Erg Rosenmann Becerra, ergdayan@gmail.com

Forestry Engineer, Master on Rural Developtment

Pucón, Araucania Region, Chile


Political and legal framework

Chile is the only country of the region, and possibly the world, whose legislation allows separate legal transactions on water and land rights, thus creating two independent markets. Since 1981 when the laws were promulgated the State has placed more emphasis on regulation of the water rights market to the detriment of managing water conservation issues, whose territorial and socio-environmental consequences have now been manifesting for more than 30 years. However since 2010, these issues have become increasingly more critical.  Water scarcity is increasing in several regions of the country. Local conflicts are constantly growing due to both overconsumption of extractive industries or territorial incompatibilities (e.g. HydroAysen project). Currently there is no hydrological resource integrated management; the water rights grant is indiscriminate and free, and the concentration of these rights is set in just a few mining , hydroelectric and agricultural companies.  To date 99% of the total flow of water streams has been already allocated to private sector monopolies.

The level of social conflict has grown in such a way that the Chilean government was forced to request the World Bank to conduct a  general diagnostics study into the situation. The study concluded by making recommendations for radical transformation of Chiles national water management policies. Moreover, alliances have been created between citizens, technicians, and parliamentarians for the study of parallel proposals to the water management model, and to the official energy strategies (hydroelectricity covers 40% of the generation of electricity in Chile), that demands an urgent territorial arrangement and a new water code to help alleviate a major problem.

Many authors warn about the risks of the water market on Chile’s legislation, among others, the high costs of social environmental conflicts. The relatively high investments in mini hydroelectricity projects, and yearly fines applied by the law, increase these conflicts. It impels investors to quickly make territorial claims to secure terrain and only later assuming the high cost of the territorial problems. As a result, certain rural communities have developed an increasing territorial and environmental consciousness and are rejecting these outside interventions based on trading water rights separately from land use rights with little or no benefit to the communities of the hydrological basin.

In these legal and political circumstances, comparative studies in Latin America related to local water governance, and the establishment of Hydrological Services Payment (HSP) schemes, highlights for Chile many national obstacles, nevertheless, it is still possible to identify opportunities (author’s opinion).  The regulation of the management and legal  framework  of water and forest resources should not impede its benefits as a community asset, because there is a social potential for management by small, organized, and autonomous water users. It should therefore be possible to tackle this problem by introducing effective procedures and local design of HSP schemes, using existing market tools to regulate water use.

This paper aims to highlight some of these social, environmental, and economic elements with regard to  HSP opportunities, and the contribution of mini hydroelectrical projects to sustainable local development within the context of the current Chilean model of independent water and land markets. These reflections originate from the author’s experience as a social leader of the rural community (Tinquilco Committee) and Pucon Municipality, where the author lives. These entities have collective water rights as common wealth and therefore are a unique exception to the national law.

Water use in Chile is sustained by superficial water courses. Most of them (88% of given flows) have “no consumptive” use assignations (NC), that is the waters are not consumed, but generally used for hydropower. More than the 99% of water rights have been given to large and medium hydropower companies. Just a few territorial or social organizations have this type of water rights. One of them is Tinquilco Committee, and only one municipality out of Chile’s 327 communities: Pucon.


Territorial autonomy and decentralization of the State

The paradox of these cases is evident: the Law regulates the private use of water, but in these two cases, these rights were requested for public use in Pucon and the rural community of Tinquilco. The situation in these two locations is special at the national level because it refers to ownership and usage of water by the inhabitants of the surrounding areas allocated by the State. It also constitutes an interesting situation for the international community, because it concerns communal and territorial water rights holders at basin level, who have complete autonomy and governance of the water, and who benefit directly from its hydropower. Therefore conflict between the local community, provincial and national government is reduced, and much less bureaucracy is required to establish and operate a mini hydro power plant.


Territorial Interests and Worthing and Hydrological Environmental Services Payment (HSP) 

The Tinquilco Committee (TC) is an organized community that in 2011 won the management of almost all of the flow of its basin in competition against a French entrepreneur. To avoid fine payments for under use of the water flow established by law, their leaders began a search for hydropower entrepreneurs interested in investing through a commercial alliance with the TC, as owner of the water rights. In consultation with the association of entrepreneurs of Small and Middle Hydropower plants of Chile, they found some cases in which the investor does not hold water rights in the location where they wish to invest. In these cases, following some years of supply and demand analysis within the hydropower market a value range was assigned based on the requirements of buyers and investors in water.


This value fluctuates between 10 and 15% of the total value of the investment and the income of the business. The value can be an essential reference for the planning and operation of a mini hydropower project. This “water value” concentrates the social and environmental costs, relative to the quality and quantity of water collected in producing electricity. The HSP considers the water flow that produces electrical power as a paid environmental service, since the functionality of a hydropower plant depends on the use and management of the basin that provides the prime matter, the water, in such a way that this hydrological service would provide the same quantity, quality and annual distribution of the water through the plants whole lifetime. The equation is as follows: most mini hydropower investors in Chile have acquired for themselves, for free, the water rights.  The investment continues to be profitable even when they purchase the rights including the “water value” which corresponds to the payment of the environmental costs involved to maintain water standards. Positively internalising, in this way, the negative externalities of the basin through a payment for conservation and/or management of the basin. The TC has the NC water rights which are bound within the land tenancy agreement. In most of the case where there is conflict it can be resolved by the recommendation to investors to assign a suitable proportion of the “water value” in compensation for the social and territorial impacts previously established, even though this is normally the responsibility of the government.


Moreover, with the aim of protecting the river adventure tourism, the Municipality of Pucon (MoP) has acquired major water rights of the main rivers in areas where in situ environmental conservation  and tourist activities are conducted, and which are currently not regulate in Law. For this reason, the MoP has to pay a “patent”, which is a type of fine, for not using the water for hydropower. Due to this concept the MoP is in debt by overUS$2.000.000, with risk of losing their water rights. This threat can be averted in a timely manner by a serious evaluation and survey of the potential hydropower use for the common wealth to the community in flow areas with lower tourist value. This would be a perfect solution for the current conflicts between investors in mini hydropower and Pucon’s surrounding communities. The “water value” would provide the municipal income to properly compensate the affected surrounding communities.  This would effectively integrate them with the development of the water basin. This is an investment in renewable energy through mediation, training and implementation of plans in forest management and territorial development, especially in those territories located upstream from the mini-hydropower plants, as payment for the hydrological services provided from the native forests.


This model of placing a market value on the hydrological services of mini hydropower plants, could contribute to the on-going debate on the strategy and institutions required for integrated management of hydrological resources and hydrographic basins wherever this type of renewable energy is increasing around the globe.


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