COSTA RICA: PLENTIFUL WATER, POOR MANAGEMENT

1. (U) SUMMARY: A rain-rich climatic regime supplies Costa Rica
with more than enough water. However, the growing threat of
contamination and chronic underinvestment in infrastructure
threatens potable water resources, and undermines Costa Rica's
"clean and green" international image. Urban expansion in the San
Jose area and the rapid expansion of private real estate
developments along the Pacific Coast (in many cases associated with
AmCit investors) test the capacity of the overlapping government
agencies responsible for protecting, regulating, developing,
maintaining, and delivering water resources. The public sector
recognizes the need for legislative reform and public investment
while also engaging with the private sector to tap capital in order
to develop new water projects. Nonetheless, given other GOCR
priorities (such as domestic security) competing for legislative
attention, and the diminished political capital of the Arias
administration, systemic reform is unlikely before the next
elections in 2010. END SUMMARY.



--------------------------


98 PERCENT RUNNING WATER . . .


--------------------------





2. (U) According to the latest "State of the Nation" (SotN#13)
report, nearly all of Costa Rica's population -- 98 percent --
receives water from pipes and almost all Costa Rican households --
94 percent - have access to running water. The Costa Rican Water
and Sewage Institute (AyA), a national but autonomous public
utility, states that 82 percent of the population receives potable
water and that 16 percent receives untreated water classified by AyA
as unpotable.



--------------------------


BUT GROWING WATER DEMAND . . .


--------------------------





3. (U) Costa Rica's rapid urban development has overtaken
institutional capacity to develop and maintain the potable water
resource. Resort development along much of the Pacific Coast has
largely exhausted nearby existing fresh-water sources during the
December-May dry season, prompting calls for major investment in new
projects. The San Jose Greater Metropolitan Area obtains about 80
percent of its potable water from aquifers that are reported to have
reached their extraction capacity, likewise prompting calls for
major investment.



4. (U) Yet, Costa Rica's geography is such that even those areas of
Costa Rica with potable water deficits during a portion of the year
have clear potential to tap one of many sources: areas inland of
the Pacific coastal boom towns have underexploited aquifers; tourist
boom towns have obvious access to sea water; numerous rivers drain
into the Pacific and the Caribbean; and the mountains north and
south of the capital city of San Jose are laced with many streams.
Costa Rica's looming water shortage is thus not due to major
physical limitations.



--------------------------


. . . NO ONE CLEARLY IN CHARGE


--------------------------





5. (U) The water sector in Costa Rica suffers from a crisis in
governance. Several governmental entities share overlapping (and
sometimes conflicting) responsibility for water management. The
Water Department of the Ministry of Environment, Energy and
Telecommunications (MINAET) is arguably the logical custodian of
water resources, but it is currently an underfunded bureaucracy with
a confused mandate. The GOCR assigns responsibility for reviewing
water quality to the Ministry of Health. The National Irrigation
and Surface Water Service (SENARA) has responsibility for the
evaluation of groundwater resources and for the country's largest
agricultural water project. The National Forest Finance Fund
(FONAFIFO), a department within MINAE, manages the payment of
environmental services to preserve aquifer recharge areas. The
Public Services Regulation Authority (ARESEP) approves water usage
rates charged to individual users by the various system operators.



6. (U) Other institutions that regulate land use, and therefore
impact water management, include the National Parks service, the
Forestry Department of MINAE, the Ministry of Agriculture (MAG), the
Institute of Housing and Urban Development (INVU), and local
municipalities. Though these agencies have responsibility for
various aspects of water management, none/none of these agencies
actually deliver water to the user.



7. (U) On the operational side, AyA manages water systems serving 46
percent of the Costa Rican population and has nominal legal control
over the systems operated by 1,800+ independent community water
associations ("ASADAS") that serve another 25 percent of the
population. Municipalities manage another 18 percent, the regional
Heredia Public Utility Company (ESPH) has close to 5 percent, and
the remaining roughly 6 percent receive water on their own or are
not in the survey. (Data from SOTN#12, pg 233).



