Photographer: Jan Sochor/LatinContent/Getty Images

Rerouting Water From Brazil to Quench a Desert Megacity's Thirst

  • $6.1 billion project aims to supply all of Lima’s 10 million
  • City’s public utility eyes bond market to help back investment

To quench the thirst of the world’s biggest desert city after Cairo, Peru’s largest water company wants to tap international bond investors to help pay for a project to reroute water to the arid Pacific coast to serve Lima’s 10 million citizens.

Sedapal, as the public utility is known, plans to tap the overseas bond market next year to help finance 20 billion soles ($6.1 billion) of projects, one of the country’s largest investment portfolios, said Chairman Rudecindo Vega in an interview at his office in Lima.

A fifth of Peruvian homes lack running water and President Pedro Pablo Kuczynski, a former Wall Street banker, aims to close that gap in five years with $14 billion of investments. In Lima, about 8 percent of the population live in homes with no drinking water or sanitation. Vega said Kuczynski’s experience in finance and the water sector -- he founded an organization in the 2000s to build water supplies for the poor -- will help Sedapal obtain the money it needs to build more dams, tunnels and processing plants.

“His vision and knowledge, and his identification with water, gives me hope that we won’t have problems with financing,’’ said Vega, who was the minister responsible for water in the 2005-2006 government of Alejandro Toledo. Kuczynski was cabinet chief at the time.

Servicio de Agua Potable y Alcantarillado de Lima would be following in the footsteps of Petroleos del Peru, the state oil company, which made its bond market debut this week with the sale of $2 billion in overseas notes. It was Peru’s biggest corporate debt issue.

Growing Urgency

Sedapal sources most of its water from three rivers that originate about 5 kilometers (3.1 miles) up in the Andes mountains. To increase supply, Sedapal needs to build four new dams to capture more of the water flowing east down to the Atlantic basin, and two tunnels to channel it through the Andes and down toward the coastline where Lima is situated.

It also plans to build three more water treatment plants in Lima, a desalinization plant and lay additional kilometers of pipes beneath the city.

Vega said Sedapal aims to invest at least 700 million soles this year, which would be twice its historic annual average, before accelerating outlays next year.

“We’re going to have to move very fast from 2018 to 2020,” he said.

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The government’s local currency bonds have gained 10 percent this year, compared with a 6.8 percent rise for emerging markets, according to Bloomberg indices.

Apart from proceeds from the sale of about 2 billion soles in bonds, Sedapal’s expansion program will be financed by water rates, 2 billion soles in loans from multilateral banks and about 5.5 billion soles from the public purse over five years. About 4.5 billion soles of projects will be financed via public-private partnerships.

Sedapal’s headquarters share the La Atarjea complex that houses two of its water treatment plants. The area has been Lima’s main water source ever since the 16th century when Peru’s Spanish rulers built an aqueduct from marshland at La Atarjea to the city’s main square.

Sedapal’s investment program is designed to catch up with decades of unplanned, urban sprawl caused by mass migration from the Andes to Lima, which more than doubled the city’s population since 1980.

In the next five years the company plans to connect 800,000 people living in slums on the fringes and the hills of the metropolis to the existing pipe network. It also aims to guarantee supply round the clock for its existing 9.2 million customers who have the service but in some cases for as little as six hours a day.

Costs, Health, Supply

The expansion is also designed to reduce the cost of living for the city’s poorest. Residents living in slums pay up to 25 soles per cubic meter for water from private, unregulated trucks whereas homes with running water pay just 3 soles, Vega said.

The water trucks are “totally private so there’s a lot of abuse. Some of the water is very bad quality,” he said. Legislation is planned to put the water trucks under a public service overseen by the water regulator, he said.

In what might have been a wake-up call, this past March much of Lima had no running water for several days. Torrential rain had triggered mudslides in the mountains above Lima, dumping hundreds of thousands of tons of mud into the Rimac River, the main waterway flowing into the city.

La Atarjea was unable to process the water and the company’s reservoirs were quickly depleted. Panic-buying of bottled water ensued and supermarkets began rationing. The expansion of La Atarjea is designed to address that.

“If we stop producing, we have enough water for 5 hours. It’s nothing. We should have it for 24 hours, which would help us get around the next crisis,” Vega said.

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