Integrated Environmental Regeneration of Rĺa De Vigo

Home , O Grove, Province of Pontevedra, Redondela, Ria de Pontevedra, Ria de Vigo, Soutomaior

EX POST EVALUATION OF INVESTMENT PROJECTS CO-FINANCED BY THE EUROPEAN REGIONAL DEVELOPMENT FUND (ERDF) OR COHESION FUND (CF) IN THE PERIOD 1994-1999

INTEGRATED ENVIRONMENTAL REGENERATION OF RĺA DE VIGO

PREPARED BY: CSIL, CENTRE FOR INDUSTRIAL STUDIES, MILAN

PREPARED FOR: European COMMISSION DIRECTORATE-GENERAL REGIONAL POLICY POLICY DEVELOPMENT EVALUATION

MILAN, SEPTEMBER 5, 2012

This report is part of a study carried out by a Team selected by the Evaluation Unit, DG Regional Policy, European Commission, through a call for tenders by open procedure no 2010.CE.16.B.AT.036.

The consortium selected comprises CSIL – Centre for Industrial Studies (lead partner – Milan) and DKM Economic Consultants (Dublin).

The Core Team comprises: - Scientific Director: Massimo Florio, CSIL and University of Milan; - Project Coordinators: Silvia Vignetti and Julie Pellegrin, CSIL; - External experts: Ginés de Rus (University of Las Palmas, Spain), Per-Olov Johansson (Stockholm School of Economics, Sweden) and Eduardo Ley (World Bank, Washington, D.C.); - Senior experts: Ugo Finzi, Mario Genco, Annette Hughes and Marcello Martinez; - Task managers: John Lawlor, Julie Pellegrin and Davide Sartori; - Project analysts: Emanuela Sirtori, Gelsomina Catalano and Rory Mc Monagle.

A network of country experts provides the geographical coverage for the field analysis: Roland Blomeyer, Fernando Santos (Blomeyer and Sanz – Guadalajara), Andrea Moroni (CSIL – Milano), Antonis Moussios, Panos Liveris (Eurotec - Thessaloniki), Marta Sánchez-Borràs, Mateu Turró (CENIT – Barcelona), Ernestine Woelger (DKM – Dublin).

The authors of this report are Emanuela Sirtori, Mario Genco and Andrea Moroni of CSIL. Useful research assistance has been provided by Rosa Carmosino of CSIL.

The authors are grateful for the very helpful comments from the EC staff and particularly to Veronica Gaffey, José-Luís Calvo de Celis and Kai Stryczynski. They also express their gratitude to all stakeholders who agreed to respond to the team’s questions and contributed to the realisation of the case study. The authors are responsible for any remaining errors or omissions. Quotation is authorised as long as the source is acknowledged.

Cover: Ría de Vigo, picture by Enrique Dans (June, 2006).

TABLE OF CONTENTS

EXECUTIVE SUMMARY ...... 1 1 PROJECT DESCRIPTION ...... 9

1.1 CONTEXT ...... 9 1.2 LEGISLATIVE FRAMEWORK ON WASTE WATER TREATMENT ...... 13 1.3 STRUCTURAL FEATURES ...... 17 1.4 SERVICE DELIVERY ...... 23 2 ORIGIN AND HISTORY ...... 27

2.1 BACKGROUND ...... 27 2.2 FINANCING DECISION AND PROJECT IMPLEMENTATION ...... 28 2.1 CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS ...... 34 3 LONG-TERM DEVELOPMENT EFFECTS ...... 41

3.1 KEY FINDINGS ...... 41 3.2 DIRECT WELFARE AND ECONOMIC GROWTH ...... 44 3.3 ENDOGENOUS DYNAMICS ...... 51 3.4 ENVIRONMENTAL EFFECTS ...... 52 3.5 TERRITORIAL COHESION ...... 55 3.6 INSTITUTIONAL QUALITY ...... 56 3.7 SOCIAL HAPPINESS ...... 57 4 DETERMINANTS OF PROJECT OUTCOMES ...... 59

4.1 KEY FINDINGS ...... 59 4.2 APPROPRIATENESS TO THE CONTEXT ...... 60 4.3 PROJECT DESIGN ...... 61 4.4 FORECASTING CAPACITY ...... 63 4.5 PROJECT GOVERNANCE AND MANAGERIAL RESPONSE ...... 64 4.6 THE ROLE OF THE EUROPEAN COMMISSION ...... 65 5 CONCLUSIONS ...... 67 ANNEX I. METHODOLOGY OF EVALUATION ...... 71 ANNEX II. COST-BENEFIT ANALYSIS ...... 77 ANNEX III. MAP OF STAKEHOLDERS ...... 97 ANNEX IV. GLOSSARY ...... 99 ANNEX V. LIST OF INTERVIEWEES ...... 101 ANNEX VI. REFERENCES ...... 103

LIST OF ABBREVIATIONS

BOD5 Biochemical Oxygen Demand

CBA Cost-Benefit Analysis

CFU Colony-forming unit

DG Regio Directorate General for Regional Policies

EAP Environmental Action Programme

EC European Commission

ECU European Currency Unit

ERDF European Regional Development Fund

EU European Union

EUR Euro

GDP Gross Domestic Product

GSI Galician Statistics Institute (Istituto Galego de Estadistica)

INTECMAR Technological Institute for the Control of Marine Environment of Galicia

Km Kilometre(s) l Litre(s) m Metre(s) mg Milligramme(s) ml Millilitre(s) mm Millimetre(s)

NSI National Statistics Institute (Istituto Nacional de Estadistica)

NUTS Nomenclature of Territorial Statistical Units

Ptas Pesetas

S.A. Public Limited Company (Sociedad Anonima)

S.L. Limited liability company (Sociedad Limitada)

ToR Terms of Reference

UV Ultraviolet

WTP Willingness to pay

EXECUTIVE SUMMARY

This case study analyses the group of projects “Integrated environmental regeneration of Ría de Vigo”, which envisages the construction of nine waste water treatment plants and the installation of sewage pipelines and pumping stations in eight municipalities of Ría de Vigo, in the Spanish Autonomous Community of Galicia. The timeframe of this evaluation study, which occurs more than ten years after the project’s completion, allows one to analyse the socio- economic-environmental effects generated by the project in the long term, and to identify the factors that may have contributed to producing or limiting these effects. The evaluation methodology adopted comprises both qualitative and quantitative techniques, relying on documentary evidence, press and literature review, interviews and the Cost-Benefit Analysis methodology. The overall evaluation approach has been presented in the First Interim Report of this study. For convenience, it is recalled in the following box and, more extensively, in Annex I.

OVERALL APPROACH AND METHODOLOGY The Conceptual Framework delivered in the First Intermediate Report has been developed from the evaluation questions included in the ToR1, and further specified and organised in accordance with the study team’s understanding. In particular, the Team identified three relevant dimensions of analysis: i) The object of the evaluation (the ‘WHAT’): this relates to the typologies of long-term contributions that can be observed. Starting from the typologies identified in the ToR (socio-economic development and quality of life) the Team developed the following classification of long-term effects: ‘Economic development’ (including effects on GDP growth and endogenous dynamics) and ‘Quality of life’, taken here to be synonymous with additional social wellbeing, i.e. including effects that are not captured by the economic variables. ‘Quality of life’, in turn, has been divided into: social cohesion, territorial cohesion, institutional learning, environmental effects and social happiness. ii) The timing of the long-term effects (the ‘WHEN’): this dimension relates to the point in the project’s lifetime at which the effects materialise for the first time (short-term dimension) and stabilise (long-term dimension). The proper timing of an evaluation and the role it can have in relation to the project’s implementation is also discussed here. iii) The determinants of the project’s performance (the ‘HOW’): the assumption here is that five aspects of project’s implementation and their interplay are crucial for the project’s final performance. These aspects are: project design, forecasting capacity, governance, context and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects. On the basis of this conceptualisation, a set of detailed evaluation questions are developed, which aim to guide the entire study and to support the provision of conclusions and recommendations. The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (interviews, surveys, searches of government and newspaper archives, etc.) techniques, integrated in such a way as to produce ten project histories. CBA

