The impact of Spain’s worsening economic crisis on the municipal water sector is showing up in falling water consumption and rising levels of bad debt, with some households simply unable to pay water bills.

The most easily identifiable impact of the crisis has been on consumption by commerce and industry, which fell by 20% from 2007 to 2010, according to the national statistics institute (INE). More recent data published by the Catalan water agency (ACA) indicates that the decline in consumption – particularly by industry and commerce – has continued since 2010.

The picture is harder to piece together with regard to the impact of falling incomes and rising water tariffs on bad debt, both because there is no regulation requiring companies to publish this data, and also because the economic crisis has had an uneven impact across the country.

In Pamplona, capital of the relatively prosperous region of Navarra, the number of procedures initiated prior to potential disconnections rose by 37% from 2009 to 2012, although outstanding debt represents only 2.1% of the local water utility’s annual revenues. Meanwhile, in Medina-Sidonia in Andalucía, the municipal water company has seen bad debt as a percentage of revenue rise from 2.2% in 2007 to almost 8% in 2012 (see chart top). Furthermore, data from the Barcelona metropolitan area shows that the number of procedures initiated to disconnect water supply soared from 27,359 in 2011 to 72,039 in 2012.

Strategies for dealing with bad debt vary. While disconnection is legal and is non-payment, Aguas de Murcia (EMUASA), Aquagest’s mixed capital operator in Murcia’s regional capital, has responded to public pressure by creating “a social fund with no ceiling to help all those families who are unable to pay their water bills,” director José Albaladejo told GWI.

In Mérida (Extremadura), however, the head of water and social services Ana Blanco said last month that the scale of debt relating to unpaid water bills in the city ruled out the possibility of creating a “social water tariff”, which is being demanded by citizens currently camped outside council offices in protest at having their water supply cut off.

Guillermo Cao, commercial director of Malaga’s public water operator EMASA, which recently created a €150,000-a-year social fund, confirmed to GWI that there has been a rise in people asking for extended payment terms. EMASA disconnected 7,000 customers in 2012, “but that doesn’t represent a big rise on the previous year,” he added.

The director of Agbar’s concessions business Ciril Rozman told GWI that the biggest impact of the crisis his company has detected has been a large reduction in the number of customers paying by direct debit. However, Agbar subsidiary Aigües de Barcelona last month signed an agreement with a number of metropolitan municipalities to provide financial assistance in paying water bills for up to 6,000 households.

Falling consumption, rising energy costs, sharply reduced business from the installation of new connections, and slower payment means that “profitability is being affected, especially as financing costs have risen,” according to Manuel Navarro, director of O&M and services at Acciona Agua.

Santiago Gutierrez, director of publicly owned Aguas de Medina Sidonia, told GWI that his company’s “socially aware” policy of never disconnecting water supplies is proving costly. Private sector companies “which are required to maximise profit by the high canons they pay to municipalities resort to disconnection, which is cheaper, and also effective because it forces people to prioritise payment of water bills,” he said.

Many municipalities and regions have significantly raised water tariffs in recent years, partly to compensate for rising financing costs and falling receipts, but mainly to recoup capital costs embedded in new treatment infrastructure.

In Catalunya, for example, the average price per cubic metre paid by households has risen by nearly 44% since the start of the crisis in 2008, according to ACA. Exceptionally, in Algeciras, Andalucía, tariffs have risen by up to 300%, according to a citizens’ platform.

These tariff hikes have logically shown up in municipal water operators’ revenues, which rose by nearly 10% on average between 2008 and 2010, according to data collected by the Spanish water supply and treatment association (see chart below).

Spain’s second biggest private sector operator aqualia managed a 5% rise in EBITDA between 2010 and 2012 by implementing a policy of weeding out unprofitable contracts from its portfolio, director general Félix Parra told GWI. However, according to José Albaladejo, earnings are significantly down for many water companies across Spain.

At the same time, rising tariffs multiply the impact of falling incomes in reducing water users’ ability to pay. The result has been a mushrooming of campaigns across Spain against tariff hikes, water supply disconnections and, often, against private sector involvement in municipal water provision.

“After years of inaction, municipal authorities have chosen the worst possible moment” to introduce full cost recovery, said Acciona Agua’s Navarro. If significant future tariff hikes are to be avoided, municipalities will need to reduce their ambitions and lower the cost of concessional canons, he warned.