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Os próximos 30 anos APDA

Porquê “os próximos 30 anos: sobre o futuro dos Serviços de Águas”?

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Os prรณximos 30 anos APDA

Cenรกrios para o mundo em 2050

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JoĂŁo Pedro Matos Fernandes Ministry of the Enviroment

As registered in the Programme for Government which I have the honor to integrate as responsible for the Environmental Affairs, the urban water services are a sector with relevant public interest, inseparable of the citizen’s quality of life. As is well known, Portugal has a track record in this domain in the last 30 years, being important to continue to ensure the social, environmental, economic and financial sustainability associated with the provision of these services. Under this framework, I consider that the public policies should continue to positively influence the sector, promoting the undertaking of innovative management models which boost the efficiency, keeping Portugal aligned at the front line. However, not less important, decision-making must evolve in a planned and sustained basis. Therefore, I can not fail to congratulate the APDA initiative in promoting the prospective exercise with the focus on the water services whose results are hereby presented. This project, being the first of this nature developed in Portugal, confirms the maturity of the professionals of the sector, specially from those who integrates associations like APDA and without those the

successes achieved got not have been, for sure, reached. This work allows also to show to our national and international partners that the sector has critical mass and mobilization capacity, which permits, throughout a process with broad participation and dissemination, to present scenarios for the sector, duly framed globally and at a national level, creative but also logical. I am sure that the 30-year visions here materialized will enable the urban water services sector with a strategic tool to take advantage from the best opportunities to benefit everyone who uses water services on a daily basis in this changing world.


Nelson Geada

Sérgio Hora Lopes Chair of Executive Coordination Team

President of the Board APDA

APDA

“Water Services – The Next 30 Years” is a notable work developed by an enlarged team, masterfully coordinated by Sérgio Hora Lopes. Proudly I verify that APDA is able to mobilize so many institutions as well as so many sectorial specialists joining us in this reflexion about the next 30 years in the water sector, meaning that we can do the same in a near future projects, of similar and diverse nature. Being a prospective exercise about the future of the water sector, it is interesting to verify that is possible, as supported by project’s following text, to dissert and analyse almost every aspects that constitute the main concerns for the humanity and planet future. In fact, our Association’s initiatives, such as seminars and others, can include reflexions about theme as diverse as globalization, geostrategic issues, development model, in a way that all subjects of the sector are co-related with all aspects of life and society.

On behalf of all APDA associates, I salute and praise those that directly or indirectly made possible this publication and to Sérgio Hora Lopes we leave a collective embrace, that reflects what he has been given to APDA with a truly representantion of what public service should be.

The study presented in this publication is the result of a quite unusual reflection process in the area of ​​water services, specially in Portugal. This APDA’s forward looking initiative envisages to promote a wider debate about what the future might announces when it celebrates 30th years of activity. That’s why the team responsible for the project is so grateful for the whole process. The project’s involved the intelligence, dedication and effort of many people. Almost three hundred technicians and researchers, from a variety of scientific backgrounds (anthropologists, economists, geographers, biologists, computer engineers, environmental engineers, hydraulics, etc.) and institutions (universities, research institutes, utilities, seminars, inquiries, workshops and more limited meetings have helped the Coordination Team of the project in mapping the innumerable possibilities about how the world, Portugal and water services can evolve in the coming decades. To all participants, our deepest gratitude; without them, the work developed over two years would not have the complexity and depth that this prospective essay has. Note that the synthesis report now presented reflects the vision of the coordination team and therefore does not hold the people who cooperated with us.

The coordination team as a whole must be congratulated for the work done, but I can not miss to highlight Fatima Azevedo’s special contribution. Thank you very much. Being a prospective exercise, it can not be seen as concrete proposals, more or less desirable, but only as plausible futures. We hope that we have been able to grasp the contradictory signs of the times, the plausibility of which can only be measured within decades. From the moment a work becomes public, it stops being of the one who elaborated it and happens to be of its readers. Our hope is that this deliverable can be a useful tool for a wider community associated with water services (public authorities, regulators, companies, universities and research institutes, consultants, etc.) in defining the best strategies for a better future for all.


Why “The next 30 years: on the future of Water Services�?

Global Scenarios in 2050

Implications for portugal

Urban Water Services scenarios

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80 The Rationale

94 Infographic

106 Between Walls

117 Pre Assumptions

83 The Chosen Methodology

96 Between Walls

108 Lego War

118 Between Walls

87 Pre Assumptions

98 Lego War

110 Government inc.

122 Lego War

88 Tendencies and Uncertainties

100 Government inc.

112 Perpetual Peace

126 Government inc.

102 Perpetual Peace

130 Perpetual Peace 135 Conclusion


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The next APDA 30 years

Why “The next 30 years: on the future of Water Services”?

The Rationale

Undertaking prospective studies on the future of water services is not a common practice in Portugal, and infrequent even in other countries. But the fact is that we live in an era of accelerated change that makes the future increasingly unpredictable and in which “shocks and surprises are the new normal” (The Future, Declassified). Some of the critical drivers of the era in which we live are climate change, natural resources scarcity, growing interdependence, globalization and nationalism, disruptive technological innovations and demographic divergence that involve a widening of the middle class and inequalities. These drivers will certainly influence the future of the world and our country. Water services will also be different in three decades from now as we enter the second half of this century. But to what extent?

And in what direction will they evolve? It is impossible to give an accurate answer to these questions as nobody has the ability to predict what will occur. What we can do is imagine a possible future and then try to answer the questions that may arise. It was with this goal in mind and with the focus on trying to understand “How Water Services Can Fulfil their Purpose in 2050” that the Portuguese Association for Water Distribution and Wastewater Drainage (APDA) decided to lead the prospective exercise we present here. This exercise was the result of an interactive process with stakeholders from various areas – public, private and academia. This close involvement with other professionals and decision-makers allowed a broad exploratory discussion on the future of our admirable and constantly evolving world, based

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2015

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2018

July Kick off meeting of the Executive Coordination Team.

February 1st Meeting of the Steering Committee.

January Seminar “The world in 2050: The new Industrial Revolution: Implications for the Water Sector” WG3.

4th & 5th Meeting of Steering Commitee

April Seminar “The World in 2050: Trends, Risks and Territorial Impact” WG1.

October 3 rd Meeting of the Steering Committee.