1 They are the following: What kind of long-term contributions can be identified for different types of investment in the field of environment and transport infrastructure? How are these long-term contributions generated for different types of investment in the field of environment and transport infrastructure, i.e., what is the causal chain between certain short-term socio-economic returns and long-term returns from investment? What is the minimum and average time needed for a given long-term contribution to materialise and stabilise? What are these time spans for different types of investment in the field of environment and transport infrastructure? What are the existing evaluation methods to capture a given long-term contribution for different types of investment in the field of environment and transport infrastructure?

is an appropriate analytical approach for the ex-post evaluation because it can provide quantification of or indications of some of the long-term effects produced by the project. However, the most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome. Qualitative analysis on the other had is more focussed on understanding the underlying causes and courses of action of the delivery process. On the basis of the findings of the ten case studies, the Final Report will draw lessons along the key dimensions identified of ‘what’, ‘when’ and ‘how’. Source: Authors

Since the beginning of the Nineties, the Spanish Autonomous Community of Galicia has financed a number of interventions to improve waste water management within the regional territory. Among these investments is the major project “Integrated environmental regeneration of Ría de Vigo”. Ría de Vigo is a 35 km long sea inlet on the West coast of Galicia, facing onto the Atlantic Ocean. It is one of the most densely populated and industrialised areas of the region and the lack of any treatment plant to purify urban sewage before being discharged into the Ría’s water was negatively affecting the environment and the quality of life of inhabitants. Before the project implementation, the Ría was suffering severe contamination, with floating solid debris, bad odours and accumulation of pollutants.

In order to provide an appropriate and integrated solution to this situation, the Region took charge of the construction of nine treatment plants along the Ría’s coast, in eight different municipalities: Vigo, Redondela, Cangas, Moaña, Nigrán, Gondomar, Soutomaior and Vilaboa. The interventions included also the replacement and extension of the sewage pipelines in parts of the municipalities, in order to convey all waste water produced by the population to the treatment facilities. Project design and implementation were undertaken by Augas de Galicia, an independent body of the Government of Galicia, while the operation of the infrastructures, once completed, was generally assigned to the municipalities2.

The works were implemented between 1995 and 2000 and the infrastructures started to be operated over a number of years, from 1998 to the end of 2000. The project cost EUR 159.5 million in real terms (2011 money)3. The Cohesion Fund ensured adequate financing for the project, by covering almost 80% of the investment expenditure, while the remainder was financed by the Region and, to a lesser extent, by the municipality of Vigo. Between 2005 and 2010 additional investment costs were undertaken by the Region to upgrade some of these treatment plants, involving a cost of EUR 9.4 million. They have been included in the analysis, thus making the total investment cost of the project under assessment EUR 171.52 million.

2 Only in few cases, Augas de Galicia took responsibility for the operation of some treatment plants, as explained below. 3 All figures are expressed in real terms at 2011 prices, unless otherwise specified.

OVERVIEW OF INVESTMENT COSTS AND SOURCES OF FINANCING Financing period 1995-2000 First year of operation 1998-2000 Total investment costs (2011 prices) EUR 171.52 million 100% Sources of financing and co-funding rates over the total investment costs Cohesion Fund EUR 117.62 million 68.6% European Regional Development Fund EUR 0 0 European Investment Bank EUR 0 0 National-regional-local public contribution EUR 53.91 million 31.4% Private capital EUR 0 0

Thanks to the project, today all the municipalities of Ría de Vigo are provided with a system to collect and treat all urban waste water produced by inhabitants, tourists and some commercial and industrial activities, corresponding to a total number of 620,000 population equivalent. By the end of 2000, without any unexpected delay, all the treatment plants were in operation and direct discharge of urban waste waters in the Ría ceased. The various sources of financing were able to cover the estimated investment costs, so that no cost overruns occurred. The project’s financial sustainability has been secured also during the operational phase, by means of municipal tariffs, which entirely cover the operating cost of treatment plants, and of a regional tax which provides for further resources to meet the future investments needs in the waste water treatment sector of Galicia. Both the municipal tariff and the regional tax for waste water management and treatment are in line with the European “polluter pays” principle, stated in Directive 2004/35/CE and requiring the costs of pollution be borne by those who cause it: actually, higher volumes of waste water produced are related to higher tariffs.

The new infrastructures had an immediately positive effect on environment and direct economic growth. More specifically, the reduction in the contamination load of the Ría, which was putting at risk the entire ecosystem, enabled an increase in environmental quality. These interventions effectively improved water quality, in compliance with Directive 91/271/EC on urban waste water treatment, which required the municipalities of Ría de Vigo to install secondary-type treatment facilities for urban waste waters by 31st December 2000. Most of the treatment plants have also been provided with a disinfection system, to further reduce the concentration of bacteria in the water, in compliance with the Directives for shellfish and bathing waters (respectively, Directives 79/923/ EC and 76/460/ EC).

In terms of economic growth, the improvement in the Ría’s water led to an increase in the number of bathing beaches, which in turn benefited tourism development: more tourists have been attracted by the beautiful landscape and clean sea, thus stimulating the development of the accommodation sector and a number of economic activities related to the use of beaches (beach umbrella and sun bed rental, sale of food and beverage, and so on). A clear indication

of the enhancement of water and beach quality is given by the number of beaches along the bay achieving Blue Flag4 status: they have steadily increased, from 2 in 1999 to 17 in 2007.

As far as another important and well-developed economic sector of Ría de Vigo is concerned, i.e. shellfish extraction and aquaculture, the evidence collected shows that the project’s effect has not been significant. Even if Augas de Galicia expected the project to have some positive impact on this sector, the improvement of water quality appears not to be directly related either to any increase in shellfish production or to any reduction in time and cost needed for their purification. Actually, before being consumed, mussels need to spend some time in open waters (usually in the Atlantic Ocean) in order to reduce their microbial load. The purification process, however, has not been influenced by the project: its duration, and hence cost, did not undergo any significant variation as a result of the improvement of water quality.

Thanks to the enhancement of the Ría’s water quality, today inhabitants benefit from a general improvement of wellbeing. More specifically, the reduction of non-bathing beaches and the possibility to enjoy new recreational activities linked to the use of water and beaches are the main factors which positively affect the beneficiaries’ quality of life. This effect has been valued via the willingness to pay of inhabitants for the waste water treatment service and included in the ex-post Cost Benefit Analysis. The results are positive: a net present value of EUR 46.81 million and an economic internal rate of return of 5.86% (at 2011 prices).

The project also contributed to fostering territorial cohesion in the target area. By extending the sewerage to the most rural and less densely populated areas of the cities and by providing all inhabitants with the same waste water management and treatment service, the infrastructure enabled the reduction of territorial gaps between the peripheral and central districts of the cities.

Greater effects could have been produced on institutional quality, in particular where the institutions at the regional level are concerned. The project represented the opportunity for Augas de Galicia to provide a sustainable solution to the waste water management problem in Ría de Vigo. Yet, in designing the project, only the requirements of the urban waste Water Directive were originally considered by Augas de Galicia, while the specific targets on water quality set by the bathing waters Directive and the shellfish waters Directive were not fully complied with. After the European Commission demanded that these relevant Directives were also taken into account, Augas de Galicia revised the project design and provided some of the treatment plants with Ultraviolet (UV) disinfection technology. However, this technology, which would have enabled the achievement of the more stringent water quality standards for bathing and shellfish waters, was not installed at the plants at Redondela, Soutomaior, Cangas and at the river Lagares plant at Vigo.

