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Spain Environmental Export Market Plan
Chapter 3

The Water Challenge: Overview
Water issues are a priority for Spain's national government and regional governments. Because of the geographical and climatic conditions, Spain experiences recurrent periods of drought and flooding. In the early 1990s, it was affected by the worse drought in this century. Additionally, one-fifth of the country is desert.

When it rains, soil erosion caused by the absence of vegetation complicates matters. A national reforestation program has increased forested areas over the past 10 years, but much more is needed. Furthermore, many industries in Spain continue to dump waste into rivers and other bodies of water. Though enforcement of legislation to improve the aquatic environment is increasing, progress in this area has been very limited.

One of Spain's challenges in managing a scarce water resource has been to balance its economic use (irrigation and other agricultural uses, electricity production, other industrial uses, aquaculture, recreational uses, water transportation, etc.) with household use (town supply). As part of Spain's water management strategy, the Organization for Economic Cooperation and Development (OECD) has recommended implementing the “user pays” concept, as well as price-driven water conservation plans to promote optimum and efficient use. The installation of flow meters throughout Spain, from households to industrial sites and irrigation channels, is needed for an effective, environmentally friendly infrastructure. The upgrading of old and damaged drinking water facilities and pipelines to prevent leakage has also been pointed out as a priority area.

The size of the market for water treatment is estimated at about $4 billion annually. About 90 companies, of which 70 are public, control the water sector in Spain. The Ministry of the Environment estimates that the National Sewerage and Wastewater Treatment Plan (1995-2005) will require an investment of $14.4 billion, with more than 50 percent of this amount invested in new wastewater treatment plants and just over 40 percent used to extend sewerage networks. A central government contribution, partly financed by the European Union (EU), of 25 percent is expected.

The National Sewerage and Wastewater Treatment Plan aims to meet the EU directive concerning urban wastewater treatment. It will be revised once the water objectives formulated in the drainage basin hydrological plans are approved. Implementation of the plan and the achievement of its year 2005 deadline will depend much on the commitment of municipalities to overcome the inertia still prevalent, particularly in smaller towns, vis-a-vis environmental investments.

Water Legislation
New legislation may address Spain's environmental concerns. In May 1997, the Minister for the Environment proposed a bill to the Parliament to revise or amend legislation dating back to 1985. Key points of the proposed changes include:
--Combining desalination, sewage treatment, and water recovery projects;
--Increasing metering of water usage to promote water savings;
--Increasing control of dumping of industrial and agricultural wastes in bodies of water;

--Increasing cooperation between the national government and the autonomous communities; and
--Providing greater flexibility for water management in times of drought.

Environmental organizations that are active in water quality issues and affected parties immediately went to battle to present their own points of view and lobby elected officials in Parliament. As mentioned, water issues are a priority in Spain and lend themselves to extensive and intensive debate. Current legislation will probably be amended several more times. New EU directives for water use, treatment, discharge, preservation, etc. will be implemented. EU member states had until December 31, 1991 to ensure that industrial wastewater entering collecting systems and wastewater treatment plants were subject to prior authorization. Beginning December 31, 1998, wastewater discharged from municipal wastewater treatment plants will be subject to authorization.

Municipal Sewage Treatment
Although there has been considerable progress in the past two decades in building new municipal sewage treatment plants, the installed capacity still needs to be expanded considerably. The percentage of households connected to a municipal sewage system and the percentage of municipal sewage systems with advanced treatment plants differ widely from region to region. The implementation of the National Sewerage and Wastewater Treatment Plan depends on the availability of funding at the local level and the amount of outside financial support available for costly major projects. Part of the suggested solutions is the implementation of “polluter pays” strategies to finance the construction of new sewage treatment facilities. The EU Cohesion Fund has been used to help cover the cost of remedial action. For example, in 1996, 20 new projects were approved for funding by the EU for municipal wastewater treatment facilities.

Between 1998 and 2000, public tenders will be issued by local and regional governments throughout Spain for bids by private companies to build new infrastructure for wastewater treatment. These projects will address the need for remedial action in areas that suffer from water contamination, construction of new treatment plants to reduce the discharge of untreated wastewater, and the
introduction of technology to improve water quality for bathing. Some new plants providing up to tertiary
treatment may be built to allow for re-use of water in areas affected by drought.

For the most part, all newer industrial parks and major shopping centers have installed sewage treatment systems. However, upgrading the systems in older parks is a very challenging and costly proposition. Coalitions of business interests, labor unions, and local governments have cited installation costs in their defense of industries which discharge untreated sewage and dangerous chemicals into rivers and other bodies of water. Nevertheless, polluters have been penalized despite the support for environmentally damaging industrial sites to preserve jobs.

Use of Methane from Sewage Treatment Plants for Cogeneration
Sewage treatment plants, and more specifically the anaerobic digestion of sludge, generate methane and other combustible gases. These gases, often with a higher caloric value than gas produced at landfill sites, can be used to generate electric power. Spain has a great deal of potential in the use of this technology. However, the majority of the sewage treatment plants in Spain only provide primary treatment to sewage water. More advanced infrastructure is needed to provide secondary and tertiary treatment. One possible way of helping to defray the cost of investment in these advanced treatments is to install cogeneration facilities to use the gas generated by anaerobic digestion to produce electricity. American companies with this type of technology should contact Spanish municipal sewage treatment plants directly or through their Spanish agent/distributor to explore business opportunities.

Water Statistics
Ninety-one percent of Spanish households are connected to public water supply networks.

Over 57 percent of the raw water (surface and groundwater) used for drinking water requires heavy
treatment, but only 33 percent of supply actually undergoes such treatment.

