responsibility over water quality within the Mexico City Metropolitan Area. Unfortunately, these federal agencies have overlapping jurisdiction and inconsistent regulations, which have made it difficult to develop comprehensive water regulations as mandated in the 1988 General Law of Ecological Balance. While the 1988 law announced a very extensive plan for protecting the environment, it has only been implemented in narrow areas where crises have forced action (e.g., see U.S. Government Accounting Office, 1991; and U.S. Environmental Protection Agency, 1993). Thus, until new regulations are promulgated, the standards established by the previous 1971 law for protection of water resources still apply. The new Law for Establishing Norms and Standards (La Ley Federal Sobre Metrología y Normalización, 1 de Julio, 1992) and the new position of Federal Prosecutor for the Environment are significant reforms. The Federal Prosecutor for the Environment has the ability to protect the environment by prosecuting those industries, companies in partnership with the state, and others that cause environmental damage through violation of government standards. The federal prosecutor operates outside the normal bureaucracy and could serve to focus national attention on serious environmental degradation, including water quality within the MCMA. In turn, national attention could bring about more extensive regulations to address current problems and future ones. The National Law for Norms and Standards mandates the use of cost-benefit analysis for new regulations, and requires investigation into nonregulatory market solutions. This law is significant because it is designed to bring epidemiologists and those who do risk analysis into discussions with institutions that encourage economic development. A cost-benefit analysis would presumably be involved as well in future regulatory decisions for the long-term life of the aquifer. The General Health Law of February 7, 1984 (amended in 1988) gives the Ministry of Health jurisdiction over a variety of water-quality issues dealing with drinking water. The laws set standards for drinking water, including maximum levels of contaminants and the elimination of bacteria. The law also addresses water distribution and authorizes the Ministry of Health to regulate the water quality in all the public and private infrastructure for water delivery. The law addresses the treatment of wastewater, and it prohibits the discharge of wastewater into areas where potable water is taken. Virtually all of the states incorporate the norms and requirements of the 1984 law, as do the municipal

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Mexico City’s Water Supply: Improving the Outlook for Sustainability systems. While the Ministry of Health sets the standards, enforcement of the regulations falls under the Ministry of Social and Economic Development and the National Water Commission. Another major change for water quality improvements is a new tax on both the use of the water resource and its disposal. While it is called a tax, it is intended to work like a permit fee to generate revenues to support protection of water resources. The component of the tax on wastewater disposal is designed as a disincentive for polluters, imposing a severe fine for returning untreated wastewater to the drainage system. Thus the tax is intended to encourage more efficient water use while generating funds for the government. The wastewater tax will clearly affect industrial users who draw their own water. It is not clear how municipal water users or the Federal District itself will be taxed. Implementation of the tax will likely influence commercial decisions for development, especially if it is applied differentially within and outside of municipal service areas.