**2. Economic and institutional evolution: Portugal and the Douro**

The attempts to reform the management of water in the Douro embody some of the most emblematic difficulties to translate the WFD regulation into practical improvement measures. The debate about the decentralization of water management – one of the tenets of the WFD regulatory regime – happens in tandem with a growing discussion about the transference of state duties to the regional spheres of public administration, as well as with broader claims for local autonomy, social inclusion and even economic development (vis-àvis, for example, the series of conferences organised by the City Council of Porto in 2008). First of all, it is important to recognise that the use of water in the catchment had and still continues to play a strategic role in terms of regional development. The upper reaches have been the electric powerhouse of Portugal, due to the construction of large hydropower schemes since the 1950s, whilst the lower section of the catchment became associated with light-industrial production and the export of port wine. Until the early 20th century, wine was transported to the city of Porto in small boats (called 'rabelo'), but fluvial navigation started to decline with the inauguration of a railway line in 1887 and, more importantly,

Bringing Water Regulation into the 21st Century:

Precursory period (till early 20th century)

Hydraulic period (1919-1986)

Transitional period (1986-1993)

Water service

basin plans (1993-2005)

liberalisation and river

in Portugal and in the Douro

The Implementation of the Water Framework Directive in the Iberian Peninsula 185

French concessionary company (Amorim & Pinto, 2001).

the supply of water to the metropolitan area.

180,691 in 2004).

implemented.

Navigation in the Douro increased significantly in the early 18th century with the transportation of port wine from the Peso da Régua region to the Porto docks (Pereira, 2008). The first hydropower generation site in the country was installed in a Douro tributary in 1894. Since the 1880s, water supply to the metropolitan area of Porto passed to rely on a treatment plant in the Sousa River, a tributary of the Douro under the operation of a

The Water Law of 1919 established a higher recognition of the importance of water for the socioeconomic development of the country (Cunha et al., 1980). The Law stipulated that water use required a prior authorisation from the state, which was later confirmed by the Decree No. 468 of 1971. It was during this phase that most of the large infrastructure works were built and key technical agencies were created and (the Hydraulic Services General Directory in 1949 and the Basic Sanitation General Directory in 1973). Some of the most strategic hydropower plants were built in the Douro, such as Picote (1958), Miranda do Douro (1960) and Bemposta (1964). The recently established dictatorship cancelled the contract wit the French concessionary in 1927 and municipalised the water services in the city of Porto. In 1940, a well field along the Douro (in Zebreiros) increased

The regulatory context started to change after Portugal joined the European Union in 1986. During this period, a growing number of publications (e.g. Miranda, 1986) started to emphasise the need to adopt modern water management, in particular economic instruments based on the polluter-pays principle. A dedicated regulatory agency, the National Water Institute (INAG), was crated in 1990. Since 1985, the Crestuma-Lever reservoir, located at 21.6 km from the mouth of the Douro became almost the only suitable source for the production of potable water for approximately two million inhabitants of the Porto region (the same dam had impacted negatively the well field because it reduced the river flow and increased the rate of salinity in Zebreiros). The first tourism navigation ship started to operate in the Douro in 1986 and since then the industry has grown significantly (from 6,440 passengers in 1994 to

The approval in 1993 of the Decree No. 379 provided the legal basis for the gradual concentration of water services in the hands of regional companies. There has been a continuous trend towards regional water utilities, which is part of a movement from dispersed to concentrated sources of water supply, a tendency that has increased in recent years (Thiel, 2006). In 1994, a series of decrees reorganised the regulation of water use in Portugal and introduced the recognition of the economic value of water: No. 45 (on river basin plans), No. 46 (water user licence) and No. 47 (a charging scheme that included volumetric bulk water tariffs). Under that national legislation, the National Water Council and various river basin councils, including one for the Douro, were

established as advisory boards and largely formed by civil servants. The Douro river basin plan was adopted in 2001, but it was only marginally

Box 1. (continues on next page) Historical Evolution of Water Use and Water Development

road transport in the early 20th century (Pereira & Barros, 2001).3 At the same time, the transformations of the mechanisms of water use are closely related to the socioeconomic processes of change in the northern region of Portugal. Efforts to recover the regional economy have included actions related to increasing the use of freshwater resources, particularly in terms of new hydropower dams, fluvial tourism and the expansion of the water supply and sanitation network (CCDR-N, 2006).