May Survey WG4 “Governance - Water Service Management Models”.

Scenarios building Characterization of key- factors and Global Scenarios.

July Survey WG3: “The Evolution and Handling of Processing and Information Technologies”.

Final Workshop “Global Scenarios and their Implications for Portugal and Urban Water Services”.

October Workshop WG2: “Environment and Water Resources”.

Scenarios building and narratives drafting.

November 2nd Meeting of the Steering Committee.

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Final Scenarios; Editing and publishing.


The next APDA 30 years

Why “The next 30 years: on the future of Water Services”?

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Seminars

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Surveys

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Workshops

The Chosen Methodology Executive Coordination Team defined foresight exercise focus question, engaged relevant stakeholders & invited members for Steering Committee. 4 Working Groups (WG) to analyse trends (STEEP), to build uncertainities matrix and identify crucial uncertainities

on multi-dimensional factors and awareness of the interlinkages that contributes so much to characterising this volatile, uncertain, complex and ambiguous (VUCA) context. Based on a reflection on global scenarios, we sought to determine the implications for Portugal and, finally, for water services of each of these possible alternative futures. Since water services are essential for human development, how they evolve largely depends on what happens in the world around them. In this study, therefore, we begin building different possible global scenarios to, after looking at its different impacts, assess how they might affect water services. Having in mind a deliverable anchored in an integrated perspective – taking into account political, economic, social, technological and environmental factors - so we begin by

“sketching” world scenarios before examining water service scenarios. We consider this the best way to explore images about the future of the sector and to help the management entities to set out strategies that offer more suitable responses to the many and highly complex challenges that they will face.

To develop the project, an Executive Coordination Team (ECT) was created comprising technical staff covering the various areas (foresight, project management, governance, economics/finance, environment, business, technology, society, etc.). The members of the ECT coordinate the 4 Working Groups:

To support the ECT, a Steering Committee (SC) was set up comprising members representing the various stakeholders in the sector who are project partners. Over a period of more than two years, the ECT coordinated a wide-ranging study involving nearly 300 experts from various areas (economists, sociologists, historians, anthropologists, technologists, environmentalists, managers, geographers, demographers, alongside water resource and operator management specialists) and different origins (academic researchers, consultants, other professionals from the sector, technicians from technology supplier companies and activists). Two surveys were conducted, one on “The Evolution and Handling of Processing and Information Technologies” and the other on “Governance – Water Services Management

WG1 Demographics, Territory, Economics, Society; WG2  Environment and Water Resources; WG3 Evolution and Future of Processing and Information Technologies; WG4 Governance and Water Service Management Models.

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Why “The next 30 years: on the future of Water Services”?

The Methodology Process

Models”. Two seminars were held, one on “The World in 2050: Trends, Risks and Territorial Impacts” and another, international seminar, on “The world in 2050: The New Industrial Revolution: Implications for the Water Sector”. Two workshops were also held, one on “Environment and Water Resources” and another on “Global Scenarios and the Implications for Portugal and Urban Water Services”, to discuss how the global and macro (environmental, political, economic, social and technological) scenarios previously drafted would impact on Portugal and water services in particular. The result of this work is now presented for discussion by all the parties interested in the management of the urban water cycle: municipalities, operators, public administration, supplier companies, researchers and

technical staff. During 2018, we aim to hold discussion meetings to deliberate on the work with the various interested parties. Lastly, a special gratitude note to the Steering Committee of the APDA for kick-starting this initiative, to all those who took part in the actions organised while preparing this project, to the sponsors, Águas de Portugal, Águas do Ribatejo and Navia, to The Water and Waste Services Regulation Authority, for its help with publishing and dissemination, and to the Ministry of the Environment, for its institutional support. Without them, this study would not exist.

1 TO GUIDE Stakeholders; Focus

3 TO SUMMARIZE Global Scenarios

3 TO SUMMARIZE Scenarios for Water Services

2 TO EXPLORE Critical Uncertainties, Predetermined Elements

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4 TO ACT Implications Strategic Agenda

5 MONITORING Indicators Monitoring System

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The next APDA 30 years

Why “The next 30 years: on the future of Water Services”?

Focus: How water utilities can fulfill their mission in 2050

Pre Assumptions

There will be no disruptive global events that could jeopardize the world order and the planet (nuclear war, global pandemic, etc.).

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Strong Impact / Low Uncertainty

Low growth

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Low cost technologic options

Fossil paradigm with more renewables

Climate change triggers high water stress

Resource efficiency primacy

Impact

Strong Impact High Uncertainty

Weak Impact Low Uncertainty

Context elements

Uncertainty

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Why “The next 30 years: on the future of Water Services”?

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The next APDA 30 years

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The next APDA 30 years

Why “The next 30 years: on the future of Water Services�?

Global uncertainities

Crucial uncertainities Domestic dynamics (soundness of political system and credibility of institutions; social capital resilience; capacity builing and reputaion) Trade-off short and long term globalization (volatility, complexity and effectiviness adjustment to global processes as climate change, population growth and tecnhologic paradigm)

Political framework

Sources of Power

Globalization

People

Parlamentary democracies versus Authoritarians regimes

Cultural Versus High Tech Economics

Superpowers Versus World Flat

Exclusion Versus Inclusiveness

Innovation

Cities

Society

North / South

Enough Versus Necessary

Leaders versus Resilients

Fragmented . versus global

Cooperation Versus Rule of power

Religious fundamentalism

Economic growth model

Locally and organized versus Universal and anarchic

Linear versus circular

Environmental risks Inhibitors Versus Enablers

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Human Being evolution

Unstable political system of major global powers

Domestic Dynamics

Renewal/reform on political systems of major actors

Popular capitalism/ Proteccionism focused on short term

Globalization

Global cooperation focused on long term

incremental Versus disruptive

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The next APDA 30 years

The combination of these two uncertainties allowed us to build four scenarios with distinct narratives for the world in 2050. “Between Walls” and “Lego War” are the two scenarios of a world marked by short-term choices and are distinguished by political and economic systems renewal (or not) of the main actors; “Governments Inc.” and “Perpetual Peace” are scenarios marked by globalization, but diverging on logics of functioning and governance models of superpowers.

