How Chile Might Leave the “Chilean Model” Behind: President Bachelet’s Proposal to Reform the Country’s Famously Laissez-Faire Water Laws

Earlier this month, the Energy Center hosted a conference in Santiago on emerging trends in the use of international arbitration to resolve energy disputes in Latin America.  Naturally, it was the sort of occasion that inspired a comparative law perspective.

Chilean President Michelle Bachelet, who assumed office in March 2014 (after having served a previous term from 2006 to 2010), has proposed an ambitious set of reforms, covering issues as varied as education, reproductive rights, and taxes.

Bachelet has also called for changes to Chilean water laws.  That a national leader has seized upon water as a centerpiece issue is itself intriguing.  But when it comes to water, Chile is no ordinary nation.

In its free market fervor, the Pinochet dictatorship created a water rights regime that is the most laissez-faire in the world.  It is so unique that it has come to be known as the “Chilean model,” and the World Bank and Inter-American Development have encouraged other countries to follow its lead.

The Chilean Water Code represents not only a functioning water rights framework but also a grand ideal.  The Bachelet reforms would alter both a legal system and a preeminent example of the use of market forces to allocate scarce resources.

The exact shape the reforms will take remains somewhat of a mystery.  In her public statements, Bachelet has spoken only generally.  The Chilean media have reported extensively on the water woes facing the country but, aside from vague references to amending the constitution and Water Code, have not dug into policy details.

In the first presidential message of her new term, Bachelet said that one of the “great challenges for our economy is the sustainable management of our water resources.”  She said the country should prepare for climate change, expect more frequent droughts, and act to protect glaciers.  She further announced that she would appoint a presidential delegate to develop reform proposals that would be presented this June.  To that position she named Reinaldo Ruiz, an economist and agricultural under-secretary in her first administration.

Ruiz and other Chilean leaders have suggested declaring water a “public good.”  But given the extreme property rights orientation of the current Water Code, a “public good” declaration could mean anything from laying the legal groundwork for some sort of resources management framework to revoking existing rights.

Chilean Hydrology

Like many other water-challenged jurisdictions, from Texas to Australia, Chile does not have a shortage of water so much as a mismatch between where the water flows naturally and where it is needed to satisfy human demands.

As every good maphead knows, Chile is uniquely shaped.  It is one of the longest countries in the world, up there with other cartographic behemoths like the Brazil and Canada, but it is much narrower.  At its widest point, it is only about 220 miles across, less than the distance from Dallas to Houston.  But from head to toe, Chile stretches about 2,600 miles – longer than the distance from San Diego to Juneau, longer even than the distance from Jacksonville to Los Angeles.

In the north is the Atacama Desert, commonly referred to as the driest place in the world.  It is so arid that parts of it have never recorded a drop of rain.  In the south is Patagonia, with glaciers and fjords, with microclimates receiving 80 to as much as 270 inches of precipitation per year.  (As a point of comparison, Seattle receives about 38 inches of precipitation in an average year, and New Orleans about 64.)

In between these two extremes are several distinct geographical regions, including central Chile, which is home to most of the population and which features a tempeate Mediterranean climate similar to that of coastal California.  And much as California moves water from north to south, so Chile, as its climatological twin, moves water from south to north.

Photo of mountain and lush landscape
Where Water Is
Photo of Dry Desert
Where Water Isn’t

Current Chilean Model  

Under Chilean law, the nation owns water resources but may grant “derechos de aprovechamiento,” or “rights of advantageous use.”  Waterways themselves remain within the public trust of the state, but those who receive water rights enjoy virtually unfettered use of them.

The Constitution declares (at Article 19, Paragraph 24 Chapter III): “The rights of private citizens over waters, recognized or constituted in conformity with the law, shall grant proprietorship to the owners thereof.”  The Water Code (at Book 1) builds upon this foundation by setting forth provisions for water rights and usage.

In the American West, the owners of surface water rights must receive administrative approval before transferring their rights as well as before changing their type of use.  In determining whether to grant approvals, regulatory agencies must consider the impacts on the environment, protected third parties, and other rights holders who depend on return flows.

Similarly, virtually all states in the American West have established policies preferring certain types of uses.  When there are finite additional supplies to allocate, these preferences may favor allocations to particular uses.  Or they may call for the most important uses (typically municipal and domestic) to receive water when supplies are insufficient to satisfy all uses.