--------------------------


. . . REVENUE COLLECTION PROBLEMS


--------------------------





8. (U) The Arias Administration adopted water usage and discharge
fees by decree in 2006, yet, to date, only private holders of water
concessions have been paying the fee. Public institutions avoid
payment of the water usage fee, while the discharge fee was
re-defined and is slated to go into effect late this year. Jose
Miguel Zeledon, current director of the MINAET Water Department,
continues to be optimistic that the water usage fee will yield a
total of $10 million per year by 2013 when it is fully in effect,
with 43 percent generated by SENARA, 29 percent from hydroelectric
projects (mostly from the Costa Rican Electrical Institute (ICE)),
13 percent from water systems (AyA, ASADAS, and municipalities) and
the remainder from individual wells and agricultural use. The Water
Department will spend half those funds on the department itself, and
dedicate the other half to reforestation and conservation projects.




--------------------------


. . . AND CONTAMINATION


--------------------------





9. (U) Contamination of the water resource has become increasingly
evident in recent years, contradicting Costa Rica's international
reputation as a "clean and green" country. Fecal contamination is
universal in urban waterways; the Tarcoles River leading from the
Central Valley to the Central Pacific coast has been categorized as
"San Jose's Open Sewer." AyA's own statistics for 2007 show that
only 3.5 percent of Costa Rica's sewage is treated under operator
control, underscoring the extent of the problems:

Sewage Lines & Treatment Plant with Operator 3.5%
Latrines 3.5%
Sewage Lines & Treatment Plant w/o Operator 4.9%
Sewage Lines w/o Treatment Plant 20.1%
Septic Tanks 67.3%

AyA estimates that 50 percent of the septic tanks don't work. Thus,
AyA claims that 37 percent of the waste water in Costa Rica -- 3.5
percent plus 33.5 percent -- is treated.



10. (U) Aquifer contamination also threatens water quality. Not
only may river water and badly functioning septic tanks eventually
introduce fecal contaminants into the aquifers, but gasoline storage
tanks have already shown the potential for pollution. Agriculture
pollution is a recurrent danger given that Costa Rica's relatively
wealthy agricultural sector, geared for export production, makes
heavy use of agricultural chemicals. In the coastal zones, salt
water intrusion into the aquifers is an imminent threat as lax
management of the aquifers leads to excessive drawdown and exposure
to sea water contamination.



11. (U) Although the problem has been building for years, fecal
contamination of coastal waters has become a front-page issue. A
series of tests off of the Pacific coast tourist mecca of Tamarindo
Beach revealed high levels of contamination along the beachfront and
in the ocean. There is no public sewer system in Tamarindo and many
hotels ignore the requirement to treat their own water. Recently,
water tests at the Central Pacific resort town of Jaco revealed
fecal contamination exceeding 1100 parts per 100 milliliters of
water. (COMMENT: the recommended EPA threshold for swimming is 200
parts per 100 milliliters of water. END COMMENT.)



12. (U) Health officials finally responded by closing and citing
establishments in the Tamarindo area, while AyA officials continue
to test for pollutants along the coast. The five-star Hotel Resort
Allegro Papagayo was partially closed from February to mid-September
2008 after repeated water pollution violations. The port city of
Puntarenas, further to the south, dumps most of its sewage in the
estuary adjacent to the city, prompting AyA to include a sewage
system for that city among its future projects.



--------------------------


FINANCING AND THE PRIVATE SECTOR


--------------------------





13. (U) Private water suppliers in Costa Rica are severely limited.
All fresh water in Costa Rica is legal property of the state.
Landowners do not own the water that originates on/under their land
or flows over it, and groups of private landowners who provide
potable water or sewage services to themselves are on shaky legal
ground. Recent legal opinion has tended to confirm AyA's long
insistence that it, the municipalities, and regional authorities are
the sole legal providers of these services and everyone else (ASADAS
and landowner groups) must operate at the pleasure of AyA.