Unstable political system of major global powers

Popular capitalism/ Proteccionism focused on short term

Global cooperation focused on long term

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Uncertainty is the raw material of any scenario building exercise aiming to explore alternative futures for the central issue under study - the focus ; in our case, how will water services accomplish their mission in 2050. As we have mentioned, the chosen methodology involved three steps : the construction of global scenarios, assessment of their implications for Portugal and, finally, for water services. From a set of six dozen trends (pp. 88/89) - ongoing processes with variable impact and uncertainty - typified and analyzed according to the STTEEP model (society, technology, territory, economy, environment, and politics), we built a matrix with the objective of identifying those that had three characteristics greater impact, uncertainty and independence (pp.86). This allowed us to reduce the universe of analysis to 12 global uncertainties (pp.90), taking into account a set of predetermined elements or pre-assumptions (pp.87) that will be maintained throughout the analyzed period and to explore four resulting global scenarios arised from the dynamics of two critical uncertainties (pp 91) - one of a domestic nature - to what extent do the regimes of the world protagonists renew themselves or not in a context of erosion of the concept of nation-state; and another - of an external nature - that evolves between the a popular capitalism, economic protectionism and focused in the short term or to a new wave of globalization anchored in cooperation and long-term planning.

Global Scenarios in 2050


The next APDA 30 years

Global Scenarios in 2050

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Demographic divergence leads to greater migration flows to more developed nations who, despite a stagnating/falling population, will tend to restore barriers to immigrants amid a context of rising social tension caused by the inability to create jobs. Slow growth with low jobs creation focused on higher technology content areas will tend to exacerbate social and territorial inequalities at a national and global level. “Globalization’s losers” will advocate a return to protectionism, giving an added boost to nationalist movements and the spread of popular capitalism. Fragile global cooperation with regard to challenges such as climate change and Agenda 2030, weakening and destabilising multilateral institutions, chiefly the UN, and

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complicating the management of the World Trade Organisation with successive retaliatory measures between countries with regard to the protection of leading industries that drives to a strong downsizing of global trade. Return to a fossil fuel economy, indefinitely postponing the shift into a new energy paradigm supported by disruptive technologies. Due to lower cost options, the world energy mix has significant impact on environmental degradation and the exacerbation of the combined effects of extreme events, economic deprivation and resource scarcity, particularly in more vulnerable regions, as an Africa and Asia still undergoing demographic expansion.

Environmental negligence, reversing the trend towards climate change mitigation, with increased global greenhouse gases (GHG) emissions and with mixed residual adaptation and legislation. In a world with a larger population and a lower capacity to increase wealth creation, the global risks associated with water, energy and food security will be very high. Exacerbation of individualism and worsening of conflicts between generations and between employed and unemployed, threatening the survival of security, protection and social solidarity models, leading to greater risk of systemic collapse.

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“Between Walls” depicts a non-cooperative world, where main powers, sheltered by protectionism, are incapable of reforming their governance models in a context of very slow growth. Demographic expansion makes migratory pressures a source of conflict, and the overall risks associated with water, energy and food security are extremely high.


The next APDA 30 years

Demographic divergence but with lower migration flows than the “Between Walls” scenario, given the trend towards closer regional cooperation, namely intra-developing countries, in an attempt to increase business power based on soft skills and the rise of the Pacific (surpluses used to finance “old” developed economies, which kept unable to accelerate growth and jobs creation) and South Atlantic (energy) economies; increased earnings from exports to the South lead to an exploding middle class and some gains in poverty reduction. Diverging North-South growth rates with emerging economies creating some hubs of innovation and having access to crucial raw materials for expanding innovative sectors; Less global cooperation compared to Business as usual, but capacity to advance

Global Scenarios in 2050

with the Paris Agreement as a factor in the bolstering and ambition of the Chinese leadership in terms of transiting to a greener economy that allows it to expand the area of its regional influence, diversify energy options and develop a strategy of international expansion along the new silk road, with South-South solidarity in the water-energy-food sector.

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National models’s adjustment and a globalization’s retreat produces a Lego War between “regional champions”. Global economic growth is slow and heterogeneous, with China expanding its influence into the Atlantic, the Europe of “clubs” evolving with different speeds, and the US trying to profit from its innovation capacity.

Slow and mixed global economic growth between trading blocks, with the US seeking to benefit from its capacity to innovate in non-conventional energy tech to impose a “natural gas economy” and to maintain leadership in strategic high-tech content sectors. This economic growth strategy tends to neglect the environmental sustainability pillar, with an intensive and non efficient natural resources use; the European Union returns primarily to an internal market approach, with limited cooperation in the eurozone and a focus on bilateral solutions, evolving, towards the end of the period, into a system of “clubs”, establishing integration at various speeds in exchange for secure borders.

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The next APDA 30 years

Global Scenarios in 2050

Go ve rn m c. t in en

Demographic divergence combined with growing urbanisation creates a wave of globalization led by global cities, arising new governance frameworks from political system’s collapse and fuelled by the opportunities for capital accumulation by multinational companies. The inability to renew political systems in developed economies, mirrored by a growing alienation from the “common” interest and the endemic crisis of the “nation state”, drives the appearance of a capitalist system based on cities and the opportunities created by the major global challenges, particularly the building of green infrastructure that allows an effective adaptation to climate change and a sustainable exploration of oceanic resources, digital connectivity and smart

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mobility, along with decentralised electricity grids and circular economy principles that shapes production and consumption for a new prosperity cycle.

The endogenous crisis of the “nation state” gives rise to a capitalist logic anchored in the alliance between mayors and businessmen, reiterating a scenario of “Governments Inc”, where cities lead and compete under corporate ethics’s principles.

As enablers of the Paris Agreement and innovation, “mayors” and “majors” are legitimised by the population insofar as jobs are created from a “business-like” management perspective of the “common good”, ranging from the privatisation of the State’s social functions to wealth-generating technological disruption. Competition/cooperation between the big multinationals allows resource productivity to rise significantly in various world regions. The unequal distribution of the results obtained creates social tensions. Governance will demand a clarification of the boundaries between business and political goals. Questions concerning the compatibility of corporate and social ethics will arise.