Furthermore, no adequate measures to guarantee the water quality needed for shellfish waters were included in the Galician plan of water purification, published in 2000 and covering

4 http://www.blueflag.org/

the period 2000-2015. The lack of proper interventions specifically aimed at implementing EU legalisation in this field in Ría de Vigo led to an infringement procedure and to an economic sanction by the European Court of Justice in 2005. After the sanction, in order to ensure full compliance with the requirements of the shellfish water Directive, the treatment plants at Redondela, Soutomaior and Cangas were upgraded with the UV disinfection system.

Today, the main problems that still limit the project’s effectiveness are related to the Lagares plant. This facility, which is the largest among those built, receiving 65% of the urban waste waters produced in all of the Ría, still lacks disinfection technology and, most importantly, is affected by structural problems that prevent its proper functioning. Because almost all the sewerage network of Vigo is mixed, conveying both waste water from households and rain waters, during the rainy periods a larger volume of water arrives at the plant, whose capacity allows it to treat only a part of it. Waste water exceeding the capacity of the Lagares plant has to be discharged into the Ría after undergoing only the primary-type treatment. These problems prevent the maximisation of the whole project’s benefits on the environment and economic growth; moreover, the disappointment among the public at not yet having solved the malfunctioning of this plant, which is limiting the overall quality of the Ría’s waters, but also preventing full compliance with the European relevant Directives, is reducing the perception of wellbeing and of the project’s effectiveness.

The mechanisms behind the project’s performance have been identified and evaluated. Among the factors which positively contributed to the generation of long-term development effects are the good appropriateness of the project to the context and the adequate managerial response of Augas de Galicia in response to unexpected events. On one hand, providing an integrated intervention to improve waste water collection and treatment throughout all the municipalities of the Ría was the most appropriate solution to improve the water quality of the whole water basin. In addition, Augas de Galicia appropriately took into account the high population density characterising the municipalities and the resulting space constraints on the treatment plants: where space was limited and municipalities did not succeed in expropriating the required land, because of the reluctance of residents to move, Augas de Galicia built the treatment plants on artificial platforms extending out onto the sea, specifically created for this purpose. On the other hand, Augas de Galicia promptly and effectively intervened when some municipalities5 were shown to be unable to set up the tendering process to assign the management of the treatment plant: in these cases, the regional body took responsibility for running the infrastructures, thus ensuring their immediate functioning.

By contrast, the main determinant factor responsible for the weakness of the infrastructure is poor project conceptual design. In planning the intervention in Ría de Vigo and designing each infrastructure, Augas de Galicia placed particular emphasis on the objective of fulfilling the urban waste water treatment Directive by the established deadline, but the other relevant Directives, particularly the one concerning shellfish waters, were probably pushed into the

5 These were Soutomaior and Vilaboa.

background. In parallel, the problems related to the limited capacity of the Lagares plant were not adequately taken into account by the regional authorities. Actually, the inadequate treatment capacity of the Lagares plant with respect to the volume of water to be treated during the rainy periods was apparent and well acknowledged by Augas de Galicia: these problems have been expressly admitted since 1995, in the application for EU co-financing. Hence, as a matter of fact forecasting capacity cannot be considered inadequate per se, while poor project design is considered as the key determinant of the limited project performance.

Besides an over-emphasis on compliance with the urban waste water treatment Directive to the detriment of the requirements of the other Directives and the overall functioning of the largest treatment plant in the Ría, a shortage of regional financial resources contributed to determine a poor project design. Augas de Galicia, which in the same period was implementing a large number of investment projects throughout the regional territory, made great efforts during the design and construction phase to optimise the available resources and control costs. Despite the fact that Cohesion Fund support was very high for the major project in Ría de Vigo, the regional funds that had been allocated for investments in the waste water treatment sector were limited and insufficient to fully address the investment needs of the area, as also admitted by an interviewee.

The European Commission at first greatly contributed to the improvement of the project design, by highlighting the need to ensure compliance with the shellfish and bathing water Directives, thus indirectly requiring the installation of the UV treatment systems. Against Augas de Galicia’s declaration that all the relevant Directives had been taken into consideration, the Commission agreed to co-finance the major project, even if, in fact, the design of most of the infrastructures still had to be finalised. This prevented the Commission from knowing that UV disinfection technology had not been immediately envisaged for all the treatment plants, in spite of its recommendations.

As far as the project governance dimension is concerned, the distribution of responsibilities between Augas de Galicia and the municipalities did not affect the positive long-term effects produced by the project. Nevertheless, more could have been achieved if more effective control over illegal industrial discharges and the functioning of industrial waste water treatment plants had been put in place by the regional authorities. Although the industrial waste water purification systems are outside the scope of this evaluation, since the most polluted industrial waste waters are not treated at the municipal plants, ineffective control over them necessarily influences the overall impact of the other facilities and limits the attainment of greater benefits with respect to the Ría’s water quality.

The project impacts on economic growth and environment are not completely stabilised, but are expected to further increase in the future years, when the structural problems of the Lagares plants are solved. A long time was taken by the Region to identify a proper solution to these problems. A new treatment plant was finally designed in 2009 by the national public company AcuaNorte, costing EUR 170 million, but it will probably only start operations at the end of 2015.

In conclusion, even if an overall positive impact on economic growth, welfare and environment was generated by the project, in part because the ex-ante situation was particularly negative and in part because of the project’s good appropriateness to the context and needs, these effects could have been maximised via more accurate planning of the interventions and project design on the part of Augas de Galicia. A higher allocation of regional funds in addressing the waste water management issues throughout the region would have also contributed at implementing the best project option, which would have generated higher effects since the initial stage of the infrastructure operation.

1 PROJECT DESCRIPTION

1.1 CONTEXT The North-Western coast of Spain, in the region of Galicia, is characterised by an irregular and indented morphology, with numerous inlets similar to fjords and called “rías”. The rías are river valleys submerged by the sea, with sloping coastlines nearby6. Their origin has usually been interpreted as tectonic, as a consequence of the land lifting, but, according to other studies, they may result from the erosive action of the rivers7. Galicia has fourteen rías, among them Ría de Vigo, overlooking the Atlantic Ocean and not far from the Portuguese border8. It extends in a North-Easterly direction for 35 Km, has a surface area of 156 Km2 and its width varies from 700 m to 7 km.

Figure 1.1 THE GEOGRAPHICAL POSITION OF RÍA DE VIGO

Source: Authors’ elaboration based on File:EspañaLoc.svg, de HansenBCN (modified by User:Mutxamel) and http://europa.eu/abc/maps/regions/spain/galicia_it.htm

Ría de Vigo is the area affected by the project under assessment. The project involved the construction between 1995 and 2000 of a set of infrastructures to treat urban waste waters from various municipalities before their discharge into the Ría. It included the installation of several kilometres of new sewerage pipes conveying the wastewaters to new sewage treatment plants located around the Ría. While the specific features of the facilities are described in Section 1.3, some information about the environmental and economic context, which are deemed important to the understanding of the whole project rationale, are provided below.

6 The word ría comes from the Galician language and it is related to the word río, meaning “river”. 7 For a review of the studies elaborating on the origin of the rías, see Valcarlos (2000). 8 Others rías are Ría de Pontevedra, Ría de Arousa, Ría de Muros and Noia, Ría de Corcubion and Cee, Ría de Coronne, Ría de Ares and Betanzos, Ría de Cedeira, Ría de O Barqueiro, Ría de Ferrol, Ría de Ortigueira, Ría de Viveiro, Ría de Foz and Ría de Eo.

Ría de Vigo is characterized by a humid oceanic climate: about 1,200 millilitres of rain per m2 fall every year. Generally, autumn and winter are the most rainy seasons, while summers are hot and dry. This is clearly shown by the figure below in which the monthly amount of rainfall since 20079 is reported.