The above points illustrate how the social and physical transformations around the use of water in the Douro reflect the broader 'choreography' of regional, national and international demands. Portugal started to intensify its economic and monetary integration with the rest of the continent in the 1960s, when joined the group of countries that founded the European Free Trade Association. That culminated in the full membership of the European Union (in 1986) and the adoption of the euro as the national currency (in 1999). The industrialisation and economic development of Portugal has been historically led by the national state, but such a condition has been increasingly criticised by national and international political forces. Crucially, the style of the WFD regulation is closely consistent with the neoliberal direction of European economic policies (see below), but neoliberalising reforms have neither guaranteed economic growth nor avoided the persistence of macroeconomic imbalances (Amador, 2003). It is important to emphasise that the evolution of environmental regulation in Portugal has followed the broader adjustments of public policies and the reconfiguration of the state according to a perspective of economic liberalisation and promarket incentives. According to Queirós (2002), Portugal has made much progress in establishing a revised environmental legislative framework (largely but not solely in response to European Union directives), strengthening its environmental institutions (including the Ministry of Environment, Spatial Planning and Regional Development), developing national environmental planning (e.g. its first national environmental plan, in 1995) that covers the entire country (e.g. national coastal area protection plans, national nature protection plan, municipal land use plans). The introduction of the WFD in Portugal is an integral part of this institutional reorganisation and, in the words of a senior authority, the complexity is situated in the tension between the centenary tradition of the Portuguese law system and the formal requirements of the European legislation (see Ambiente Online, 2005). Considering the changes that took place in the last century, it is possible to schematically describe five successive phases of water use and development in the Douro, which echo national and international transformations (see Box 1). Note the transition from Keynesian forms of state intervention until around 1986 and the prevalence of post-Keynesian and neoliberal approaches ever since.

The impact of human activities on the water bodies in the Portuguese section of the Douro is evident one considering the trend of water quality classification. Different than other rivers in the south of the Iberian Peninsula, quantitative water impact does not represent the main management problem, but the pollution of the Douro and its lower tributaries. Water quality is seriously affected by household and industrial effluents (due to the lack of sewage collection and treatment), as well as diffuse pollution from agriculture that is mainly originated in Spain. The activity that consumes the largest volume of water in the Douro is

<sup>3</sup> According to the navigation authority (IPTM), the transportation of commodities in the Douro still remains a viable means of transportation and reached 140,000 tons in 2004 (94% of that total related to the export of granite to northern European countries).

road transport in the early 20th century (Pereira & Barros, 2001).3 At the same time, the transformations of the mechanisms of water use are closely related to the socioeconomic processes of change in the northern region of Portugal. Efforts to recover the regional economy have included actions related to increasing the use of freshwater resources, particularly in terms of new hydropower dams, fluvial tourism and the expansion of the

The above points illustrate how the social and physical transformations around the use of water in the Douro reflect the broader 'choreography' of regional, national and international demands. Portugal started to intensify its economic and monetary integration with the rest of the continent in the 1960s, when joined the group of countries that founded the European Free Trade Association. That culminated in the full membership of the European Union (in 1986) and the adoption of the euro as the national currency (in 1999). The industrialisation and economic development of Portugal has been historically led by the national state, but such a condition has been increasingly criticised by national and international political forces. Crucially, the style of the WFD regulation is closely consistent with the neoliberal direction of European economic policies (see below), but neoliberalising reforms have neither guaranteed economic growth nor avoided the persistence of macroeconomic imbalances (Amador, 2003). It is important to emphasise that the evolution of environmental regulation in Portugal has followed the broader adjustments of public policies and the reconfiguration of the state according to a perspective of economic liberalisation and promarket incentives. According to Queirós (2002), Portugal has made much progress in establishing a revised environmental legislative framework (largely but not solely in response to European Union directives), strengthening its environmental institutions (including the Ministry of Environment, Spatial Planning and Regional Development), developing national environmental planning (e.g. its first national environmental plan, in 1995) that covers the entire country (e.g. national coastal area protection plans, national nature protection plan, municipal land use plans). The introduction of the WFD in Portugal is an integral part of this institutional reorganisation and, in the words of a senior authority, the complexity is situated in the tension between the centenary tradition of the Portuguese law system and the formal requirements of the European legislation (see Ambiente Online, 2005). Considering the changes that took place in the last century, it is possible to schematically describe five successive phases of water use and development in the Douro, which echo national and international transformations (see Box 1). Note the transition from Keynesian forms of state intervention until around 1986 and the prevalence of post-

