Environmental Technologies Industries

Environmental Technologies Industries

Market Plans

Chile Environmental Export Market Plan

I-Overview of the Chilean Environmental Market

Environment and Development in Chile
After a decade of steady economic expansion fueled by increased exports, Chile faces a new challenge: to reconcile economic growth with maintaining a healthy environment. Until fairly recently, environmental protection was not a high priority for the Chilean Government. However, prompted by increasingly severe air and water contamination problems and by international pressure in its bid to enter into new trade agreements, Chile has begun to take measures to strengthen its institutional and regulatory capacity for environmental management. In 1994, the general Environmental Framework Law was enacted, creating a comprehensive environmental management system. The historic lack of complete, well-enforced regulations for air, water, and solid waste is changing; several new regulations are under review and are expected to be promulgated during 1998.

The government has embarked on several initiatives to address Chile’s worst environmental problems. Severe air pollution in urban centers such as Santiago has made air quality a key priority. Through a monitoring network in Santiago, the National Environmental Commission (CONAMA) can detect unsafe levels of pollution and respond with concrete strategies. A new decontamination plan for the metropolitan Santiago region, released in 1997, establishes a series of new measures to reduce air pollution. The plan places increased restrictions on the most contaminating stationary sources, provides more restrictions for automobiles, and includes other measures to improve public transportation and road conditions. In several other regions, as required by the 1994 Environmental Framework Law, decontamination plans have been developed to stem air pollution from “megasources,” particularly state-owned mining smelters.

The government has also launched a multisectoral pilot project to stem deteriorating environmental conditions in Talcahuaco. With the assistance of the Swiss Development Corporation, CONAMA developed the Environmental Recuperation Plan for Talcahuano (PRAT) in July 1994. The objectives of this plan are to improve the quality of life and health of the area’s citizens, reclaim and preserve the natural resources of the region, and make economic development of the community compatible with environmental protection. The key to the plan’s success is that it was developed with input from all sectors of the community. The plan is being implemented by two committees: a Technical Support Committee, composed of professionals from the municipality, the Regional Environmental Commission (COREMA), the local public community, universities, research centers, and public and private companies; and the Financial Support Committee, which is made up of regional banks, the National Production Improvement Agency, and the Inter-American Development Bank. Different productive sectors have promised their support to the project. The fishing industry has committed $18.3 million to lessen the environmental impacts of the fishmeal industry, the steel industry has committed $15.7 million to improve its processes, and the local water and wastewater utility will invest $3.8 million for treatment of sewage discharged into the San Vicente Bay.

Santiago Limpia (Clean Santiago) 2005
As Santiago is home to about one-third of Chile’s population, improving environmental quality in the capital city and surrounding area is a key priority. Ringed by the Andean Mountains, Santiago sits in a valley that experiences inversion layers that trap air pollution from a growing number of vehicles and urban and industrial activities. This has created severe air pollution emergencies and prompted implementation of a number of programs to reduce air emissions from mobile and fixed sources. In addition, although the regional water utility is one of the most efficient in Latin America for supplying potable water, its wastewater treatment record is not as impressive. Only 3 percent of all municipal wastewater is currently being treated; the remainder flows untreated into two main rivers running through Santiago.

To address the environmental problems of the metropolitan area, the Metropolitan Environmental Health Authority prepared a plan in 1990 for a “Clean Santiago” by the year 2005. The plan focuses on reducing air pollution, improving water quality, and reducing noise pollution. The main objectives of the plan are to reduce the risk of premature death and respiratory illnesses for the region’s inhabitants, improve overall visibility, reduce travel time within the city, increase green space, and develop environmental education programs. This ambitious plan will require significant public and private investments in environmental measures and programs during the next five years.

To more effectively manage the environmental impacts of economic development nationwide, an environmental impact evaluation process was established by the 1994 Environmental Framework Law. As of 1997, all new projects and activities must conduct an evaluation of environmental impacts. Developers must either prepare an environmental declaration or undertake a full environmental impact assessment (EIA) before receiving approval to implement their project. As part of this process, the developers may be required to undertake additional measures to reduce environmental damage. A key provision in this process is the requirement for public review. The environmental community in Chile has been actively following large-scale projects and has been influential in stopping projects with adverse environmental impacts.