Figure 1.2 MONTHLY AMOUNT OF RAIN WATER IN RÍA DE VIGO (MM PER M2). YEARS 2007-SEPTEMBER 2011 450 400 350 300 2006 250 2007

mm 2008 200 2009 150 2010 100 2011 50 Average 0

Source: Authors’ elaboration based on data retrieved from http://clima.tiempo.com/clima-en- vigo+peinador-080450.html

Situated in the Province of Pontevedra, Ría de Vigo is one the most densely populated areas of Galicia. The municipalities overlooking the Ría, the largest of which gives the name to the area, are Vigo, Gondomar, Nigràn, Redondela, Soutomaior, Vilaboa, Moaña and Cangas. The total population amounts to 417,269 inhabitants (2010 data) and it represents approximately 15% of the total Galician population10.

Population density is very high, far above the Galician and Spanish average (both about 93 inhabitants/km2). Vigo is the most densely inhabited and urbanised municipality11, with around 2,700 inhabitants per Km212, while the other towns of the Ría have approximately 200-600 inhabitants per km2. In the last fifteen years total population density has increased by an average 0.42% per year, as shown in Figure 1.3.

9 Data on rainfalls in 2006 are available only from August. 10 Total Galician population is about 2.8 million inhabitants. Since the Sixties the population of Vigo has doubled. Source: National Statistics Institute (NSI). 11According to the last census, in 2001 Vigo had 33,755 buildings (including private houses, commercial and industrial infrastructures) distributed over 110 Km2 of surface, not all of them actually inhabited. This was the highest number in the province of Pontevedra. The Municipality of Pontevedra is the city with the second highest number of buildings in the province: it has 11,550 buildings over an area of 117 Km2. Source: NSI 2004. 12 Source: http://hoxe.vigo.org/index.php

Figure 1.3 POPULATION GROWTH AND POPULATION DENSITY (INHABITANTS PER KM2) IN RÍA DE VIGO. YEARS 1996-2010

1060 410,000 Vilaboa (+1.18%)

1040 km2 per of inhabitants Number 390,000 Soutomaior (+0.6%)

370,000 1020 Gondomar (+2.26%)

350,000 1000 Nigràn (+0.29%)

330,000 Moaña (+1.59%) 980

310,000 Cangas (+1.05%) Numberinhabitantsof 960 290,000 Redondela (+0.78%)

940 270,000 Vigo (+0.26%)

250,000 920 Population density

Note: In brackets the average annual population growth over the period 1996-2010 of each municipality is indicated. Source: Authors’ elaboration based on NSI data

Industrial concentration near the Ría is particularly significant13, with more than 3,700 industrial activities currently in operation14, most of which are in the construction and manufacturing sectors. Vigo is one of the leading industrial cities of Galicia15. The automotive industry is well-developed, with the presence of the Peugeot-Citroën manufacturing plant, the group’s largest plant outside France, both in terms of output and workforce16. About 7,000 people are employed in this plant, which in 2010 produced 397,000 vehicles. Ría de Vigo has a commercial, tourist and fishing port17, occupying an area of 2.6 km2. Thanks to its favourable geographical location, the port regularly serves almost 100 shipping lines on their route between Europe and America. In 2010 more than 4.3 million tonnes of different types of goods were handled, representing approximately 1% of the total port traffic of Spain and 15% of the region18. Almost 60% of the handled merchandise is containerised, while the remaining cargo is represented by cars loaded and unloaded at the ro-ro terminal19.

In addition, the good geographical position, the deep sea favouring navigation, and the presence of the Cíes islands at the entrance of the Ría protecting the inner waters from storms, make Ría de Vigo particularly suitable for fishery activities. Vigo is the main fishing port in the whole European Union: 87,000 tonnes of fresh fish were landed at the port in 2010, and

13 Government of Galicia, 2002. 14 Chamber of Commerce of Vigo, 2011. 15 Government of Galicia, 2002; Chamber of Commerce of Vigo, 2011. 16 Source: Peugeot-Citroën website (http://www.psa-peugeot-citroen.com/en/psa_group/fiche_nom_b5.php?id=105). 17 http://www.apvigo.com/control.php?sph=a_iap=1343%%p_rpp=1 18 After the port of A Coruña, Ferrol-San Cibrao and Marín y Ría de Pontevedra. 19 Port terminals dedicated to the loading and unloading (roll on and roll off) of vehicles.

it recorded an average annual increase of 1.64% over the period 2000-201020. Shellfish and sea fish represent respectively 49.9% and 48.8% of the total fish products caught and landed at the port, while the fishing of crustaceans is less significant, with a share of 1.24% in 201021.

Figure 1.4 VOLUME OF FISH LANDED AT THE PORT OF VIGO (THOUSAND TONNES) – 2000-2010

90,000 80,000 70,000 60,000 Sea fish 50,000 Shellfish 40,000 Crustacean 30,000 20,000 10,000

2000 2001 2002 2003 2005 2007 2008 2009 2010 2006 2004 Source: Authors’ elaboration based on Puertos del Estado (2000)

The average water temperature, the saltiness, the large amount of nutrients22 carried by the water stream and the good water exchange make Ría de Vigo23 a suitable place to farm good quality seafood. Some 96% of farmed fish are mussels24, which are harvested into dedicated facilities distributed along the right side of the Ría. Besides fishing, aquaculture25 represents a significant economic sector and source of income for the area26. AcuaNorte, the National Company of the Spanish North Basin Waters, estimated that in 2007 aquaculture in the Ría generated about 221,000 tonnes of product, with revenues amounting to EUR 180 million27.

Seafood has also relevance for tourism, since every year the delicious local cuisine attracts many visitors, mainly from other Spanish regions and Portugal28. In addition, tourism in the Ría is fostered by the presence of natural and cultural attractions (parks, museums and historical sites) and beautiful beaches, 17 of which were awarded with the “Blue Flag” quality label in

20 Source: Puertos del Estado’s annual reports (2000-2010). 21 The share of crustaceans fished in 2000 was only 0.4% but the sector grew strongly between 2000 and 2003, recording an average yearly increase of 71%. The growing trend was temporarily interrupted in the years following the shipwreck of the oil tanker Prestige at the end of 2003 (see Box 3.1 in Section 3 outlining the story of this environmental disaster). 22 Such as nitrogen, calcium and phosphate. 23 Toboada et al., 1998. 24 As estimated by AcuaNorte, 2009b. 25 Aquaculture consists in the farming of fish, crustaceans and molluscs under controlled conditions. 26 Its importance is also recognised in the academic field: seminars, masters and PhD programmes in aquaculture are promoted each year by the University of Vigo. http://webs.uvigo.es/vicprof/index.php?option=com_content&task=view&id=350&Itemid=207 27 AcuaNorte, 2009. 28 Between 2003 and 2010, the number of tourists in the province of Pontevedra amounted to 1,350,000 per year.

200729. Thanks to these attractions, Vigo is establishing itself as a cruise port, with the number of cruise passengers growing from less than 60,000 in 200030 to 253,000 in 201131.

1.2 LEGISLATIVE FRAMEWORK ON WASTE WATER TREATMENT Through the construction of waste water treatment infrastructures, the project analysed aimed to improve the water quality of Ría de Vigo. Ensuring that the contaminant load of water deriving from urban discharges does not significantly affect the environmental conditions of the area is particularly important, given the existence of economic activities whose development depends on water use, such as fishing, aquaculture and tourism. The European Union recognises that discharges of urban waste water represent a serious cause of water pollution due to eutrophication32: since the sewage is mainly made of organic material, it may significantly alter the concentration of nutrients in the water. Excess nutrients (especially phosphates and nitrates) favour the development of algal blooms, which may deplete all the oxygen in the water, leaving none for other marine life. Eutrophication is a natural process for a water body, but waste water can greatly accelerate the process, thus disrupting the normal functioning of the ecosystem.

