A. Relevant Policies
Currently, Chile’s potable water and sewage services cover all or almost all of its urban population, and about 72 per cent of the population of rural areas. This high coverage rate is credited to the open water markets created in 1981 when the new Water Code was enacted. Before 1981, the state had an active role in the determination, allocation, and termination of water rights, as well as the supervision of water use. The new legal regime of 1981 eliminated most of these government powers, allowing for the free transferability of water resources. The rationale for the new system was that users, as opposed to government agencies, are the most qualified stakeholders to determine key issues related to water, including its allocation, distribution, uses, and transference. Another factor that has benefitted the new legal regime is the possibility of submitting water disputes to arbitration before the board of a water users’ association, without prejudice to the appeals that aggrieved users may file with regular courts.
B. Historical Background
The Civil Code of Chile, enacted in 1857, provided that “all waters are national goods for public use.” The government granted the use of waters to users under restrictive terms, that is, exclusively for approved uses, under penalty of termination of the respective concession. This system lasted until 1981 with the enactment of the new Water Code, which recognized and greatly protected water rights as property rights assigned definitively and in perpetuity. Under the new Code, water itself is considered as an asset independently from the land where it is located, and therefore, also independently transferable.
While water remains in the public domain under the Water Code, users may enjoy proprietary rights over it and allocate it for different purposes, including agriculture, which is the most important among consumptive uses. In other words, there is no separate legal regime for allocating water for use in agriculture. It is the market that determines how the water will be used, and using it in agriculture is only one possible use.
The water market created with the passage of the Water Code triggered a “vibrant trading in water markets,” but also a speculative environment for the transferability of water rights. In fact, competing interests, (agricultural, industrial, and private) have often engaged in local or even national “wars” over the resource. The scarcity of water experienced in certain areas of the country has been followed by price increases, as private companies (rather than the government) vied to construct the infrastructure necessary to secure water and sewage services and extend them to the whole population. Other powerful interests, such as the mining industry and energy producers (mainly of hydroelectric power) have competed intensely in the water market over the last three decades in Chile.
Overall, the Chilean water market remains very active, and the role of the government in regulating water has remained marginal.
C. General Perception of Chile’s Free Water Market
The principle of free access and transferability of water rights in Chile codified in the 1981 Water Code inaugurated a legal regime that is known as one of the world’s most promarket. The Chilean water market presents the following features:
- concession of water rights that is not subject to any type of payment (with the exception of overlapping petitions for concessions, see below, Current Legal Framework – Assignment of Water Rights); unrestricted transferability of water rights, including the creation of liens (e.g., easements, mortgages);
- joint or separate alienability of water rights from land ownership;
- freedom for the owner to use the water or change water use as he or she sees fit (for agriculture, irrigation, human or animal consumption, energy production, tourism, sports, etc.); and
- restricted role of the state in the water rights market.
However, many criticisms against the current market-driven approach to water use in Chile have been leveled, which include the following:
- the purported goal of creating a free market where water and land rights would interact without restrictions has not been realized; in fact, water monopolies have acted negatively to destroy the Chilean water market;
- significant conflicts have arisen among multiple, antagonistic interests concerning the use of water for different purposes;
- the water market has, in effect, increasingly restricted the access of small farming communities to water rights;
- the lack of a central authority endowed with effective powers to regulate the distribution and use of water in its basin has been singled out as the cause for enormous sustainability problems (or “environmental damages”), with the excessive number of concessions granted over several natural water sources leading to the exhaustion of these resources;
- the ability of concessionaires to obtain water rights without paying the government for them, to hold them indefinitely without purchasing patents or paying royalties, taxes, fees, fines, or other penalties for not using water rights, and to sell them at will has created a highly speculative market with water rights concentrated in the hands of only a few stakeholders; and
- the existence of customary rights to water in certain areas of the country has caused many conflicts between holders of water rights registered in the formal Water Registry and those holding customary water rights. This dual system of customary and registered water rights generates great uncertainty in the Chilean water market.