In keeping with Chile’s privatization efforts, the Chilean Congress passed legislation in November 1997 to phase in privatization of water and sanitation companies. While the country’s 13 water companies have been operating essentially as independent entities, they remain financially dependent on the state development agency, which has limited overall investments in this sector. While the supply of potable water in urban areas is for the most part excellent, wastewater treatment is deficient, causing serious surface water quality problems throughout the country. The legislation will open up this sector for private investment, which will bring in much needed capital for infrastructure development. The country’s two largest water and sanitation companies, the Metropolitan Sanitary Services Enterprise (EMOS S.A.) and the Sanitary Services Enterprise of Valparaiso (ESVAL S.A.), will probably be the first to be privatized. It is anticipated that negotiations will be underway in the first part of 1998, and the first transactions will likely occur midyear. Full transition to private sector control will occur over the next few years and will profoundly change the water sector.

Regulations governing environmental emissions from the industrial sector are beginning to be put in place. Some were updated shortly after the passage of the 1994 law, and others are still awaiting final approval. While economic growth has been a much higher priority for the industrial sector, companies have voluntarily taken measures to control pollution in anticipation of the regulations, rather than waiting for them to come into effect. Unlike many Latin American countries, government-owned companies represent only a fraction of Chilean industry. Just three remain state owned: the National Copper Corporation (CODELCO), the National Mining Corporation (ENAMI), and the National Petroleum Corporation (ENAP); however, these are some of the worst environmental offenders. CODELCO and ENAMI have developed decontamination plans and are commited to making significant investments in environmental improvements.

These initiatives are shaping Chile’s environmental market. An increased focus on environmental quality in urban areas, the requirements for EIAs from both public and private sector projects alike, and changes in the water and sanitation sector will be the primary market drivers in the near term. Pressures from the international market to conform to such international health and safety standards and environmental management systems as ISO 14000 are also providing incentives for Chilean companies to proactively implement environmental measures in order to remain competitive.

Political and Economic Overview

Chile is endowed with the ample marine resources of the Pacific Ocean, fertile valleys that support a booming agricultural trade, and an abundance of mineral and forestry resources which provide a sound economic base. With a population of only 14 million people, Chile is a relatively small market, but its political stability, well-educated population, and strong economy make it attractive for U.S. companies.
Political Situation
Chile has undergone major political changes in the last two decades. Although its democratic traditions stem from the early 1800s, the country was, after a brief and tumultuous experience with socialism, under the military rule of August Pinochet, Chief Commander of the Army, from 1973–1990. The 1980 Constitution enacted under Pinochet called for a gradual transition to democracy by 1989. In 1988, the military regime called a constitutionally mandated national referendum to decide whether Pinochet would stay in office for an additional eight years. Much to his surprise, he was defeated. Since Pinochet ceded control of the government, there have been two presidents: Patricio Aylwin, who won the presidential election in 1989 and took office in 1990, and Eduardo Frei, who will be in office through 1999. In addition to continuing the free-market policies of his predecessors, President Frei has made educational improvements, the modernization of public services, rural development, and the eradication of poverty the top priorities of his administration.
Economic Trends
An important legacy of the Pinochet Government is the transformation of Chile to a free-market, export-oriented economy. Key reforms included privatizing many of the state-owned industries as well as the social security and health systems, deregulating the labor market, and carrying out tax reforms. As a result of these changes, the country now boasts the most stable economy in Latin America. Its economy has grown an average of nearly 7 percent per year since 1990; in 1997, the economy expanded by $75 billion. Chile’s inflation rate has declined steadily in recent years, hitting an all-time low of 5.5 percent (estimated) in 1997. As a result of both economic growth and labor policies tailored to a market economy, the number of jobs grew from 2.8 million to 5.3 million between 1982 and 1996, driving the unemployment rate down from 19.4 percent to 5.4 percent. Table 1 presents key economic indicators for Chile during the 1990s.