In order to ensure the adequate treatment of urban sewage, all urban agglomerations33 in the EU Member States are required to comply with a stringent legislative framework developed over recent decades. The field of wastewater treatment is mainly regulated by European legislation. Early European programmes and legally binding legislation concerning environmental policy have been introduced since the 1970s34. In parallel, a number of specific Directives for the wastewater sector have been adopted at European level, aimed at improving the quality of water and at controlling pollutant emissions to water. The first European Directive directly related to both urban and industrial waste water treatment was adopted in 1991 (91/271/EC). Its objective is to protect the environment from the adverse effects of discharges of urban waste water and of waste water from certain industrial sectors35. The

29 The Blue Flag is an eco-label awarded by the non-governmental organisation Foundation for Environmental Education to beaches in 46 countries across Europe, South Africa, Morocco, Tunisia, New Zealand, Brazil and the Caribbean. The Blue Flag is assigned to beaches that comply with criteria concerning water quality, environmental management and service provision. Countries can voluntary propose their beaches as candidates to receive the quality certification. http://www.adeac.es/badera_azul_listados.html 30 Puerto del Estato, 2000 and 2010. 31 In total 118 cruise ships docked in Vigo in 2011. Source: press release of the Vigo Port Authority. http://www.apvigo.com/control.php?sph=a_iap=1332%%a_itp=2%%a_id=356%%p_rpp=1 32Eutrophication is defined as an increase in the rate of supply of organic matter in an ecosystem (http://toxics.usgs.gov/definitions/eutrophication.html; http://www.water-pollution.org.uk/eutrophication.html). 33 An urban agglomeration is defined as an area where the population and/or economic activities are sufficiently concentrated for urban waste water to be collected and conducted to an urban waste water treatment plant or to a final discharge point. 34 In 1972, the European Community adopted its first Environmental Action Programme (EAP) covering the period 1973-1977 and setting out the principles and priorities of the EU with regard to environmental pollution problems. This was followed by other EAPs which have progressively shifted the emphasis from pollution control to pollution prevention. The latest programme is the 6th EAP, covering the period 2002 – 2012: it promotes full integration of environmental protection requirements into all EU policies and has four priority areas of intervention: climate change, nature and biodiversity, environment and health and management of natural resources and solid waste. 35 These are: milk processing, manufacture of fruit and vegetables products, manufacture and bottling of soft drinks, potato- processing, the meat industry, breweries, production of alcohol and alcoholic beverages, manufacture of animal feed from plant products, manufacture of gelatine and of glue from hides, skin and bones, malt-houses, the fish-processing industry (Annex III of the Directive 91/271/EC).

Directive explicitly asks Member States to identify sensitive areas and less sensitive areas in accordance with specified criteria (see Box 1.1) and also sets out minimum treatment standards to be met by urban waste water treatment plants and industrial activities. The minimum degree of treatment to be provided and the emission limit values to be achieved for waste water and treated effluent discharged to surface water are set depending on the sensitivity of the receiving water.

Box 1.1 THE DEFINITION OF SENSITIVE AND LESS SENSITIVE AREAS According to the urban waste water treatment directive (91/271/EC), sensitive areas are defined as: i) Freshwater bodies, estuaries and coastal waters which are eutrophic36 or which may become eutrophic if protective action is not taken; ii) Surface freshwaters intended for the abstraction of drinking water which contain or are likely to contain more than 50 mg/l of nitrates37; iii) Areas where further treatment is necessary to comply with other Council Directives such as the Directives on fish waters, on bathing waters, on shellfish waters, on the conservation of wild birds and natural habitats, etc. On the other hand, less sensitive areas are those marine water bodies or areas where the discharge of wastewater does not adversely affect the environment as a result of morphology, hydrology, or specific hydraulic conditions which exist in that area. Member States are required to review every four years which areas are to be considered sensitive or less sensitive. Source: Council Directive 91/271/EC

In order to reduce water pollution from industrial discharges, further significant measures were introduced in 1996 with the adoption of the Integrated Pollution Prevention and Control Directive (96/61/EC)38, by requiring industrial and agricultural activities with a high pollution potential to be provided with a special permit granting authorisation to operate. This permit is issued by the competent authority only if certain environmental conditions are met39, so that the companies themselves bear responsibility for preventing and reducing any pollution they may cause.

Box 1.2 OTHER PIECES OF EUROPEAN LEGISLATION IN THE FIELD OF WATER QUALITY IMPROVEMENT AND POLLUTION REDUCTION  Directive 76/160/EC concerning the quality of bathing water. It lays down the current rules for the monitoring, assessment and management of the quality of bathing water, with the aim of preserving, protecting and improving the quality of the environment and of protecting human health.

36 I.e. subject to the eutrophication process. 37 The concentration of nitrate is laid down under the relevant provisions of Council Directive 75/440/EC of 16 June 1975 concerning the quality required of surface water intended for the abstraction of drinking water in the Member States. 38 This Directive has been amended by the Directive 2008/1/EC of 15 January 2008 concerning integrated pollution prevention and control. 39 In order to receive an operating permit, an industrial or agricultural installation must comply with certain basic obligations set at the EU level. In particular, it must ensure all appropriate pollution-prevention measures, through the use of the best available techniques; prevent all large-scale pollution; prevent, recycle or dispose of waste in the least polluting way possible; use energy in an efficient way; ensure accident prevention and damage limitation; return sites to their original state when the activity is finished. In addition, the decision to issue a permit must contain a number of specific requirements, including: emission limit values for polluting substances; any soil, water and air protection measures required; waste management measures; measures to be taken in exceptional circumstances (leaks, malfunctions, temporary or permanent stoppages, etc.); minimisation of long- distance or trans-boundary pollution; release monitoring; all other appropriate measures.

 Directive 76/464/EC on pollution caused by certain dangerous substances discharged into the aquatic environment of the Community40. It specifies two lists of dangerous substances: List I covering those which are particularly toxic, persistent, and which may tend to accumulate in the environment; List II covering substances whose effects are toxic, but less serious. The Directive requires the elimination of pollution caused by any substance included in List I and the minimisation of pollutants included in List II.  Directive 78/659/EC on the quality of fresh waters. It is aimed at protecting or improving the quality of those running or standing fresh waters which, if pollution were reduced or eliminated, would become capable of supporting fish life.  Directive 79/923/EC on the quality required of shellfish waters41. This Directive applies to those coastal and brackish waters designated by the Member States as needing protection or improvement in order to support shellfish life and growth and thus to contribute to the high quality of edible shellfish products.  Directive 91/676/EC concerning the protection of waters against pollution caused by nitrates from agricultural sources (the “Nitrate Directive”). It is aimed at protecting water quality across Europe by preventing nitrates from agricultural sources. It defines groundwater as being affected by this type of pollution if the nitrate concentration is more than 50 mg/l, or could potentially reach such levels.  Directive 91/492/EC laying down the health conditions for the production and the placing on the market of live bivalve molluscs. It concerns live bivalve molluscs which are intended for immediate human consumption or for further processing before consumption.  Directive 2000/60/EC establishing a framework for Community Action in the Field of Water Policy (“Water framework Directive”). It establishes a common framework for water protection and management. Firstly, Member States must identify and analyse the quality and level of sensitiveness of waters. Then they must specify proper management plans and programmes.  Directive 2006/7/EC, repealing Directive 76/160/EC concerning the management of bathing water quality: it introduces more severe limits on the quality of bathing waters, with effect from 31 December 2014. Source: Authors

