Chile: System of households’ water use subsidies (#404)

In Chile, water has been privatised. However, in order to make sure that access was still available to all strata of society, the privatisation was accompanied by a robust regulatory framework, including a system of direct subsidies for drinking water consumption and sewage services for low income households. This case thus illustrates that in case of privatisation, a direct subsidiary scheme should be considered. 


The privatization of public water companies in Chile was complemented by reforms, during which a robust regulatory framework was created, public utilities were strengthened, tariffs were increased, and a system of subsidies for needy households was introduced to help them cope with higher tariffs. 

To guarantee adequate and affordable services for low income households, Chile introduced individual means-tested water consumption subsidies. The aim of the subsidy system was to channel the resources to those who actually needed them.

A significant proportion of its inhabitants had sufficient incomes to pay for the basic services without needing any support or additional help. This made it possible for Chile to adopt a subsidy system focused on the most vulnerable social groups. This situation was addressed in the subsidy law aiming to protect low-income families.

The system chosen was a direct subsidy, targeted to users. It granted access to basic consumption of drinking water and sewage service for each household.

Action taken

The Subsidy Law from 1989 established a direct subsidy for drinking water consumption and sewage services to low-income family groups and residential customers.

This law also set the terms on how a direct subsidy for the consumption of drinking water and sewerage services is granted to residential users of low-income.

This subsidy system is managed by the corresponding municipalities, which in turn are responsible for the registration process and selection of beneficiaries.

Lessons learned

  • Prior to undertaking privatization and/or public-private partnerships, effective, clear and adequately implemented institutional and regulatory reforms need to be considered.
  • The direct subsidy scheme should be considered and must have an enabling but not supportive approach.
  • The poorest households are willing to pay for a safe and reliable service however, sufficient education and promotion is necessary.
  • A high percentage of households in Chile have a micro measuring device, which enables the existence of a subsidy based on the real consumption of each beneficiary
  • The subsidy should cover only the difference between actual consumption and the ability to pay.