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The next APDA 30 years

Gradual containment of world demographic growth as developing countries cut their birth rate by the investment under Agenda 2030 relating to health, education, poverty reduction and diversification of productive structures. Containment of North-South development asymmetries with the South showing growing catch-up gains, a result of more intense cooperation with emerging Asian economies, multilateral financing instruments and foreign direct investment in anchor industries in the food-water-energy-climate sectors. The converging interests of the main players concerning greater resource efficiency, allied to environmental protection and conservation, allows a progressive investment in disruptive energy technologies supported by public-private partnerships and pilot

Main players’ convergence of interests around resource efficiency favors the reinforcement of globalization centered on sustainability and the adaptation of national visions to a prosperity that is not hostage to economic growth. That enables an innovation virtuous cycle and South’s catching-up.

Technological convergence alongside an innovation policy focused on “appropriate technologies” for developing countries allows an upward on technology transfer projects, aimed to optimise water resources’s management.

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experiments in developing countries. Global cooperation allows more ambitious Paris Agreement goals, fostering the containment of the effects of climate change, namely in optimising water resource management and exploring alternative deep-sea and space energy sources. Major progress in digital connectivity is accompanied by investment in education and training, facilitating social mobility and the transition to an economic model that makes more efficient use of natural resources. More developed societies establish the St. Petersburg Agreement, instigated by Russia which, hostage to a strategy centred on its fossil fuel resources, develops a partnership with the EU, US and China.

Global Scenarios in 2050

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The next APDA 30 years

Implications for Portugal

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A significant downsizing in population stresses ageing, due to a negative natural growth non-accommodated by migrations flows. In fact, this is even exacerbated by negative migration balance, as a wave of emigration of young people confirms the most pessimistic scenario of the projections conducted 30 years earlier A population below 8 million. The fragmentation of the European Union with abandonment of the building of a Political Union leads to the creation of “clubs” according to the ability of a restricted number of countries to sign sectoral deals, namely as regards security and defence, energy security and IT. The significant drop in the EU budget weakens the already fragile cohesion policy with very negative effects in the financing of the more vulnerable nations, including Portugal.

With major difficulties in obtaining external financing, economic stagnation takes hold and the country’s decades-long dualism worsens, with major setbacks in social and territorial cohesion – the population concentrates in the coastal cities which, due to migration flows, maintain the same overall level of inhabitants; in the interior, the population is residual. This socio-economic lethargy quickly mitigates the tenuous steps taken in previous years to increase resource efficiency through the adoption of principles of circularity. The green economy “stalls” and there is a return to lower cost energy options, namely coal for electricity generation, making it impossible to reach the agreed targets to cap global warming at 2ºC; some companies, capitalising on previous partnerships with China to produce

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and export renewable energy solutions, remain relatively buoyant, namely in the Portuguese-speaking African nations. The existing vulnerability to the effects of climate change grows, especially in more disadvantaged regions, with long droughts and water shortages in conurbations in the country’s interior. Greater pressure of environmental variables reveals the scarcity of resources and fragility of the farming sector. Even so, the country’s low security risk allows it to continue attracting back office services from some telecoms and IT multinationals, with tourism maintaining its status as the main pillar of economic specialisation, but one in need of qualified personnel who can ensure diversification and the leveraging of the country’s natural and historical capital.

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In Portugal, a “Between Walls” scenario amplifies losses in social and territorial cohesion, exacerbating historical dualism. This alternative future means also an higher national vulnerability to the effects of climate change.


The next APDA 30 years

Implications for Portugal

sectors is the solution to try and avoid a greater decline in social cohesion. The lowering of European standards in the context of environmental pressures leads to weak innovation and infrastructure renewal, while opportunities in energy are the greatest potential in the context of boosting Chinese cooperation in Africa as part of the new silk road. Equally, in the South Atlantic, in a context of rising oil prices, exploration partnerships somewhat boost Portuguese firms which aspire to integrate with water and telecoms. Portugal’s low security risk means it remains one of Europe’s main tourist destinations, managing to diversify and gain efficiency through the dematerialisation and virtualisation of trading platforms.

In a world in which cooperation operates at the regional level, with the South playing catch-up with the North based on the innovative dynamism of the emerging economies of the Pacific, migratory pressures in Europe are lower than those in the “Between Walls” scenario. In a context of very slow growth in more developed economies, the EU’s focus is to safeguard the common market by emphasising bilateral solutions and limited cooperation in the eurozone. In a multi-speed Europe, Portugal’s population holds steady due to immigration, but faces major problems in returning to natural growth. The birth rate improves but not by enough to prevent the continued ageing of the population. In a highly dualistic system, the loss of national decision-making centres in strategic

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In a Lego War, Portugal seeks to benefit from China’s increasing influence in the Atlantic and, at the same time, integrate the club of European Union countries that are moving forward in combating climate change and energy transition as a way to stem greater losses of social cohesion.

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The next APDA 30 years

Implications for Portugal

Go ve rn m c. t in en

This scenario is based on a new wave of globalization grounded not on traditional relatively collaborative competition between nation states but on the emergence of a new model of governance in which city and business leaders (“mayors” and “majors”) create partnerships to accelerate resource efficiency and an energy paradigm shift, as a means of enhancing growth via heavy investment in what tends to be disruptive technaology, infrastructure and the circular economy. Industrial goods are conceived as services and waste management is optimised to cut the amount produced and increase recycling in a symbiosis between industry 4.0, empowered by energy and the climate, and the circular economy that accelerates natural resource efficiency.

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In this framework, some European cities achieve prominence, alongside Asian, African and Middle Eastern counterparts, in a global context of the urbanisation of ⅔ of the world’s population, attracting global business leaders. The growing importance of services in Portugal, the soft skills of the better educated sections of the population combined with lower costs than other European partners and high levels of digital and international connectivity are a source of attraction to the “majors”, in a system which has already been regionalised and in which local authority power is more assertive than central power, heading in a downward spiral due to the loss of social and territorial cohesion.

Foreign investment thus accelerates the growth of startups, namely in the area of utilities and environmental technologies, turning leader cities into living laboratories for solutions in artificial intelligence, technology conversion and transformation, and medical devices. The winning cities extend their sphere of influence, creating greater social and sectoral fragmentation with the replacement of traditional intensive and lower-skilled industries with sectors focused on higher tech content and prestige tourism, fashion and nautical services. In contrast with this dynamism, the pressures underlying the pockets of unemployment create greater inequalities in a context

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in which the rights associated with the earlier social contract are ripped up in favour of flexicurity, causing profound changes in the way the labour market operates.