14. (U) Although AyA insists upon legal dominance in the water
sector, its true power is reflected by its ability to harness
private capital to develop public water infrastructure. According
to AyA Legal Director Rodolfo Lizano, AyA's current public-private
efforts are based on a 1968 law that stipulates when urban
infrastructure is not already built, a developer may build that
infrastructure and deliver it to AyA. In exchange, for a period of
5 years, subsequent land developers must first pay the developer who
built the infrastructure.



15. (U) One project, near the Manuel Antonio National Park on the
Pacific coast, has been successfully built and delivered to AyA.
Further north in the Coco/Sardinal area on the Gulf of Papagayo,
another project stalled because the inland community (Sardinal)
which is to supply water to a beach resort (Coco), protested.
Nevertheless, AyA and the Arias Administration acted decisively to
persuade community leaders that the project benefits the community.
It is likely to be finished. Two other projects in the Tamarindo
area will likewise be financed in the same manner, comments Lizano,
and are ready to move ahead once the controversy in Sardinal passes.




16. (U) The Executive President of AyA, Ricardo Sancho, has been a
strong proponent of public/private financing schemes and has also
commented that Costa Rica needs to be more willing than it has been
in the past to go into debt to build water and sewage projects. An
example is the $230 million sewer system project designed to serve a
portion of the San Jose Metropolitan Area. The Japan Development
Bank agreed to a $130 million loan (AyA pays $30 million; the GOCR
pays $100 million). AyA will finance the remaining $100 million
through rates levied on users of the system. This project is also
an illustration of the dangers inherent in the requirement that the
national legislature approve all sovereign debt. Despite the
manifest need for modern sewage treatment, this legislative project
languished for years and was finally approved in October of 2006
when Costa Rica was about to lose the Japanese loan.



--------------------------


ANY PROPOSALS FOR REFORM?


--------------------------





17. (U) Costa Rica's existing water law is over 60 years old, yet
concerted attempts to draft a new water law have stalled. Dr. Pedro
Leon, a top environmental advisor to President Arias, told Emboffs
on October 14 that the GOCR hopes to push a new "Water Resources
Law" through for approval in 2009 in concert with President Arias'
"Peace With Nature" initiative. The debate over water resources has
generated heated turf battles between AyA, ASADAs, ESPH, MINAET, the
Health Ministry, SENARA, and ARESEP.



18. (U) In addition, more philosophical objections are enunciated by
Carlos Manuel Rodriguez, ex-Minister of MINAET during ex-President
Pacheco's administration, who states that the current water bill is
more "commercial" (and therefore less acceptable) than the law
drafted during Rodriguez's tenure at MINAET. Rodriguez believes that
the legislature will not approve the water bill as currently
proposed. Nevertheless, both he and the Arias administration agree
on two types of water use payments (see para 8 above): a water use
fee ("canon de aprovechamiento de agua") and a pollution or
discharge fee ("canon de vertimiento al agua").



--------------------------


COMMENT


--------------------------





19. (SBU) Costa Rica's water sector presents great potential that is
stymied by ineffective law, interagency bickering, and AyA's
struggles to exert operational control while ceding a portion of its
expansion to private/public agreements. As with other public
infrastructure problems here (i.e., regarding highways, ports, and
electrical production), the continued public demand for potable
water will force actors in the sector to do something. The need for
large water and sewer projects in the booming Guanacaste tourist
areas and the rapidly growing San Jose Central Valley is generally
accepted, as is AyA's role as the lead institution in managing those
projects.



20. (SBU) However, we believe that any reform to existing water laws
is unlikely to advance during the remaining 18 months of the Arias
administration. There are simply too many more pressing legislative
and political challenges to address, such as the growing domestic
security problem and the impact of the world financial crisis. The
conflicting challenges of delivering improved water and wastewater
services in Costa Rica will likely wait until the next
administration takes office in 2010.
CIANCHETTE