II. Current Legal Framework
A. Laws Governing the Use of Water in Agriculture
As mentioned above, Chilean law does not contain a dedicated legal regime for the use of water in agriculture. All of the statutes applicable to water in general also apply to agriculture. However, there are two statutes that deal with irrigation for agricultural purposes. First, the Law on Incentives to Irrigation [Ley N° 1.123 of 1981, de Fomento al Riego] regulates irrigation for and encourages investment in major irrigation projects, both existing and new.
Secondly, the Law on Incentives for Minor Irrigation Works [Ley N° 18.450 of 1985, de Fomento a Obras Menores de Riego] provides for the government to subsidize up to 75% of the costs of irrigation and drainage works, with the aim of promoting private investment in the construction and improvement of irrigation infrastructure.
B. Legal Status of Waters
According to the Constitution, water rights grant their holders ownership rights over the waters. Rights over surface or ground waters are granted through a government act, specifically, through a concession issued by the General Water Directorate (GWD—Dirección General de Aguas). Water rights are registered in a government-run Water Registry maintained by the Property Registry, which provides certainty to water rights. The law classifies water rights in several categories, and most importantly distinguishes between consumptive and non-consumptive rights, depending on whether the holder may consume all or part of the water or only use it and then return it to the watercourse.
In sum, surface and ground waters are national public goods, and only after their concession do they become private property.
C. Assignment of Water Rights
The assignment of water rights by the General Directorate of Water (GWD) operates under the modality of a concession that is granted free of charge to the beneficiaries. Only three requirements are necessary for the concession of water rights: (1) that no legal impediments exist; (2) that technical evidence exists that there are sufficient water resources at the natural source; and (3) that there is no overlapping with existing concessionaires.
Those interested in obtaining a water concession must submit an application to the government, specifying the area where the water is located and its volume, among other criteria. In the case of an overlap of petitions, that is, of simultaneous petitions for rights over the same body of surface water, Chilean legislation provides for an open “auction” system in which those willing to pay the highest price for the water rights receive the concession. In the case of ground water, the auction system is restricted to those who have submitted overlapping requests for concessions.
Because Chile’s water rights allocation system is driven purely by the market, once an individual or company receives a concession of water rights, he or she is free to use or not use the water, or to use it for any purpose, or to transfer it totally or partially for value, or to utilize the water rights as an investment, e.g., as a capital contribution to another company.
D. Rights of Riparian Owners
The Civil Code provides that the waters that “in their periodical increases and decreases alternatively occupy and vacate the land are part of the banks or the riverbed, and do not accrue to contiguous properties.” Under the Water Code, in turn, water user associations (WUAs) are in charge of distributing the water among their members, enforcing the appropriate use of the resource, and maintaining and administering irrigation infrastructure.
E. Requirements for Licenses to Use Water for Agricultural Purposes
As stated before, since 1981, the right to use water in Chile has been granted through a water concession given by the government. The concession act must, among other things,
- identify the riverbed over which concession rights have been granted;
- determine whether the concessionaire has the right to consume the water or not; and
- specify whether the water may be used irrespective of droughts or other emergencies (“continuous rights”).
In addition, the concession right must be created by a resolution of the General Waters Director, and the constitutive resolution must be registered in the Water Registry.
The “traditional and immemorial use of waters” by farmers and riparian owners existing before 1981 were recognized as validly constituted water rights by the Water Code. These customary rights encountered a legal restriction in the Water Code, according to which such customary rights had to be legally recognized by a judicial decision issued prior to 1981. Thus, since 1981, a de facto dual system of water rights for both farmers and riparian owners—most of them poor—and registered owners has existed. Potential conflicts over water rights as a result of this dual system have been averted by a legal loophole. According to the Water Code, the granting of a new water concession must be made “without generating prejudice to third parties.” Government authorities and courts have repeatedly interpreted this provision to require the GWD to take into consideration customary water rights before granting a new concession. Some authors have relied on other legislation to this effect. In sum, the dual system of registered and nonregistered (or customary) water rights continues to exist in Chile.
F. Water Quality and Water Conservation Requirements Associated with the Use of Water in Agriculture
The Chilean Constitution guarantees the right of all citizens to live in an environment free from contamination. The following is the most important legislation concerning the quality of water for agricultural purposes:
- Art. 10 of Law 19,300 of 1993 on the General Framework for the Environment [Ley 19.300 de Bases del Medio Ambiente], establishing a mandatory environmental review of certain projects, including aqueducts, dams, and other infrastructure works that alter natural watercourses.