Specific legislation to regulate the waste water had already been developed in Spain in the Eighties, but it only dealt with industrial discharges. The so-called “water law” (29/1985) was adopted in 1985 to regulate the quality of water and, more specifically, to prevent the pollution from industrial waste water through the introduction of a discharge tax. This law was further complemented by the Royal Decree 849/1986 which sets a minimum limit value of industrial emissions into water. Further laws have been adopted to improve both urban and industrial waste water treatment in Spain and to comply with the EU Directives (see box 1.3). In particular, the European Urban Waste Water Treatment Directive was transposed through two national laws: the Law 11/1995 and the Decree 509/199642. In compliance with this

40 As part of the on-going restructuring of the Community water policy, Directive 76/464/EC is now integrated into the Water Framework Directive (2000/60/EC) which was adopted in September 2000, and it will be fully repealed in 2013. As far as List I and List II are concerned, some substances have been regulated by specific Directives (also called 'daughter' Directives) in the 1980s by defining Community-wide emission limit values and quality objectives in the surface and coastal waters (for more details see http://ec.europa.eu/environment/water/water-dangersub/index.htm). 41 Amended by Council Directive 91/692/EC (further amended by Council Regulation 1882/2003/EC) and then replaced by the European Community Shellfish Waters Directive 2006/113/EC. 42 The Royal Decree-Law 11/1995 Act 11/1995, 28 December, established applicable standards for the treatment of urban waste water. It developed the core and the general concepts of the EU Directive and introduced specific requirement for the treatment of urban wastewaters. The Royal Decree 509/1996, 15 March, developed Act 11/1995, which established applicable standards for the treatment of urban wastewater. It set the technical requirements to be reached by collecting systems (sewerage systems) and

Directive, sensitive and less sensitive areas have been identified by the Spanish Autonomous Communities.

As far as Ría de Vigo is concerned, it has never been declared a “sensitive area”, because its level of water exchange, to a great extent driven by tides, freshwater discharge and winds43, is considered sufficient to comply with the contamination limit values. However it has been designated as an area to be monitored. According to the provisions of Directive 91/271/EC, Ría de Vigo, which includes agglomerations with more than 15,000 population equivalent, had to be provided with adequate waste water collection systems by 31 December 2000 at the latest; in particular, before its discharge, the urban waste water had to be subject to secondary treatment44.

Box 1.3 OTHER PIECES OF THE SPANISH LEGISLATION ON WATER QUALITY AND WASTE WATER TREATMENT  Royal Decree 258/198945 which adopts the European Council Directive 76/464 on the discharges of dangerous substances. The Spanish Government defines emission standards and special conditions of control for the discharges from land to internal waters and the territorial sea that contain or may contain dangerous substances.  Royal Decree 261/199646 which transposes the European Nitrate Directive 91/676/EC. The national law also establishes the criteria to determine which waters are affected by pollution by nitrates (Art 3) and entrusts the Autonomous Communities with the main task of designating vulnerable zones.  Royal Decree 345/1993 which provides for the partial transposition of the Directive 91/492/EC concerning live bivalve molluscs. This decree deals only with the production requirements of the Directive. The technical and sanitary conditions of establishments and products are introduced in through the Royal Decree 308/1993. The decree also entirely includes the provisions of the European Directive on shellfish waters (79/923/EC).  Royal Decree 1341/2007 adopting the EU Directive 2006/7/EC concerning the management of bathing water quality. Source: Authors

Ría de Vigo is also directly affected by European legislation on bathing and shellfish waters. According to the EU provisions (Directive 76/160/EC), the Government of Galicia was required to identify all bathing waters in the Galician region and to ensure the monitoring of specific parameters of water quality, listed in Annex I of the Directive. The main parameters considered concern the concentration of enterococcus and escherichia coli bacteria, directly related to the level of faecal contamination of water bodies47. Moreover, the Council Directive 2006/7/EC, repealing Directive 76/160/EC, establishes more severe limit values (with effect from 1st January 2015) and introduces the classification of bathing waters as waters of poor,

treatment plants, the requirements for industrial discharges and also criteria to establish sensitive and less sensitive areas that would be determined by the central administration and the autonomous communities. 43 Toboada et al., 1998, “Evaluation of the seasonal variations in the residual circulation in the Ría de Vigo (NW Spain) by Means of a 3D Baroclinic Model” in Estuarine, Coastal and Shelf Science (1998) 47, 661–670. 44 See Articles 3.1 and 4.1 of the Urban Waste Water Treatment Directive (91/271/EC). 45 Royal Decree 258/1989 of 10 March. 46 Royal Decree 261/1996 of 16 February. 47 Their concentration should be below 1,500 CFU per 100 ml, where CFU is the colony-forming unit, the unit of measurement of the amount of bacteria present in a given quantity of water. Prior to 2000, the limit value was higher, i.e. 2,000 CFU per 100 ml of water.

sufficient, good or excellent quality. On the basis of this classification, specific measures must be adopted to prevent, reduce or eliminate the causes of pollution with the aim of increasing the number of excellent and good bathing waters.

As far as shellfish waters are concerned, their quality should be continuously monitored on the basis of specific parameters defined in Directive 79/923/EC. For each parameter, mandatory limits have been set by the EU to guarantee water quality48: they are related, for instance, to the level of acidity of the water49, the temperature50, the suspended solid content of the water51, the concentration of metals52 and faecal coliform bacteria53 and the amount of dissolved oxygen in the water54.

1.3 STRUCTURAL FEATURES The major project “Integrated environmental regeneration of Ría de Vigo” is composed of a group of sub-projects implemented in different municipalities of the Ría between 1995 and 2000 and having in common the same objective: to improve the environmental conditions of Ría de Vigo by providing all urban waste water produced in the Ría with a proper treatment system.

The process of elimination of organic and inorganic contaminants of urban waste water is implemented through a network of underground pipes, differentiated between primary and secondary pipelines, with the latter generally having a smaller diameter and connected to the larger primary pipes. These collect the sewage and convey it to the treatment plants; where the wastewater is treated and the contamination load substantially reduced. It is then discharged into the water body. In most of the municipalities of Ría de Vigo the sewerage (built about 30-50 years ago) has been designed to channel both waste waters from houses and run- off waters from rain and road cleaning activities. Only minor parts of the network (mainly in the municipalities of Moaña and Nigrán) have separate pipes for the two different types of water55. This specific structural feature had to be considered during the project design phase, as it greatly affects the volume of waste water conveyed to the treatment plants (this issue is discussed in Sections 2.3 and 3.3).

48 Specific limits can be set at national level (according to Article 3 of the EU Directive), provided they are not less stringent than those given in the EU Directive. In the case of Spain, the values indicated at EU level have been entirely adopted by the national law (Royal Decree 345/1993) and no modifications have been made. 49 The pH (unit of measurement of the acidity or basicity of an aqueous solution) should be between 7 and 9. 50 A discharge affecting shellfish waters must not cause the temperature of the waters to exceed by more than 2°C the temperature of waters not so affected. 51 A discharge affecting shellfish waters must not cause the suspended solid content of the waters to exceed by more than 30% the content of waters not so affected. 52 The EU Directive states that the concentration of metals (such as cadmium, chromium, mercury, nickel, lead, etc.) must not exceed a level which gives rise to harmful effects on the shellfish and their larvae. The synergistic effects of these metals must be taken into consideration. 53 They should be less than 300 per 100 ml of shellfish flesh and intervalvular liquid. 54 Dissolved oxygen saturation should be on average higher than 70%. 55 As described in the following sections, in principle a differentiated treatment process could be envisaged for domestic waste waters and run-off waters: in reality, they carry different concentration of contaminants and run-off waters can also contain specific contaminants, such as hydrocarbons and solid debris.