Table 1: Economic Indicators for Chile

	1990	1991	1992	1993	1994	1995	1996	1997(e)
GDP-Current ($B)	28.1	30.2	41.3	43.7	52.2	67.3	71.9	75.0
GDP Growth Rate (%)	3.3	7.3	11.0	6.3	4.2	8.5	7.2	11.5
GDP-Per Capita ($)	2,308	2,571	3,203	3,302	3,719	4,697	4,961	5,300
Inflation (%)	27.3	18.7	12.7	12.2	8.9	8.2	6.6	5.5
External Debt ($B)	17.4	16.4	18.2	19.2	21.4	21.7	23.0	24.7

Privatization has been a major element of Chile’s economic reform. Since 1982, the government has privatized the energy, telecommunications, and transportation sectors. While the world’s largest copper company, CODELCO, remains state owned, virtually all new investments in the mining sector are private. The water sector is the next sector to be privatized. Additional reforms that have helped to transform the Chilean economy into one of the most efficient in Latin America include privatization of insurance companies, improved bank regulation, and incentives for workers to participate in the ownership of firms.
Economic Integration: Chile has entered into bilateral trade agreements with Canada, Mexico, Colombia, Ecuador, and Venezuela and is an associate member of the Southern Cone Common Market (Mercosur). It is moving ahead to negotiate similar agreements with other regional groups in a bid to further expand its circle of free-trade partners. It is also a member of the Asia-Pacific Economic Cooperation Forum (APEC) and is negotiating a framework with the European Union. Most important for the United States, Chile is next in line for admission to the North American Free Trade Agreement (NAFTA), based on its track record and its commitment to the principles of free trade. Chile’s inclusion in NAFTA has been thrown somewhat into question by the reluctance of the U.S. Congress to give President Clinton fast-track authority to enable these talks to proceed. Pending the U.S. decision, Canada and Mexico have gone ahead and entered into separate free-trade agreements with Chile. To take advantage of reduced tariff barriers, many U.S. companies that export to Chile have begun to export from their Canada- or Mexico-based operations.
Trade Policy: Much of Chile’s economic growth has been led by exports. In the past, Chile’s major export commodity was copper, but as Chile steadily opened its markets to the world, it developed a new productive export market for fresh fruits and forestry and fisheries products. The United States is Chile’s top trading partner, followed by Japan and Argentina (see table 2). In addition, Chile has continued to expand its trade with other regional markets. In 1996, Chilean trade with NAFTA countries reached $8.3 billion; with the European Union, $7.2 billion; with APEC members, $16.2 billion; and with Mercosur, $4.6 billion.

Chile’s process of trade liberalization can be traced back to the 1970s when tariffs were decreased from an average of 105 to 10 percent in 1979. After the 1982 payment crisis forced an increase in tariffs, the government began lowering them again in 1985, until they reached a low of 11 percent in 1991. Chile’s low tariffs have not just benefited the domestic economy but have also proved to be quite beneficial for companies exporting to Chile. In contrast, other Latin American countries still levy import tariffs that range between 15 and 40 percent. The government plans to lower tariffs to 8 percent to comply with the provisions of regional trade agreements.

Table 2: Chile’s Top 10 Trading Partners ($ Million, 1996)

Rank	Country	Exports	Imports
1	United States	2,559	4,109
2	Japan	2,496	950
3	Argentina	701	1,634
4	Brazil	935	1,066
5	Germany	741	729
6	United Kingdom	887	282
7	Mexico	147	927
8	Italy	475	551
9	France	393	582
10	China	354	515

Source: Monthly Bulletin No. 832, Chilean Central Bank, June 1997, p. 1493.

Investment Climate: Almost all sectors of the economy are open to foreign investors. Chile’s stable import tariffs, exchange rate definition, and capital property guarantees have resulted in a steady increase in foreign investment, constituting about 10 percent of Chile’s GDP, or approximately $1 billion annually. The United States is one of Chile’s principal sources of foreign investment. Since 1974, U.S. players have invested more than $8.6 billion, particularly in the mining, services, and industry sectors. Moody’s, Standard & Poor’s, and Duff & Phelps gave Chile an “A-” for foreign investment potential.

Overall, the prospects for economic growth in the medium term in Chile are excellent. According to the World Economic Forum, Chile is ranked the 13th most competitive country in the world, ahead of Japan, and is the only Latin American nation to be considered among the 30 most competitive economies. In the medium term, Chile expects to increase its GDP to $135 billion. The main ingredients for Chile’s sustained economic growth include implementation of a free-market price mechanism, low and flat import tariffs, conservative monetary and fiscal policies, clear and transparent regulatory frameworks, good transportation and telecommunications infrastructure, and sustained promotion of Chilean exports.