- Art. 92 of the Water Code, protecting the quality of irrigation water by prohibiting the deposit of waste in water channels.
- Supreme Decree 90 of 2000, Emissions Standards for the Regulation of Pollutants Associated with the Discharge of Liquid Waste in Marine Waters and Continental Surface Waters [Decreto Supremo 90 of 2000, Norma de Emisión para la Regulación de Contaminantes Asociados a las Descargas de Residuos Líquidos a Aguas Marinas y Continentales Superficiales].
- D.L. 3,063 of 1979, Law on Municipal Revenue [Ley de Rentas Municipales], prohibiting the discharge of waste into irrigation channels, streams, and rivers.
- Chilean Standard NCh 1333 of 1978, Supreme Decree No. 867, on Water Quality Requirements for Different Uses [Norma Chilena NCh 1333 de 1978, Decreto Supremo No. 867, sobre Requisitos de Calidad de Agua para Diferentes Usos], establishing parameters for the biological quality of irrigation water and water use in agriculture.
- Quality Standards for the Protection of Continental Surface Waters [Normas de Calidad para la Protección de las Aguas Continentales Superficiales]: pursuant to Law 19,300, the National Commission for the Environment (CONAMA) is charged with issuing these standards. The specific objectives related to the agricultural use of continental surface waters are the following: (i) to maintain or restore the quality of waters suitable for the irrigation of fruits and vegetables; and (ii) to protect the quality of irrigation water used for the conservation of soil and the wild flora found in it.
- Law 20,089 of 2007 Creating the Certification System for Organic Agricultural Products, and Chilean Standard 2,439 of 2010 for Organic Production [Ley 20.089 que crea el Sistema de Certificación de Productos Orgánicos Agrícolas and Norma Chilena NCh 2.439 de Producción Orgánica], which provides that irrigation water must comply with the applicable legislation;specifically, that irrigation water must not become a factor in the erosion of agricultural soils.
G. Recent Amendments
1. New Legal Framework for Water and Sewage Services
In 1988, the government established a new regulatory regime for water and sanitation services. The two main existing public water companies were reorganized into thirteen new regional public companies. Afterwards, a wave of privatizations followed in which the government divested itself, totally or in part (through thirty-year concessions), of ownership rights over these new companies. This measure was adopted in tandem with a government-mandated gradual increase in the price of water and sewage services.
In 1989, to improve the living standards of persons located below the poverty level, a partial subsidy for individual water consumption and sewage services was created. This subsidy is provided by the government through local municipalities but administered by water companies. Consequently, the equal involvement of the private and public sectors was key to the design of the new system.
To date, all water companies operating in Chile are either entirely private or benefit from the participation of private capital in their operations.
2. New Taxation
The real or perceived drawbacks that arose from the original legal framework for water rights established more than forty years ago in Chile gave way to reformist trends, which pivoted around two approaches. First, some advocated the need to discontinue the market-driven allocation system for water rights and to replace it with another with increased state power over the distribution, use, transference, and termination of water rights. The second position, favored by most experts, was that the fundamental market model for water rights was sound, but that several amendments were necessary to correct certain anomalies.
Regarding these reforms, one of the areas where a broader consensus existed in Chilean society was related to the fact that under the original Water Code, water concessionaries were under no obligation to use their water rights, and no penalties or other financial consequences, such as patents, fees, etc., were levied upon the concessionaries for insufficient use of the resource. In particular, the social cost created by the lack of water use was the most important criticism.
As a consequence of the consensus on the need for reform, a legislative change took place in 2005 when the Chilean Congress passed Law 20,017. Law 20,017 created a royalty or tax applicable to owners of non-consumptive and continuous water rights who fail to utilize the waters. Specifically, the tax applies when owners fail to build infrastructure works to capture and restitute the waters. Law 20,017 provides that if the taxes are not paid, the courts may order the public auction of the respective water rights.