In Ría de Vigo the major project envisaged both the installing of new pipelines, either to replace existing ones or to extend the service coverage, and the construction of a number of treatment plants. This project pertains only to urban waste water treatment. As far as the polluting waste water produced by industries is concerned, they are not connected to the urban network but are provided with their own treatment plants, specific to the kind and levels of contamination produced.

In total, the sub-projects include the installation of nine treatment plants in eight municipalities (see Figure 1.5), about 260 km of waste water conveyor pipes and 59 pumps. These infrastructures treat the sewage produced by about 620 thousand population equivalent. The Lagares plant, in Vigo, is the largest one as it treats the waste water generated by most of Vigo’s inhabitants, representing 65% of the project’s total beneficiaries. The set of actions implemented are ultimately intended to adjust the level of water contamination of the Ría derived from urban waste water discharges to comply with the provisions of the European Directive 91/271/EC. As outlined in the previous section, this Directive gives a deadline of 31st December 2000 for the municipalities to provide secondary-type treatment for all wastewater for the cities of Ría de Vigo.

Figure 1.5 LOCATION OF THE WASTE WATER TREATMENT PLANTS OF RÍA DE VIGO

Source: Authors

The process of sewage treatment is aimed at removing the majority of contaminants from waste water and to produce both a liquid effluent suitable for disposal in the natural environment and a sludge. The functioning of a waste water treatment plant is laid out in

Figure 1.6 and described therein, by highlighting all the types of treatment processes implemented56. First of all, waste water undergoes a preliminary treatment that removes any large object (like cans, rags, sticks, plastic packets etc.) carried in the sewage stream. This is most commonly done with an automated mechanically raked bar screen57. Grit is removed in tanks by means of gravity: the solid particles, which are characterised by a specific weight greater than water, settle at the bottom of the tank so that they can be easily removed. Preliminary treatment provides also for fat and grease removal, by passing the sewage through a small tank where skimmers collect the fat floating on the surface58.

Figure 1.6 STAGES OF WASTE WATER TREATMENT PROCESS

Preliminary treatment: It removes materials that can be easily collected from the raw waste water in order to prevent a damage or a clog of pumps and skimmers of primary treatment clarifiers

Primary treatment: It removes particulate solids via gravity separation (septic tanks) and/or physical screening (septic outlet filter)

Secondary treatment: It reduces pathogens, BOD5 (via biodegradation of organic compounds),

solids Water

Advanced treatment/disinfection: It removes additional BOD5, nitrogen, phosphorus and

pathogens Sludge

Water reuse

Irrigation Discharge into a Final Industrial (landsurface surface water disposal reuse dispersal) body Source: Authors’ elaboration based on Zipper and Anish, 2009

56 Sources: Urban Waste Water Treatment Directive 91/271/EC, Cheremisinoff (2002) and FAO (1992). 57 Very often, the wastewater screening is realised with two sets of grids, the first one with larger meshes and the second one with smaller meshes (fine screening) to retain thin solid materials. 58 Air blowers in the base of the tank may also be used to help recover the fat as a froth. Some plants, however, use primary clarifiers with mechanical surface skimmers for fat and grease removal.

Subsequently, primary treatment is carried out, aiming to reduce the Biochemical Oxygen 59 Demand (BOD5) of the wastewater by at least 20%. Organic and inorganic solids are removed by sedimentation, flowing through large tanks60, and the materials that float (scum) are removed by skimming. The waste water, partially purified through the primary treatment process, then undergoes a secondary treatment, which involves the removal of biodegradable dissolved and colloidal organic matter, to further reduce the BOD5. It is generally implemented using aerobic biological treatment processes, performed in the presence of oxygen by aerobic micro-organisms (principally bacteria) that eat the organic material present in the wastewater and through their metabolism, transform it into cellular mass, which precipitates at the bottom of a settling tank or is retained as slime on solid surfaces61.

Tertiary and/or advanced wastewater62 treatment is employed when specific wastewater components, which cannot be removed by secondary treatment, have to be removed in order to achieve a certain water quality required by legislation or specific circumstances (e.g., discharge into waters of sensitive areas or shellfish waters). In particular, these treatment processes (including activated carbon adsorption, odour control and disinfection through ultraviolet light or sodium hypochlorite) are necessary to remove nitrogen, phosphorus, additional suspended solids, refractory organics, heavy metals and dissolved solids.

Treated water is finally discharged directly into the receiving water body, or through a subsea pipeline. Water, if sufficiently treated, instead of being discharged into the environment, can be reused for industrial or agricultural purposes (irrigation). The sludge produced at different stages of the treatment process is dewatered, so that the organic material is stabilised63 and the pathogenic organisms are destroyed. It can then be used as fertiliser or eliminated through incineration.

Waste water treatment plants can be divided into two major types, depending on the treatment method adopted: biological and physical/chemical plants. On one hand, biological plants make use especially of biological treatment methods, using bacteria in the biochemical decomposition of waste waters. They are an extremely cost effective and energy efficient system for purifying wastewater; however, this kind of treatment method requires large facilities, and hence large spaces available to build the plant. On the other hand, physical/chemical plants mostly use chemical reactions to improve the water quality, rather than bacteria; they require smaller facilities but are much more expensive64.

59 This is the amount of dissolved oxygen consumed in 5 days by bacteria that perform biological degradation of organic matter contained in water. 60 Commonly called "primary clarifiers" or "primary sedimentation tanks”. 61 Table 1 of Annex I of the Council Directive 91/271/EC establishes specific requirements to be complied with in the biological treatment process. 62 Because advanced treatment usually follows secondary treatment, it is sometimes referred to as tertiary treatment. However, advanced treatment processes are sometimes combined with primary or secondary treatment. 63 Stabilisation is the term used to denote the process of odour and pathogen reduction of sludge and it can be done through anaerobic digestion, aerobic digestion, composting and lime. 64 They are more often used to treat industrial waste water.

As far as the treatment plants built in Ría de Vigo are concerned, both alternative technologies have been adopted: some of them carry out biological treatment of sewage, while others provide chemical-physical treatment. Today, almost all the treatment plants built in the municipalities of Ría de Vigo are provided with an advanced treatment system by means of UV rays, to reduce the concentration of escherichia coli in the Ría: only the Lagares plant still carries out only secondary treatment. For sake of clarity, the measures implemented and included in the major project under assessment are summarised in the following table, distinguishing between the municipalities involved and the type of infrastructure built.

Table 1.1 DESCRIPTION OF THE INTERVENTIONS IMPLEMENTED Municipality Wastewater treatment plant Sewage conveyor pipes Pumping station Vigo  Lagares plant: biological secondary treatment plant capable  Primary and secondary pipes bordering the Ría provided with a pre-treatment  4 pumps in the of treating the wastewater of about 250,000 residents and system (to grind and sift the water conveyed): in total more than 6.2 km of conveyor pipe 400,000 population equivalent. pipes have been installed, diameter between 500 and 1800 mm. bordering the Ría  Teis plant: biological tertiary treatment plant capable of  Extension of the pipelines bordering the river Lagares: more than 4.8 km of  Pre-treatment, treating the waste water of 25,000 population equivalent. pipes have been installed, with a diameter between 400 and 800 mm. spillway and  Extension of the pipelines in the parish of Teis, a total of 19.4 km of primary pumping station, and secondary pipes (diameter between 400 and 800 mm). for waters  Sewage pipeline network (almost 8.8 km of pipes diameter between 315 and directed to the 800 mm) in the district of the university campus of Vigo and its connection to Lagares plant. the nearby treatment plant of Gondomar. Cangas  Biological secondary treatment plant capable of treating the  More than 7.9 km of primary and secondary pipes have been installed.  3 pumping waste water of 30,000 population equivalent. It was later stations. improved with an advanced disinfection (tertiary) system. Redondela  Extension of the pipeline network (more than 30 km of pipes of diameter 300-  11 pumping 800 mm) and connection with the existing treatment plant of Redondela. A stations. minority of the wastewater (about 30%) is conveyed to the new treatment plant of Teis (Vigo). Moaña  Biological tertiary treatment plant, capable of treating the  More than 35 km of pipelines with a diameter between 300 and 800 mm.  11 pumping wastewater of 35,000 population equivalent. stations. Gondomar  Biological tertiary treatment plant, capable of treating the  Pipelines bordering the rivers Zamans and Miñor, to convey the wastewater to wastewater of 24,000 population equivalent. the new treatment plant. Nigrán  Biological tertiary treatment plant, capable of treating the  More than 20 km of pipe have been installed, with a diameter varying  8 pumps wastewater of 70,000 population equivalent. between 315 and 630 mm). Soutomaior  Arcade plant: physical-chemical tertiary treatment plant for  Approximately 56.4 km of pipelines (disaggregated data by municipality are  21 pumping 8,621 population equivalent. not available). stations.  Rio Verdugo plant: physical-chemical tertiary treatment plant for 259 population equivalent. Vilaboa  Riomaior plant: physical-chemical tertiary treatment plant for 2,592 population equivalent. Source: Authors’ elaboration based on Government of Galicia, 2002