In a future shaped by a pace of globalization led by cities, the historical dualism of Portugal leads to growing tensions in the labor market.


The next APDA 30 years

The flexible structures of cutting-edge tech companies, resulting from a model of virtuous cooperation between universities, firms and public policy priorities in terms of innovation, will push them to the forefront in terms of digital connectivity and the establishment of several key international research centres on national soil. But a multiple-speed jobs market, alongside the high need for public financing, converge to create growing concerns about social stability which thus becomes the greatest challenge to avoid an army of the socially excluded and ensure the sustainability of subsequent generations.

Portugal’s strategic option to integrate the pioneering countries in the transition to carbon neutrality and circular economy has given the ability to reduce the risks of territorial, social and environmental collapse.

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If globalization resumes in a context of global cooperation, galvanised by the imperative need to fight climate change in 2030, Portugal has the competitive advantage of being part of the “club” of countries at the core of the EU that agreed to accelerate the circular economy and transform production and consumption for greater resilience and sustainability. These gains mean it will reach the mid-century with stronger growth due to greater resource efficiency and a more polycentric territorial model based on a more optimised distribution of the benefits of globalization. The country’s demographics, with a higher birth rate and influx of qualified young immigrants from the Pacific and South Atlantic, will bring a slight fall in the dependency rate.

Implications for Portugal

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Pre Assumptions

There will be no disruptive events or disruptive innovations that could jeopardize the historical paradigm of urban services mission

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Higher impact of extreme events

Water resources scarcity

Ageing

Weak territorial cohesion

Territorial Heterogeneity

Network industry with a monopolistic tendency

Hight financing needs

Resource Efficiency Primacy

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Urban Water Services scenarios

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Resource efficiency Water resources are under pressure essentially due to scarcity, increased demand from farming and fragile planning processes for river basins. This situation derives from the collapse of the EU deepening process, leading to the isolation of nations and, on the other hand, climate change-related scarcity (whose impacts are increasingly exacerbated by the collapse of the Paris Agreement). Trade barriers imply greater dependence on domestic food resources, increasing farming’s demand for water that cannot be met through efficiency measures. The falling relevance of environmental regulation is reflected in the weakening of the river basin planning process which is unable to settle resource use disputes and fails to ensure a healthy performance of all

water bodies. As regards the urban water cycle, scarcity tops the agenda, but with limited practical consequences. Financial difficulties, associated with weak regulation, surpass service’s quality, reliability and sustainability on strategies’ implementation. The asymmetries in infrastructure management and service levels are largely determined by population concentration and the fact most economic activity is focused in coastal urban centres. These asymmetries are also reflected in the level of service costs, which are higher for small Water Utilities (WU), exacerbated by financing needs, poor infrastructure management and Operations & Maintainance (O&M). Resource use efficiency, as a means of mitigating or solving existing problems, is limited by the difficulties of importing technology and

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financing, as well as the regressive demands the sector imposes on itself. As investment volume is very low, infrastructure rehabilitation and/or construction projects are more difficult.

(centred on small or mid-sized cities); ii an urban nature of the coastal population, favouring regional and professional WU, especially where a tradition of municipal associations exists; iii the possible development, in the interior, of an essentially reactive and Business and Governance Models less professional management. In most cases, / Territorial Scope the WU belong to the public propriety sphere. Besides limiting efficiency and sustainability, Private sector entities with a relevant role in financial difficulties and the scarcity of qual- the sector are spurred by domestic economic ified human capital have major implications groups with expertise in specific areas, such as for the management and financial indepen- construction and O&M. The WU are regarddence of the WU. This situation is worse in ed strictly as basic public-service providers of the inland regions, where small-scale systems added importance due to the scarcity of water predominate. The inland/coastal dichotomy resources with some social functions in terms creates contrasting trends for the evolution of ensuring water access (social tariffs). Deof the role of the municipalities: i regional mand-side management instruments, thereWU on the coast and local WU in the inland fore, are not particularly expressive. Water

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resource scarcity, exacerbated in the international river basins (e.g. new challenges in managing agreements with Spain), leads to regional hydraulic schemes whose completion is limited by financing difficulties. The sanitation system returns to the formula of “removing wastewater”. There is an absence of the pursuit of gains in scale in local decision-makers’ minds, though it remains important for central government. The practical effect of this last perspective is limited by the reduced importance of regulation. However, the course already taken with implementing multi-municipal systems is an obstacle to the return to the atomised approach that characterised the systems in place in the first few decades of democratic local power.

Once a small open economy, Portugal resigned itself to isolation, causing many difficulties in dealing with the scarcity and inefficiencies.

People’s Interface Despite the concern with maintaining a high-quality service, the pressures associated with insufficient cash-flow for necessary investment in network maintenance/renovation mean an overall fall in the quality of service provided, particularly in the smallest WU. There is thus a clear distinction in service quality between coastal/interior and large/small-scale WU. This process gains in scale as a result of the extinction of the obligations underlying the transposition of EU Directives, namely as regards origin quality standards, wastewater discharge emission limit values, drinking water quality, supply continuity and pressure, implying a lack of progress or even a regression compared to the standards achieved in the first two decades of the 21st century. This situation also has consequences for the quality of water for other directly relevant public uses, such as bathing. The declining level of the ageing population’s overall quality of life in the interior spells less willingness (and possibility) to pay for water services. Water is given less collective value as a factor in environmental conservation and more individual value. This lower collective value, exacerbated by the added costs of water services, principally in smaller WU, calls into question the possibility of financing the WU, enhancing situations of social and political conflict. Technology and Innovation The country’s isolation essentially limits innovation in two ways: i trade barriers work as an obstacle to the spread of technologies and innovation; ii the lack of societal stimulus

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leads to a feeling of resignation regarding the problems of scarcity and inefficiencies. As far as wastewater treatment is concerned, the major concern relates to limiting costs. The circular economy is marginal and only implemented in a few urban centres as a result of the lack of water and pressure from electorally influential social groups. There is also a concern about data security, given the occurrence of problems that put the functioning of the systems at risk. In this context of technological inertia, there are no substantial changes in the type of infrastructure and its management processes, expressed in the conventional treatment of assets and less incentive for the efficient use of resources and, for example, controlling water losses. Financing Financing is highly limited by the unfavourable macroeconomic context, with a stagnation of families’ net disposable income in a low economic growth economy. Higher service costs, mainly at the small WU, and very low willingness to pay are the results of this stagnation. The phasing out of EU funds exacerbates the problems of insufficient resources. Low cost recovery through tariffs forces additional taxpayer financing. Private sector involvement is hindered by low return on investment (ROI) stemming from a falling population and the obsolescence and growing over-sizing of systems (due to falling aggregate urban demand). Given the high risk, the private sector remains a service provider but only rarely a financier. The weakness of financing channels leads to structural deficits and/ or lower costs, involving service degradation.