The impact of human activities on the water bodies in the Portuguese section of the Douro is evident one considering the trend of water quality classification. Different than other rivers in the south of the Iberian Peninsula, quantitative water impact does not represent the main management problem, but the pollution of the Douro and its lower tributaries. Water quality is seriously affected by household and industrial effluents (due to the lack of sewage collection and treatment), as well as diffuse pollution from agriculture that is mainly originated in Spain. The activity that consumes the largest volume of water in the Douro is

3 According to the navigation authority (IPTM), the transportation of commodities in the Douro still remains a viable means of transportation and reached 140,000 tons in 2004 (94% of that total related to

water supply and sanitation network (CCDR-N, 2006).

Keynesian and neoliberal approaches ever since.

the export of granite to northern European countries).


Box 1. (continues on next page) Historical Evolution of Water Use and Water Development in Portugal and in the Douro

Bringing Water Regulation into the 21st Century:

**PERCENTAGE (**

in other countries, such as in Brazil.

**%**

1995

1996

1997

1998

water supply and sanitation operators is summarised in Table 1.

1999

2000

Fig. 2. Water Quality Trend in the Portuguese Section of the Douro Catchment

2001

to classify the sector of water supply and sanitation as: *national state jurisdiction*: direct state management, delegated management (to public companies entirely owned by the national government) and concessions (to companies owned by the national government in partnership with municipal authorities, or between public and private companies); and *local authorities jurisdiction*: direct management (municipal, municipalised or intermunicipal services), delegated management (sub-municipal ['freguesia'], municipal or intermunicipal services) and concessions (to companies owned by the national government in partnership with municipal authorities, or between public and private companies). The distribution of

After the approval of a new legislation in 1993 (Law 379/1993), there has been a gradual movement towards the consolidation of high services in regional entities, which are supposed to provide gains of scale and rationalise water abstraction at the regional level. A national state-owned company was created in 1993 (Águas de Portugal), which has ever since formalised partnerships with local authorities in order to create regional companies (Águas de Portugal typically owns 51% of the regional company and the local authorities together own 49% of shares).6 In the Douro, there are two such companies, the Águas do Douro & Paiva (in the Porto metropolitan area) and the Água de Trás-os-Montes & Alto Douro (in the upper river basin). Nonetheless, at the same time that the treatment of water is being transferred to regional utilities, some municipalities have contradictorily created their own companies to operate independently, such as city of Porto, which in 2006 established the Águas do Porto. Coherent with the current macroeconomc policies and the

6 Águas de Portugal also became an international player involved in the privatisation of water services

2002

**YEAR**

2003

2004

2005

2006

2007

Class A Class B Class C Class D Class E

The Implementation of the Water Framework Directive in the Iberian Peninsula 187

**WATER QUALITY - DOURO (Portugal)**


Box 1. (continued) Historical Evolution of Water Use and Water Development in Portugal and in the Douro

the irrigation (114,000 hectares cf. INAG, 2005). Industrial demand is another main user sector and its main environmental significance is the discharge of effluents into the river system, which aggravates the level of pollution. For the purpose of this analysis, we obtained data from the national surveillance system (available at http://snirh.pt), which has been used to inform the implementation of the new water directive. It can be seen in Figure 2 that there is an undefined trend of water quality in recent years (note a recovery of Class A, the best water quality condition, in 2007, together with a decline in Classes B, C and D, and a sudden increase in Class E situations). Environmental impact is, however, not restricted to pollution, by also include the negative influence of dams on native species, sediments and riparian habitats.