III. Institutional Framework for the Administration of Water in Agriculture
The following are the most important government agencies in charge of administering water in agriculture:
A. General Directorate of Water (DGA, Dirección General de Aguas)
GWD’s powers concern the authorization of infrastructure works, the overseeing of water users’ organizations, and the imposition of penalties for certain violations. But the GWD—which is located within the Ministry of Public Works—may not intervene in policy decisions concerning the allocation of water rights, resolve water conflicts, or interfere with private contracts concerning water rights. Its enforcement powers are very limited.
B. National Irrigation Commission (CNR, Comisión Nacional de Riego)
Together with the Directorate of Irrigation, this agency is in charge of planning, evaluating, and approving investment for both major and minor irrigation infrastructure projects.
C. Directorate of Irrigation (DR, Dirección de Riego)
This agency executes the technical and economic studies for the implementation of irrigation infrastructure projects financed by the state after they are approved by the CNR. Private construction companies build these projects.
D. Agricultural and Livestock Service (SAG, Servicio Agrícola y Ganadero)
SAG’s goal is to promote the development of sustainable agriculture through the protection and conservation of renewable water resources. For that purpose, SAG implements a contamination prevention and control program for water resources related to agriculture and wildlife.
IV. Intercountry Disputes Concerning the Use of Water
A. Silala River Case
The Silala River flows “across the Bolivian-Chilean border in the Atacama Desert via a canal constructed in the early 1900s by Antofagasta & Bolivia Railway Company, a Chilean mining operation, per a concession granted by the Bolivian Prefecture of Potosí.”  A dispute arose in 1997 when Bolivia claimed the exclusive right to use the waters of the Silala River, based on the claim that its waters originate in Bolivian territory and are artificially transported to Chile. To further its claims, Bolivia undertook a number of steps, including boosting military presence on the banks of the river, revoking the existing concession, and planning several infrastructure works for the use of the stream. Chile, in turn, maintains that the river waters have never been diverted from the channel and continue to flow naturally into Chilean territory. While Bolivia claims that the Bolivian law concerning concession agreements applies to the dispute, Chile argues that international water law applies to this natural transboundary watercourse.
Currently, no legal or political solution has been reached concerning this dispute.
B. Lauca River Case
The Lauca River originates in the Chilean Andean region of Arica and Parinacota, crosses the Andes Mountains, and flows into the Coipasa Lake in Bolivia. Since the early 1960s, Bolivia has claimed that Chile has diverted the waters of the river. Like the Silala River case, this dispute remains unresolved.
Prepared by Dante Figueroa
Senior Foreign Law Specialist
 Id. at 2.
 Código de Aguas [Cód. Aguas] [Water Code], Diario Oficial de Chile [D.O.], Oct. 29, 1981, http://www.leychile.cl/Navegar?idNorma=5605&idParte=0.
 Francisco Segura Riveiro, Derecho de Aguas 172 (Universidad de Concepción 2006).
 María de la Luz Domper, supra note 1, at 3.
 Segura Riveiro, supra note 6, at 180.
 Id. at 244.
 Mónica Ríos & Jorge Quiróz, The Market of Water Rights in Chile: Major Issues, World Bank Technical Paper Number 285, 3 (Sept. 1995), http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB /1995/09/01/000009265_3961219110551/Rendered/PDF/multi_page.pdf.
 María de la Luz Domper, supra note 1, at 2.
 Id. at 5.
 See id. at 2; and Segura Riveiro, supra note 6, at 199–212.
 María de la Luz Domper, supra note 1, at 4.
 I Rafael Vergara Blanco, Derecho de Aguas 257 (Editorial Jurídica de Chile 1999).
 Id. at 268.
 Id. at 273.
 Id. at 275.
 Id. at 273.
 See Ley 19.253 Establece Normas Sobre Protección, Fomento y Desarrollo de los Indígenas, y Crea la Corporación Nacional de Desarrollo Indígena [Law 19,253, Establishing Provisions on the Protection, Support, and Development of Indigenous Peoples, and Creating the National Corporation for Indigenous Development] (Oct. 5, 1993), http://bcn.cl/4ncl (regulating the water rights of the Aymara and Atacameña indigenous communities).
 I Vergara Blanco, supra note 18, at 282.
 Id. at 282.
 Segura Riveiro, supra note 6, at 18.
 Ríos & Quiróz, supra note 11, at 4.
 II Vergara Blanco, Derecho de Aguas 434 (Editorial Jurídica de Chile 1999).