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The very low volume of investment severely limits the rehabilitation or construction of infrastructures. Regulation Quality and economic regulation play a secondary role and only slightly influence the performance of water services. (Predominantly) public management, financing difficulties, lower collective value allocation and more regular conflicts over water, as well as more lax legislation are, amongst others, factors limiting the power of the regulator. However, with the sector’s “nationalisation”, it can expand its sphere of action in supervising investment and financing, taking administrative responsibilities in strategic projects.


The next APDA 30 years

Resource Efficiency The intensification of pressure on water resources is under control, given the importance that continues to be given to river basin planning processes, in which sustainability remains a goal. This situation stems from the continuity of the process to deepen EU’s acquis, even at multiple speeds. For identical reasons, the circular water economy remains on the agenda and efficiency is a priority along the whole urban water cycle. Demand by the farming sector tends to be neutral, combining higher production with improved efficiency. Efficiency is also encouraged by scarcity due to climate change (mitigated by the partial implementation of the measures in the Paris Agreement). Many WU are sufficiently funded, stemming from a

Urban Water Services scenarios

tendency for full cost recovery in urban areas and a relevant degree of recovery in others, enabling investment to improve sustainability and efficiency. This investment is also determined by sectoral goals, fixed by national and EU environmental policies. However, investment capacity is limited due to a very slow economic and demographic growth framework. Even so, the sector retains some capacity to mobilise qualified professionals and access incentives. The demands of new highly digital technologies exacerbate the asymmetries between WU based on their capacity to recover costs and/or obtain subsidies.

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Business and Governance Models / Territorial Scope The importance of efficiency and sustainability to the WU tends to limit several investment decisions and has major implications for their technical and financial management, aided by the qualified workers mobilised by the sector. The sector’s capacity to engage is thus boosted and, consequently, its capacity to innovate in terms of business and governance models, reinforced by the existence of qualified personnel in the urban and scientific centres in particular. This situation combined with the financial autonomy of many WU (a tendency for full cost recovery in urban areas and some degree of recovery in several others) attenuates the interior/coastal asymmetry and lessens the differentiation in drivers

influencing the evolution of the role of the municipalities in different territories. In effect, while there is a tendency for regional companies on the coast, this tendency also exists, though to a more moderate degree, in the interior (centred on the small and mid-sized cities). The concept of multiutilities is pondered or piloted in some areas of urban concentration. Public management of the systems coexists with private and/or mixed management. Players include European business groups, possibly associated with domestic ones. The private sector expands its involvement into the full management of systems, namely with patented/proprietary solutions. The need for a social tariff is recognised, potentially financed by social policy instruments and therefore not a burden for the WU. Solutions may be

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The next APDA 30 years

needed for systems of state ownership or state/municipal partnerships in areas where there is a major loss of population and business activity.

limited fashion due to weak investment capacity and snail-like economic and demographic growth. These investment limitations emphasize relevance of asset management, aiming a mere adaptation of technological solutions, especially in urban conurbations. Another area with less limited implementation is renewable energies as a result of domestic and EU targets related to the Paris Agreement. In a multi-speed EU, the tech and innovation dynamic in more advanced countries may have induced effects, accelerating and deepening change in this sector in peripheral countries too. The permanently tense geopolitical context implies concerns about the physical safety of the product and data management security, namely in terms of alarm capability and intruder control.

People’s Interface Service quality remains a priority, despite financial limitations, noticeable in the coastal WU and, given EU demands, in other parts of the country too, though to different degrees. Some social groups, mostly located in coastal urban centres, value water services, including from an environmental perspective. This implies a trend towards asymmetry in consumer perceptions of their value, amplified by differences in willingness to pay for them. Some WU in the interior, therefore, reveal a difficulty in attaining the desired levels of service quality, particularly stemming from EU requirements, given the levels of under-financing. In water supply, the guarantee of safety is an important issue for the customer, with the same applying to personal data management. As regards sanitation, levels of collection and treatment are maintained that continue to ensure good standards of bathing water quality. In sum, the current upward trend in the sector will continue, as well as the social and political tensions that make the outcome uncertain.

Urban Water Services scenarios

Financing Financing is preferably ensured by tariffs and additionally by national and local budgets. Some financing from the EU is likely to continue, as a means of complying with EU rules and guidance, though the size of these funding instruments will be much smaller than in the past. Even so, this funding may be important in terms of mitigating the impacts of interior/coastal asymmetries, allowing, albeit to a limited extent, the difficulties felt by WU in the interior to be “dampened”. Issues relating to affordability restrict full cost recovery, reflected in the management of WU assets. Always dependent on ROI, there is greater private involvement, which seeks to position itself in every area of the water industry’s value chain and thus contribute to increasing the financing capacity of the service.

Water Utilities of the most vulnerable areas experienced major difficulties in reaching the desired levels of quality of service, given the remarkable levels of underfinancing.

Regulation Regulation influences the way services play their role. Financial capacities vary between regions which has repercussions on the services provided to the public, creating even bigger difficulties for the regulator. The regulator is heavily dependent on the government and can have a relevant role in structuring the sector, as well as influencing the activity of players, including major European business groups. Portugal’s inclusion in the group of countries which pursued the course set out in the Paris Agreement after 2030 may lead to stronger regulation. This may occur in a series of countries with regulations specific to the sector that are able to compare their performance with the others and to benefit from the power that a unified set of regulators brings to the group as a whole.

Technology and Innovation Technology and innovation are developed to support the goals of EU service quality, sustainability and circular economy policies. However, the implementation of advanced and innovative solutions occurs mainly in coastal urban centres and, even then, in

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Being among the countries that, after 2030, reached the goals of the Paris Agreement, Portugal is able to reinforce the regulation framework.