Probably the experience that best encapsulates the interface between social, economic and environmental demands in Portugal – before and under the WFD regime – has been the redesign of public water services.4 For many years, the water industry had been systematically criticised for its fragmentation into small, localised companies, with high operational costs and limited investment capacity (e.g. Alves, 2005; Martins, 1998). The historical origin of the fragmentation of public water services was the delegation of responsibilities to municipal and sub-municipal administration, which still today are the main providers (among the 278 municipalities in Portugal, it is reported that exist 610 operators cf. Monteiro & Roseta-Palma, 2007).5 Another characteristic of the Portuguese water industry is the operational separation between drinking water production (abstraction and treatment), called 'high services', and retail water distribution (supply of water to households and commercial customers), called 'low services'. To facilitate the understanding of the complex water industry currently in operation in Portugal, it is possible

<sup>4</sup> The country has one of the highest per capita footprints in the world (2,264 m3/year, cf. Malheiro, 2008), which is related not only to cost of water, but also with climatic conditions, technological stands, and patterns of production and consumption.

<sup>5</sup> Note that these numbers do not match the figures published by the regulator (IRAR, 2008).

would not be achieved.

Box 1. (continued) Historical Evolution of Water Use and Water Development in Portugal

the irrigation (114,000 hectares cf. INAG, 2005). Industrial demand is another main user sector and its main environmental significance is the discharge of effluents into the river system, which aggravates the level of pollution. For the purpose of this analysis, we obtained data from the national surveillance system (available at http://snirh.pt), which has been used to inform the implementation of the new water directive. It can be seen in Figure 2 that there is an undefined trend of water quality in recent years (note a recovery of Class A, the best water quality condition, in 2007, together with a decline in Classes B, C and D, and a sudden increase in Class E situations). Environmental impact is, however, not restricted to pollution, by also include the negative influence of dams on native species,

Probably the experience that best encapsulates the interface between social, economic and environmental demands in Portugal – before and under the WFD regime – has been the redesign of public water services.4 For many years, the water industry had been systematically criticised for its fragmentation into small, localised companies, with high operational costs and limited investment capacity (e.g. Alves, 2005; Martins, 1998). The historical origin of the fragmentation of public water services was the delegation of responsibilities to municipal and sub-municipal administration, which still today are the main providers (among the 278 municipalities in Portugal, it is reported that exist 610 operators cf. Monteiro & Roseta-Palma, 2007).5 Another characteristic of the Portuguese water industry is the operational separation between drinking water production (abstraction and treatment), called 'high services', and retail water distribution (supply of water to households and commercial customers), called 'low services'. To facilitate the understanding of the complex water industry currently in operation in Portugal, it is possible

4 The country has one of the highest per capita footprints in the world (2,264 m3/year, cf. Malheiro, 2008), which is related not only to cost of water, but also with climatic conditions, technological stands,

5 Note that these numbers do not match the figures published by the regulator (IRAR, 2008).

The WFD was translated into national legislation in 2005 (Portugal, Law No. 58/2005) and attempts to forge improvements in several areas, including technical assessments, decision-making and regulatory enforcement. The WFD promotes the concept of water as an economic commodity and, therefore, the economic principles are main criteria in the determination of cost-effective mitigation measures and in assessing the case for derogation on grounds of disproportionate costs. The translation of the WFD into national legislation also launched the legal basis for the creation of water markets in Portugal (i.e. markets for the transaction of water use licences) that is claimed to allow the reduction of pollution through market transactions and at the minimal cost (D'Alte, 2008). The financial-economic regime, which introduced bulk water charges, was approved in 2008. In the end of that year, the Water Regulatory Agency (ARH) was preparing the production of river basin management plans, but it was expected that the deadline of end of 2009

WFD regulation (the current phase, since the approval of WFD in

and in the Douro

sediments and riparian habitats.

and patterns of production and consumption.