Under Chilean law, there are no usage preferences.  Nor is there much in the way of administrative oversight.  Rights holders may transfer water as freely as real property.  Water disputes are resolved under civil law rather than public law.

There are limits; rights holders cannot indiscriminately change the location of use, and new water rights are subject to modest environmental flow requirements. Still, compared to other jurisdictions, Chilean water law is so deregulated that virtually every article on the subject laments the rampancy of hoarding and speculation.  (In 2013, rumors even surfaced that the Chilean government itself planned to export water to Qatar.)

Calls for Reform

The Chilean Water Code was adopted in 1981.  Since as early as the 1990s, there have been periodic calls to reform it, with activists and legislators introducing proposals to nationalize or at least increase the regulation of the water sector.  Proponents of reform have consistently cited the same litany of evils, including that the existing system channels water away from socially and environmentally beneficial uses.

The mining sector in particular has been singled it.  Mining accounts for almost half of the country’s exports and a third of government revenues, and it uses a significant amount of water, which critics have said leaves less water for other uses.  The exact impact of mining on water resources varies by region.  In the north, for instance, it compounds existing scarcity problems; in the south, it has compromised glaciers, which provide a significant amount of water, by digging into them, by creating roads and tunnels that undermine their structural integrity, and by coating them in dust that accelerates their rate of melting.

In 2005, the Water Code was amended modestly, but it retained its general framework.  President Bachelet supported greater control over water during her previous term, and her latest proposals build upon longstanding concerns that may have been heightened by an ongoing five-year drought.

In a May 21 speech, Bachelet spoke about her reforms.  She recommended building more small reservoirs, and assisting irrigators, but she did not touch on structural reforms other than to recommend declaring water a “public good.”

The meaning of “public good” is open to interpretation.  Arguably, water already is a “public good” since the country owns water resources and has the authority to grant water rights.  But once granted, those rights are so strong they strip water of most of its public character.

On May 28, Alberto Robles, a government deputy from the Radical Party, said that declaring water a “public good” was a step in the direction of nationalization.  And in response to a news query about nationalization, Bachelet’s water czar, Reinaldo Ruiz, said “I’ve never talked about expropriating or nationalizing water, or anything like that. These are rights granted by the state, and the state has every right to ask to be returned. And today, they cannot. We are not expropriating or nationalizing, because we are seeking the return of something that already belongs to the whole nation.”

This description sounds much like nationalization by another name.  If Chile never privatized water, it cannot now be accused of nationalizing.  Of course, considering the current configuration of Chilean water, that argument is a tough sell.

Ruiz and others have acknowledged that, for the reforms to succeed, the Chilean constitution and Water Code will have to be amended.  Recasting water as a “public good” will require the country to chip away at constitutional protections of water rights as private property.

A New Model of Water Rights

No matter what direction Bachelet’s reforms take, if they are successful, Chilean water law will probably end up looking slightly more like American water law, at the same time that water law in the American West is starting to look a little more Chilean, though the differences between the two regimes is vast.

Internationally, water markets have been hailed as mechanism for efficiently allocating water supplies and combatting scarcity, though the success that a particular has will depend on its design and supporting institutions.  In the 2000s, the Australian commonwealth government responded to Millennium Drought by developing markets in the Murray-Darling basin.  The markets are so robust and liquid that water can be bought and sold by text message.

In the American West, politicians and regulators have promoted voluntary water transfers (subject to the no injury rule and other constraints discussed above) as an efficient means of reallocating finite water supplies.  For example, in a January 2014 drought declaration, and again in an April 2014 executive order, California Governor Jerry Brown instructed state agencies to streamline and expedite water transfers.

In Australia and the United States, though, water markets serve as only one tool for integrated resources management rather than as a replacement for management.  The integrated resources management approach regards economic efficiency as an important factor rather than as the lodestone of all water policy.

The downside is that, at times, integrated resources management may establish processes that unnecessarily subdue naturally occurring economic incentives; and it may leave the door open to political pressures that subordinate economic efficiency too much to other considerations.

But it can build in protections for preferred stakeholders (in Chile, for instance, there is concern about the access that indigenous communities have to water) and it can keep in check the speculation and profiteering that has unsettled Chilean reformists.

This post benefitted from the research assistance of Energy Center intern Camila Cossio ’16 and former Energy Center RA Bianca Scott ’15.

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