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Urban Water Services scenarios

Go ve rn m c. t in en

Resource Efficiency Water resources face mitigated pressure with a moderate risk of scarcity. The European and world contexts are aligned around common policies and goals marked by trade liberalisation, efficiency and circularity in resource use. These strategic lines lead to an integrated and rational results-oriented management with the Paris Agreement as flag-bearer, occasionally subordinated to a more traditional market approach (grey and green economy). Efforts to squeeze demand are made in urban and farm use and are accompanied by efficiency measures. In the urban water cycle, scarcity is on the political agenda, leading to the adoption of advanced tech solutions in a context where concern for efficiency prevails. In conjunction with these, there is a dynamic rise in

the supply and quality of urban water services aided by value added. Service quality is closely related to scale, facilitated by the concentration of the population and a large part of business activity in the urban centres. The needs stemming from a falling population and weak growth exacerbate the asymmetries between coastal and interior WU. The lack of public initiatives able to reverse these asymmetries, given budgetary restrictions, may difficult fulfilment of environmental requirements and conservation of infrastructure (above all in WU in the interior). However, it is possible a new urban/rural relationship encouraged by major cities may, in some way, counteract these trends. The risk of a two-speed management of urban water services is very real if this does not occur.

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Business and Governance Models / Territorial Scope Environmental goals are incorporated into results-oriented management, creating a balance between value creation and sustainability, which naturally influences investment decisions. The sector includes a wide range of qualified workers with management dominated by technocrats. The trend for WU’s alliances acquires a gradually business-like focus. Innovation in the business and governance models brings a better balance between value creation, on the one hand, and service sustainability and efficiency, on the other. The aims of value creation drive the sector towards a supply diversification of services, capitalising the benefits of a customer relationship management. An atmosphere

conducive to the emergence of multiutilities is created, but restricted to those regions where the WU can achieve financial autonomy, namely the urban centres. The scale of WU with financial autonomy is a function of business logic’s criteria. At a complementary level, social policy instruments are created to finance social tariffs at a local sphere, freeing the WU from the burden of ensuring access by the disadvantaged to a basic service. WU operation and management by private entities is broadened, regional systems included, with multiple cases of mixed management too, encouraging interest from international players. In geographical areas with lower population concentration, the situation may be different if a new urban/rural relationship model is not introduced, maybe leading to a

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The next APDA 30 years

two-speed urban water cycle management between themselves at the development and system. In this context, public initiatives are commercial levels. On the tech demand side, needed to improve management conditions, operators seek more competitive solutions to namely in terms of subsidies and technology increase profitability and market share. This progress, which may be capitalised on by verand professional qualifications. tical players, allows high service quality and asset management levels, sustainability and People’s Interface In an attempt to form a favourable relation- circularity; however, it is restricted to urban ship with the customer, WU in urban cen- areas, unless a new urban/rural relationship tres develop a dynamic towards a bigger and model emerges. Tech and innovation contribbetter service, benefitting from privileged in- ute to higher efficiency in resource use and ternational links and the practices of other greater service quality, as well as high levels utilities. In regions with lower population of renewable energy use and data security, concentration, the minimum service ratio- creating a major value creation component nale prevails, based on EU parameters, with based on the relationship with the customer. cyclical tensions flaring up concerning service financing, quality fluctuations and discrepan- The shortages resulting cies with the WU in urban centres. This dis- from population decline crepancy may be mitigated by a new urban/ and low growth sharpen the rural relationship model. In the absence of this, there may also be gaps in the quality of asymmetries in performance distributed water and bathing water. The will- between coastal and inland ingness to pay, while unequal, is the result of Water Utilities. the evolution of income, associated with recognition of the economic value of water and the contribution of the WU to improving the environment. The potential for social instability and the difficulties of the state are a recurring concern. Technology and Innovation The atmosphere of international cooperation and the transnational nature of capital foster tech and innovation synergies between WU: these are of major importance given the positive relationship between increasing sustainability and opportunities for value creation. On the supply side, tech players compete

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Urban Water Services scenarios

Financing Tariffs are the “normal” instrument of recovering costs. Tariffs therefore largely finance the sector, ensuring its financial autonomy and moderating the need for other funding tools. Concerns grow about affordability, particularly at times of greatest political and social tension, despite efforts to allocate local public funds. In regions of lower population concentration, the gap in minimum services and service quality with other regions is used to foster tensions and demand greater solidarity from metropolitan areas, with consequent allocation of national public funds. Bearing in mind the expectations of profitability and the need to ensure the willingness of stakeholders, the national and international private sector increases its involvement to cover the financing of investment in infrastructure. Regulation Regulation faces important challenges. In a framework of major corporate power, there can be a tendency for self-regulation over public regulation. To achieve its aim in a liberal environment, the latter will need to boost its legal underpinnings and modes of action, but this contrasts with the limits affecting the pillars of state governance, with the risk that the regulator is co-opted. Civil society is split by strong beliefs that periodically settle arguments, in which the ability for regulatory intervention and the burdens imposed by regulation are also a recurring theme. The need for compatibility between customer pressure and costs containment, as well as results, dominant within the sector’s companies, may imply new challenges for the regulators.

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The participation of private investors, domestic and foreign, is expanded.


The next APDA 30 years

Resource Efficiency Water resources are still under pressure, but better and more efficiently managed. This resilience, based on fair and effective mechanisms between management entities, allows to maintain the security risk under control . This stems from global alignment with the UN sustainable development agenda and the more ambitious and extended evolution of the Paris Agreement. An integrated and rational management of water resources is thus implemented in which the principles of the circular economy are applied and the tech innovations available capitalised on. In the urban water cycle, scarcity is a theme high up the agenda and assumed as one of the main drivers of efficiency and circularity using innovative and efficient tech solutions

Business and Governance Models / Territorial Scope Environmental policies pursue service quality and efficiency goals for the sector, requiring mechanisms to stimulate investment and mobilise qualified professionals that ensure levels of management excellence in the WU. Public and private management coexist with myriad cases of mixed (public and private) management, but subordinated to the aforementioned public policy goals. Private-sector entities with important involvement in the sector are boosted by national and international business groups with expertise across the industry’s entire value chain. The concept of multiutilities is pondered and implemented. WU can integrate other business areas to improve the urban metabolism in economic

and environmental terms. This integration stems from an integrated territorial approach. WU are valued as organisations which preserve water resources, using them from the perspective of economic, social and environmental sustainability and a circular rationale. Service quality across the entire urban water cycle and the information provided to customers are assured. Customers recognise tariffs as the best means to achieve and maintain the sector’s desired levels of service quality and sustainability within the framework of the major financial autonomy of the WU. The social tariff is ensured by social policy instruments that are outside the WU’ remit, giving the latter greater legitimacy to adjust tariffs to the actual costs of each system. To offset the consequences of regional imbalances in

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determined by sustainability goals. Though political measures are taken to reduce population concentration in urban centres, mechanisms to ensure fairness in the urban water cycle are also necessary and applied, as well as innovative solutions and management models. Infrastructure management and service levels are thus focused on actively attaining service quality and sustainability, regardless of geographical area, with the implementation of the best practices available in O&M adapted to the needs of each system. There is a general concern about rehabilitating infrastructure to ensure the sustainability of quality service provision at reasonable cost.