2000)

Fig. 2. Water Quality Trend in the Portuguese Section of the Douro Catchment

to classify the sector of water supply and sanitation as: *national state jurisdiction*: direct state management, delegated management (to public companies entirely owned by the national government) and concessions (to companies owned by the national government in partnership with municipal authorities, or between public and private companies); and *local authorities jurisdiction*: direct management (municipal, municipalised or intermunicipal services), delegated management (sub-municipal ['freguesia'], municipal or intermunicipal services) and concessions (to companies owned by the national government in partnership with municipal authorities, or between public and private companies). The distribution of water supply and sanitation operators is summarised in Table 1.

After the approval of a new legislation in 1993 (Law 379/1993), there has been a gradual movement towards the consolidation of high services in regional entities, which are supposed to provide gains of scale and rationalise water abstraction at the regional level. A national state-owned company was created in 1993 (Águas de Portugal), which has ever since formalised partnerships with local authorities in order to create regional companies (Águas de Portugal typically owns 51% of the regional company and the local authorities together own 49% of shares).6 In the Douro, there are two such companies, the Águas do Douro & Paiva (in the Porto metropolitan area) and the Água de Trás-os-Montes & Alto Douro (in the upper river basin). Nonetheless, at the same time that the treatment of water is being transferred to regional utilities, some municipalities have contradictorily created their own companies to operate independently, such as city of Porto, which in 2006 established the Águas do Porto. Coherent with the current macroeconomc policies and the

 6 Águas de Portugal also became an international player involved in the privatisation of water services in other countries, such as in Brazil.

Bringing Water Regulation into the 21st Century:

Douro, as discussed next.

The Implementation of the Water Framework Directive in the Iberian Peninsula 189

last few years, demonstrated by a growing preoccupation with the level of debts, the ineffectiveness of many capital investments and the difficulty to raise money (IRAR, 2008). According to the national plan for the period 2007 to 2013, it will be necessary to invest € 3.8 bi (€1.6 bi in high services and €2.2 bi in low services) to secure 95% of public water supply coverage and 90% of public sanitation coverage (Ministerial Resolution 2339/2007). Different than in the recent past, European funds are expected to pay for only a fraction of that total amount, which means that the sector needs to find additional sources of investment and, probably, continue to increase the charges paid by the customers. Despite a constant effort to recover the costs and the controversy that it creates, between 1998 and 2005 tariffs increased below the rate of inflation and the charging scheme continued to be characterised by high levels of complexity and unfairness (Monteiro & Roseta-Palma, 2007). Furthermore, if it is undeniable that improvements in water services and environmental conservation require capital investments and incur high maintenance costs, the concentration of efforts around cost-recovery measures tends to diminish the attention to environmental and social dimensions of water services. The ongoing experience of the water industry has significant parallels and connections with the introduction of the WFD in the

**3. The contested search for efficiency and the multiple tensions under WFD**  As described above, the introduction of the WFD in Portugal has accelerated a process of institutional change initiated in the previous decades, particularly after the entry of the country into the European Union. Since the approval of the 2005 water legislation that translated Directive into national legislation, open events and regular media coverage have helped to broaden the debate about the new water regulatory regime. Nonetheless, underneath an apparent convergence of public opinion, there lays a stream of continuities and uncertainties not yet adequately considered. In several of our interviews it was mentioned that a major shortcoming is the insufficient opportunities available for the public to contribute during the regulatory transition. Historically, stakeholder engagement in water management and environmental issues has been very low in both Portugal and Spain, as much as between Portugal and Spain (Barreira, 2003). After the introduction of the WFD, the involvement of the public has remained restricted to consultations and formalist activities that offer little transparency and produce limited impact on decision-making (Veiga et al., 2008). In particular, the round of meetings organised in 2007-2008 by the government to discuss the new legislation ended up being something like a 'big imbroglio' because it has been limited to a small number of participants and merely ratified decisions made in advance by the government (interview with a NGO activist, 19 Nov 2008). Among the general members of the public, the criticism about the current water reforms has been related to a loose resistance against utility privatisation and in favour of vaguely defined 'water rights'. The superficial understandings of the conceptual underpinnings of the Directive permeate also the discourse of many environmental activists and academics that

do not seem entirely aware of the politicised basis of the WFD regime.