All municipalities of over 20,000 people have a sewer system, but only 60 percent of the population is
connected to wastewater treatment systems.

About 75 percent of the sewer systems carry sewage and rainwater runoff.
Source: Organization for Economic Cooperation and Development.

Recovery of Contaminated Coastal Waters
Spain is taking steps to address coastal contamination. Each year close to 60 million tourists visit Spain, and most of them vacation in coastal resorts. To protect the tourism industry, several projects have been presented to the EU Cohesion Fund. The projects involve recovering areas of coastal waters that have been affected by improper sewerage treatment plants and industrial discharges into rivers that eventually deliver pollutants to the sea. Erosion of beach areas is also a problem, increased in some areas by the construction of new port facilities that have affected coastal currents. Spanish beaches are considered to be of very high ecological value and will continue to receive due attention in the near future.

Spain dumps significant amounts of untreated municipal sewage in the Mediterranean Sea. There are about 14 million people in coastal urban centers along the 6,120 kilometers of coastline. This population doubles during tourist season, thus placing additional pressure on the environment. Spanish rivers, including the Ebro, also carry industrial and agricultural chemical pollution to the Mediterranean Sea. Countries bordering on the Mediterranean, including Spain, have created the Committee on Sustainable Development in the Mediterranean Area and have adopted a plan to reduce pollution by the year 2005.

As of 1997, the EU Cohesion Fund approved financing for 14 projects along the Spanish coast, as well as in the Canary and Balearic Islands. U.S. environmental firms should be alert for public tenders for a wide variety of projects, from desalination plants to new wastewater treatment plants.

Main Players in the Water Business in Spain
Leading banking institutions, as well as former state-owned companies, state-owned companies about to be privatized, savings and loan institutions, electric utilities, and other large Spanish firms, have been organizing joint ventures or consortia to bid for environmental services contracts. In the water sector, there are about four or five of these groups positioning themselves for business opportunities. For American companies, one of the best ways to enter this market is to contact these business groups. For the most part, any joint venture composed of financial institutions will need technical operators to
qualify for bidding on any privatization tenders in Spain, and American companies have a good opportunity to join these groups as technical operators. The key players in this sector are:
--Aguas de Barcelona (20 percent market share and mostly active in the northeast);
--Canal de Isabel II (12.5 percent market share and mostly active in Madrid);
--Saur Internacional (7.5 percent market share);

--Sociedad Mediterranea de Aguas (5 percent market share).

The primary competitors for American companies are Spanish, French, and British firms. The French companies Compagnie General des Eaux (CGE) and Lyonnaise des Eaux have been particularly successful in Spain. CGE operates in Spain under the trade name Sociedad Mediterranea de Agua and has acquired a high percentage of the sector not controlled by public entities. Lyonnaise de Eaux, a partner in the Aguas de Barcelona consortium, is very active in the Catalunya region.

Among the leading Spanish companies in the water services sector are:
--Inypsa S. A.-Water treatment plants, environmental audits, and environmental impact statements;
--TM Consult-Engineering design and treatment of sewage plants, as well as environmental impact
--Clusa-Canary Islands company that operates the municipal solid urban waste collection system, as
well as water desalination and sewage treatment plants; and
--Fomento de Construcciones y Contratas (FCC)-See the next chapter on waste management for
details on this large Spanish diversified construction company.

Of the 10 largest American service companies in water supply/treatment, Montgomery Watson, Inc., and the Bechtel Group, Inc., are active in Spain. However, numerous American equipment suppliers are active in the water treatment sector and sell either directly or through agent/distributors.

Hydranautics, a major manufacturer of membrane elements used for water desalination, has made an important sale to the Instituto Nacional de Industria y Medio Ambiente (INIMA), for the desalination plant it is constructing in Arica, Chile. INIMA is one of the business enterprises owned by the Spanish Government, and part of the Teneo Group, which includes Auxini, Babcock Wilcox Española, Instituto Nacional de Ingenieria y Tecnología (INITEC), and Adaro. As a government-owned company, INIMA receives substantial assistance in its export of engineering design, equipment, and construction services to other countries.

The Plan II Project
Several large scale wastewater treatment projects with partial EU funding have been announced throughout Spain. The largest project will take place in Madrid between 1998 and 2003. This project is called Plan II for cleaning the Manzanares river and a major overhaul of the storm sewers and wastewater treatment system in the Madrid metropolitan area. More than 100 kilometers of new sewer lines will be constructed, and the existing water treatment plants will be upgraded and expanded. A new wastewater treatment plant will be constructed at La Gavia.

Plan II is estimated at $288 million. The Madrid municipal government will contribute approximately $152 million, the Spanish national government approximately $32 million, the Pozuelo municipality approximately $6 million, and the EU Cohesion Fund approximately $98 million. The Madrid city government plans to increase the water-use fees by 2 percent to implement the user pays principle. The procurement process outlined in chapter 2 will be followed for this large project.

Plan II, is the result of Royal Decree 484/1995, which called for new measures to improve water quality. The following are specific targets:
--By January 1, 1999, all urban areas with more than 10,000 people and discharge wastewater into
sensitive areas will be required to have their own wastewater treatment plant.
--The same regulation will apply by January 1, 2001 for all urban areas of over 15,000 people.
--The regulation will be expanded to cover all urban areas with populations between 2,000 and 15,000
people by January 1, 2003.
--Detailed information and the bidding schedule for this and other regional and national projects is
available in the regional and national official gazettes (see chapter 2, section 2.4 for home page

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