Urban Water Services scenarios

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resource use efficiency, compensatory mechanisms may be created. Also borne in mind is the need to create institutional solutions suited to local, particularly demographic, characteristics. Development of appropriate tech solutions are also anticipated. New efficiency systems and drivers may be conceptualised as a consequence of tech and innovation, as well as paradigm shifts, especially as concerns specific local and geographically extensive systems. People’s Interface The customers are increasingly demanding with WU, particularly in matters of service quality, efficiency and relations with stakeholders. This pushes WU to higher levels of social, environmental and economic performance. In view of the indifference to the business model and the size and location of the WU, the latter focus on results, which must reflect the best interests of the public, which is increasingly better informed about national and EU legal obligations. As users become more demanding, they are more willing to pay for urban water services as a result of the recognition of the WU’ role in the efficient use, conservation and protection of water resources. WU regard it as key to inform, raise awareness and educate stakeholders to strengthen the commitment underlying the relationship between tariff and service quality in a context where affordability is guaranteed.

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Urban Water Services scenarios

Technology and Innovation Innovation and technological progress are crucial and financially incentivised by national and international mechanisms based on cooperation between WU, industries, scientific communities and countries. Innovation strategy encompasses the circular economy, whether technology-based or otherwise, promoting efficiency of use and the closer adaptation of systems to social, economic and environmental reality. As a result of investment capacity, asset management underpins operational reliability and safety, heavily oriented towards the efficient use of water and energy resources. As regards water treatment, innovation, integrating the technological evolution of nanotechnologies, biotechnologies and others, is crucial to finding and eliminating emerging pollutants, to increasing efficiency and to decarbonising the activities of the WU. The focus of innovation and tech is thus directed at satisfying service needs, quality and efficiency, as well as relations with the customer, in this case from the perspective of information, awareness raising, environmental education and data security.

Financing Families are more willing to bear the costs of efficient and resilient urban water services out of a feeling of fairness and resource conservation. The medium and long-term cost recovery forecast through tariffs creates favourable conditions for national and international private operator involvement stemming from the greater potential for return on investment (ROI), a clearer definition of solutions, tariff-related in particular, to support the costs of capital, and the economic sustainability of the systems. This situation coexists with the concern to guarantee the environmental and social obligations of the services. Like other utilities, the sector is also attractive to institutional investors interested in the stable and predictable returns afforded. Private operators work across the entire value chain, applying principles and values that are key to the success and involvement of stakeholders. A new approach to local sustainability and the configuration of municipal business systems for small conurbations employs tariffs – the key component underpinning service cost, incentivising water efficiency and a tool in signalling scarcity – as the central element.

Innovation is a game-changer encouraged by cooperation. The circular economy becomes a strategic pillar, promoting the efficiency of resources and the adequacy of water services to the socioeconomic reality.

Regulation With the sector more open, liberalisation, the need for efficiency gains and innovation incentives require strong, competent, independent and resilient regulators in the different political and technical areas. The risk of the private sector exerting excessive influence on regulation is constant, requiring policies and decisions by national and supranational public authorities that ensure transparency and

competition. In this way, market regulation is enhanced, leading to the sustainability of the resource and promoting an increase in the value attributed to water individually and collectively. In this context, tariffs are essential to incentivise a behavioural shift in consumers with regard to the efficient use of water and to structure the efficiency of the Water Utilities.

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The fulfillment of the mission of Urban Water Services in 2050 is inseparable from the way the external environment evolves. The exploration of the four scenarios shows how funding issues are critical for Water Utilities’s survival in light of the high quality standards of services achieved in the transition to the 21st century, and how its availability dependent of European Union’s continuity. In the coming decades, any rehabilitation or infrastructure construction investment project will be conditioned if the world develops into isolation. Governance models can undergo significant changes, within a framework with greater social valorization of the resource and intense and worthy collaboration between stakeholders. This prospective exercise shows how the Portuguese economy can evolve and what are the driving forces that enable Water Utilities to move forward to a reflection process in order to adapt its strategies to 2050.

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Os próximos 30 anos APDA

Cenários para o mundo em 2050

A participação é uma mais-valia no exercício prospetivo. Public engagement and participation represent an added value for prospective exercise.

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Workshops e dinâmicas em grupo. Workshops and different collective dynamics.


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Equipa de Coordenação Executiva Executive Coordination Team Sérgio Hora Lopes - Coordenador/Chair (Águas de Portugal · APDA) Ana Margarida Luís (Águas de Portugal · APDA) Carlos Póvoa (Águas de Portugal) David Cabanas (C.M. Barreiro) Fátima Azevedo (Secretaria Geral · Ministério do Ambiente) Francisco Narciso (Águas de Portugal) Hilário Ribeiro (ITRON · APDA) Inês Trindade (Gestora do Projeto, APDA) João Simão Pires (UCP · PPA · APDA) J. Henrique Zenha (APDA) Miguel Carrinho (Águas do Ribatejo · APDA) Nuno Medeiros (Águas de Portugal) Paulo Nico (SMAS de Almada · APDA) Pedro Béraud (AdP Internacional · APDA)

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Patrocinadores Sponsors

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APDA - Water services The Next 30 Years - English Version  

Research conducted by APDA with a focus on understanding "How Will Water Services Fulfill Their Mission in 2050"

APDA - Water services The Next 30 Years - English Version  

Research conducted by APDA with a focus on understanding "How Will Water Services Fulfill Their Mission in 2050"