Another significant evidence of continuity between past and present approaches is **the topdown assessment of environmental impacts and future scenarios**. A series of reports have been commissioned to estimate environmental pressures and impacts, as required to inform the implementation of the Directive, but by and large these assessments constitute little

contemporary model of water governance, the reorganisation of the water industry has created important opportunities for private business, especially through the operation of municipal or multimunicipal concessionaries (in the form of public-private partnerships), whilst also stimulates private sector involvement in terms of outsourcing and operation and maintenance contracts (Water and Waste Regulatory Institute [IRAR], 2008).


Table 1. Classification of Water Service Providers in Portugal (adapted from IRAR, 2008)

Whereas the new paradigm for water supply and sanitation in Portugal is consistent with policies that emphasise efficiency and rational management, the regulatory agency – the Institute of Water and Waste Regulation, IRAR, which was established in 1997 – still remains with a narrow remit and only deals with the concessionary companies, leaving the great majority of the municipal operators to self-regulate themselves.7 In addition, the investment capacity and financial health of water utilities have deteriorated rapidly in the

 7 In 2008, there was a national debate about extending IRAR's duties to the other types of operators, but it was still difficult to see any firm movement in that direction.

contemporary model of water governance, the reorganisation of the water industry has created important opportunities for private business, especially through the operation of municipal or multimunicipal concessionaries (in the form of public-private partnerships), whilst also stimulates private sector involvement in terms of outsourcing and operation and

National government jurisdiction

national state Low 0 0

concessionary Low 1 0

High 62 67 municipal services Low 205 217

municipalised High 5 5 services Low 25 24

services Low 0 0

municipal/ High 5 7

public company high & low 155 0

concessionary Low 22 16

Local authority jurisdiction

or local (low)

Delegated public company Low 16 18

High 8 11 Concessions Municipal

Table 1. Classification of Water Service Providers in Portugal (adapted from IRAR, 2008)

Whereas the new paradigm for water supply and sanitation in Portugal is consistent with policies that emphasise efficiency and rational management, the regulatory agency – the Institute of Water and Waste Regulation, IRAR, which was established in 1997 – still remains with a narrow remit and only deals with the concessionary companies, leaving the great majority of the municipal operators to self-regulate themselves.7 In addition, the investment capacity and financial health of water utilities have deteriorated rapidly in the

7 In 2008, there was a national debate about extending IRAR's duties to the other types of operators, but

Water supply (number of operators)

Water supply (number of operators)

High 2 0

Basic sanitation (number of operators)

Basic sanitation (number of operators)

or local (low)

Direct state High 0 0

Delegated High 1 0 management public company Low 1 0 High 13 16 Concessions multimunicipal

maintenance contracts (Water and Waste Regulatory Institute [IRAR], 2008).

Type Entity Regional (high)

Type Entity Regional (high)

intermunicipal

intermunicipal

sub-municipal

it was still difficult to see any firm movement in that direction.

management

Direct state management

management

last few years, demonstrated by a growing preoccupation with the level of debts, the ineffectiveness of many capital investments and the difficulty to raise money (IRAR, 2008). According to the national plan for the period 2007 to 2013, it will be necessary to invest € 3.8 bi (€1.6 bi in high services and €2.2 bi in low services) to secure 95% of public water supply coverage and 90% of public sanitation coverage (Ministerial Resolution 2339/2007). Different than in the recent past, European funds are expected to pay for only a fraction of that total amount, which means that the sector needs to find additional sources of investment and, probably, continue to increase the charges paid by the customers. Despite a constant effort to recover the costs and the controversy that it creates, between 1998 and 2005 tariffs increased below the rate of inflation and the charging scheme continued to be characterised by high levels of complexity and unfairness (Monteiro & Roseta-Palma, 2007). Furthermore, if it is undeniable that improvements in water services and environmental conservation require capital investments and incur high maintenance costs, the concentration of efforts around cost-recovery measures tends to diminish the attention to environmental and social dimensions of water services. The ongoing experience of the water industry has significant parallels and connections with the introduction of the WFD in the Douro, as discussed next.