Environmental Market Overview

Chile’s environmental market is still small relative to the country’s economic prosperity; however, environmental issues are becoming a higher priority in light of Chile’s interest in expanding trade with NAFTA countries and other regional trade blocs. Unlike some of its southern cone neighbors, Chile does not benefit from large-scale environmental projects financed by multilateral development banks. However, just as privatization of the water and sanitation companies will spur the water and wastewater markets, severe air quality problems are fueling the market for air pollution prevention and control equipment. Furthermore, regulations requiring EIAs for all new projects have come into effect, creating a market not only for environmental consultancy services but also for environmental technologies as a whole.
Market Estimates
The estimate for Chile’s 1998 environmental technologies and services market is $740 million. Table 3 provides a breakdown by market segment.
Water Supply and Wastewater Prevention and Control: The municipal market is expected to expand significantly in the near future as Chile privatizes its water companies. The Chilean Development Corporation (CORFO) has approved investments of over $1 billion for improvements to the 13 independently operated water companies through the year 2000. The majority of this investment is directed at Santiago, where three wastewater treatment plants are being planned. The first is scheduled to come on-line in 2001. It is expected that at least two of the water companies will be privatized this year, infusing additional capital into this market.
At the same time, industrial facilities are facing growing pressure to reduce their wastewater discharges. A study by the Chilean Engineers Professional Association found that to comply with current regulations, industry must invest approximately $4.5 billion in wastewater treatment facilities. The best prospects will be found in water reuse technologies in the mining sector, and pollution prevention and control equipment for fish processing and pulp and paper industries.

Table 3: Chilean Environmental Market Estimates (1998)

Market Segment	Market Estimate ($ Millions)
Municipal Water Supply and Wastewater Treatment	250
Industrial Wastewater Treatment	55
Air Pollution Control	295
Solid Waste Management	70
Hazardous and Medical Waste Management	15
Consulting, Monitoring, and Laboratory Services	55
Total	740

Source: Hagler Bailly Services, Inc., 1997.

Air Pollution Prevention and Control: Santiago is the third most polluted city in Latin America, after Mexico City and S�o Paulo. The government’s recently approved decontamination plan for the metropolitan region will require investments on the order of $180 million over the next eight years. Several other regions have been declared “saturated zones” for certain pollutants and have developed special plans for combating air pollution. A key target is the mining industry, which needs equipment and services to remove sulfuric air emissions. CODELCO and ENAMI, the publicly owned mining companies, have earmarked over $500 million for environmental investments and programs, primarily for air pollution in the next few years.
Solid, Hazardous, and Medical Waste Management: As solid waste is not a high priority for the government, this is the least promising market segment in Chile. Local governments in the Santiago metropolitan region spend $1.6 million annually on waste disposal. Regulations for hazardous waste management are currently under review and, if passed, will stimulate this market. The best prospects include equipment to monitor and upgrade existing facilities, storage, transport, and disposal technologies for hazardous industrial wastes; highly efficient incinerators and other equipment to manage hospital wastes; and sludge control systems.
Environmental Services: With EIA requirements going into effect, this market will continue to expand over the next several years. CONAMA estimates that as many as 300 EIAs will need to be done every year, limited only by CONAMA’s ability to process these reports. Engineering and design services will also be needed to support implementation of pollution prevention and control systems. Additional services that will be required include laboratories for sampling and testing, and technical assistance for the implementation of environmental management systems per international standards such as ISO 14000 and the European Union’s Environmental Management Auditing Scheme (EMAS).
International Competition
U.S. companies have been active in the Chilean market for some time. U.S. products are highly regarded, and because many Chilean regulations and standards are modeled on those of the United States, U.S. companies have a competitive advantage. While most of the engineering and construction is typically done locally, much of the equipment is imported. U.S. companies, however, face stiff competition from international firms, particularly Canadian, French, German, and Spanish ones. Other Latin American firms from Argentina and Colombia are also active in this market. Many European companies are poised to enter the water sector market as the privatization effort unfolds.

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