 Cód. Aguas art. 141.
 Id. art. 20.
 I Vergara Blanco, supra note 18, at 267.
 Cód. Aguas art. 12.
 Ríos & Quiróz, supra note 11, at 2.
 Segura Riveiro, supra note 6, at 283.
 Cód. Aguas arts. 130–76 (establishing the procedure for the petition and allocation of water rights).
 I Vergara Blanco, supra note 18, at 269.
 María de la Luz Domper, supra note 1, at 3.
 I Vergara Blanco, supra note 18, at 269.
 Civil Code art. 650 para. 2.
 Ríos & Quiróz, supra note 11, at 3 (“[t]hree different types of associations are considered in the Water Code: ‘juntas de vigilancia’ which are supervision committees in charge of monitoring the use of natural sources of water such as rivers, ‘asociaciones de canalistas’ which are associations of channel users usually in charge of administering primary infrastructure such as dams and main irrigation channels, and ‘comunidades de aguas’, which are water communities responsible for secondary infrastructure such as distribution channels. Except for the ‘comunidades de aguas’, these associations have a collective legal status, which allows them, for example, to take out loans collectively.”).
 Cód. Aguas art. 149.
 Ríos & Quiróz, supra note 11, at 2 (“Continuous rights allow to use water uninterruptedly during 24 hours a day, discontinuous rights imply that two or more people take turns to use water.”).
 Cód. Aguas art. 150 para. 2.
 II Vergara Blanco, supra note 28, at 327.
 Cód. Aguas art. 310.
 Id. art. 55.
 Id. art. 3.
 Decreto Ley [D.L.] [Decree Law] No. 2.603 of 1979, art. 7 (stating that “the rights of individuals over waters, when recognized or constituted according to the law, shall grant ownership rights to their holders over them.”) (translated by author).
 C.P. art. 19 no. 24.
 See Guía CONAMA para el Establecimiento de las Normas Secundarias de Calidad Ambiental para Aguas Continentales Superficiales y Marinas [Guidelines issued by CONAMA for the Approval of Secondary Quality Norms on Environmental Quality for Continental Ground and Marine Waters], http://www.bcn.cl/carpeta_temas/temas_portada.2005-12-27.4449440028/GuiaNormaPract.pdf (last visited July 29, 2013).
 María de la Luz Domper, supra note 1, at 4.
 Id. at 6.
 I Vergara Blanco, supra note 18, at 278.
 Id. at 288.
 Law 20,017, arts. 129 bis 4–129 bis 21.
 Segura Riveiro, supra note 6, at 89.
 Id. at 283.
 Ríos & Quiróz, supra note 11, at 3 (noting that other specific tasks of the GWD include the “administration of the National Hydrometric Service, control of activities of the ‘juntas de vigilancia’, and approval of all major hydraulic works. In the last years, its main activity has been to regulate the distribution of water rights and to prepare technical reports needed for conflict resolution.”).
 Id. at 320–21.
 Id. at 321.
 Corporación de Defensa de la Soberanía, La Cuestión del Río Silala (Apr. 3, 2008), available athttp://www.sober aniachile.cl/controversia_entre_chile_y_bolivia_del_rio_silala.html.
 The Silala Basin: One of the Most Hydropolitically Vulnerable Basins in the World, International Water Law Project Blog (Oct. 27, 2011), http://www.internationalwaterlaw.org/blog/2011/10/27/the-silala-basin-one-of-the-most-hydropolitically-vulnerable-basins-in-the-world/.
 Si Bolivia Cierra las Aguas del Silala a Chile Habrá un Conflicto Armado, Bolivia Hoy (July 15, 2013), available athttp://www.nadir.org/nadir/initiativ/agp/free/imf/bolivia/txt/2003/0715agua_chile.htm.
 Caso del Río Lauca entre Bolivia y Chile, BuenasTareas.com (Sept. 2010), http://www.buenastareas.com /ensayos/Caso-Del-Rio-Lauca-Entre-Bolivia/823165.html.
 Opinión, El Desvío del Lauca, Diario la Razón (Oct. 4, 2010), http://www.la-razon.com /opinion/editorial/desvio-Lauca_0_1261073881.html.
Last Updated: 09/16/2014