1.4 SERVICE DELIVERY In the framework of article 148 and 149 of the Spanish Constitution, according to which the Autonomous Communities are responsible for water and hydraulic works, the regional law 8/1993 of 23 June defines the governance structure for the delivery of services in the water sector. According to this law, the Hydraulic Administration of the Environmental Department, within the Government of Galicia, is responsible for water and hydraulic works in the regional territory. The regional administration carries out this task by means of an independent body with legal status, Augas de Galicia, which is the central element of the management structure of water infrastructural planning and investments. Actually, Augas de Galicia is responsible for providing technical and financial assistance to the Galician public administration as far as water supply and treatment are concerned. Its main responsibilities are to design, monitor and revise hydrological plans, to administer and control public water and to design and build hydraulic infrastructures, concerning both water supply and waste water treatment.

Once Augas de Galicia has completed the investment works, it may assign to local administrations (municipalities or associations of municipalities) the use, operation and ownership of the infrastructures65. Although Augas de Galicia is mainly involved in investment in the waste water field, it plays a role also during the operational phase, by carrying out periodic controls to ensure that infrastructures are properly managed and that maintenance works are effectively implemented by municipalities; if they are not, it can suggest corrective measures and, if necessary, impose sanctions. Moreover, if municipalities are shown to be unable (for lack of resources or capacities) to operate the wastewater treatment plants, thus putting at risk their effective functioning, the regional body takes over the task of running the infrastructures66. Specifically, in these cases Augas de Galicia directly selects the operating companies, while it maintains the overall responsibility for the infrastructure operation.

The municipalities that benefit from the construction of water infrastructures by Augas de Galicia financially contribute to the investment mostly by undertaking expropriations to make the land needed for the works execution available. They are also in charge of implementing relatively minor infrastructural interventions to the city’s secondary sewerage system, such as the replacement of pipelines or extension of the sewer network. Besides these investment costs, the main responsibility borne by municipalities is related to the operation of wastewater infrastructures. This function may be performed directly through municipal public companies, or may be delegated to external private companies.

A tariff directly related to the volume of consumed water is imposed by municipalities on final users, in order to cover both the municipal investment and operational and maintenance costs of the sewage system and of the treatment facilities. Augas de Galicia’s investments, on the other hand, are financed by means of a regional tax, established by the Galician law 8/1993.

65 Article 24 of Law 8/1993. 66 Article 30 of Law 8/1993.

The tax67 is aimed at generating resources to meet the investment needs in the waste water treatment sector of the whole of Galicia. Up to December 2011, the tax, imposed on domestic, commercial and industrial users, was based on the volume of waste water treated in the plants and the pollution load. While the sanitation fee, as it was called, ensured the coverage of the regional investments, it has to be pointed out that no additional tariff could be set by the Region to cover the operating costs of the treatment plants under the direct control of Augas de Galicia.

Box 1.4 TARIFF SETTING The municipal tariff for the waste water treatment system ensures the coverage of the operating and maintenance costs of the plants and sewerage pipelines. The tariff is determined by each municipality of Galicia and depends upon a fixed and a variable amount, related to the amount of water consumed in the house, measured in cubic metres, and the typology of users: distinction is made among domestic, commercial and industrial users. Tariffs are revised every year by local administrations based on changes in operating costs and inflation. For matter of example, the following table shows the tariffs applied in Vigo in 1998. Tariff First year Following years (Boletín Oficial de Pontevedra 171, 04-06-1998) Minimum amount Domestic users 117 Ptas/month 195 Ptas/month Commercial users 152 Ptas/month 395 Ptas/month Industrial users 187 Ptas/month 395 Ptas/month Water consumption Domestic users 17 Ptas/m3 24.5 Ptas/m3 Commercial users 22 Ptas/m3 65 Ptas/m3 Industrial users 27 Ptas/m3 65 Ptas/m3

The sanitation fee was set as a function of the pollution load and of the volume of waste water produced and entering in the treatment plants: the parameters considered to determine the fee are the volume and type of pollutants in waste water (suspended solids, heavy metals, soluble salts, inhibitor materials and others): the most dangerous the pollutant load, the highest the fee to be paid. Fees are also differentiated based on the kind of users, distinguishing among domestic and industrial/commercial. Source: Government of Galicia, 2002

The municipal tariff are set so as to entirely cover the operating costs of the waste water treatment system and also to put aside some resources for future extraordinary maintenance and investment costs to the local pipelines network68; in the municipalities where the treatment plants are directly managed by Augas de Galicia and no municipal tariff can be set, the sanitation fee provides for enough resources to meet the operating costs. In any case, the financial sustainability of the system during the operational phase is effectively ensured (for more information on the tariff setting see Box 1.4).

67 Imposed on households, collected by the municipalities and then paid to the regional administration. 68 Approximately 85-90% of the operating revenues are absorbed by the operating costs, and the remaining amount is used for future investments undertaken by the municipality (Government of Galicia, 2002).

On 4 November 2010 a new regional law (law 9/2010) dealing with water was approved and it entered into force from January 2012. This law introduces a new fee for water consumption (the water fee), aimed at substituting the sanitation fee and at financing both the investment and the operational costs related to the full cycle of water sustained by Augas de Galicia. While the sanitation fee was based on a fixed unit cost, this new tax has a progressive element, as it increases along with water consumption69.

Table 1.2 WATER TAX RATE IN FORCE FROM 2012 FOR DOMESTIC USERS Number of people living in the Flat fee Variable part house (EUR/month) (EUR/m3 to be applied to the monthly water consumption) ≤ 2 1.50 0 > 2 and ≤ 4 1.50 0.28 > 4 and ≤ 8 1.50 0.36 ≥8 1.50 0.41 Source: Galician law 9/2010 of 4 November

Both the sanitation and the current water fee, as well as the municipal tariffs, are in line with the European “polluter pays” principle, stated in Directive 2004/35/CE70 and requiring the costs of pollution be borne by those who cause it: actually, higher volumes of waste water produced are related to higher tariffs.

Table 1.3 MANAGEMENT FRAMEWORK OF THE WASTE WATER SECTOR IN GALICIA Government of Galicia Municipalities Investments in the  Major investments on the sewer system  Minor investments on the sewer system waste water sector and treatment plants. (mainly the secondary network)  Source of financing: the water fee  Source of financing: municipal tariff to (previously the sanitation fee) and other the users Municipal tariff to the users national and EU funds Operation of the  Management of the treatment plants (only  Management of the sewage system and waste water in substitution for municipalities) treatment plants facilities  Source of financing: the water fee (starting  Source of financing: municipal tariff on from 2012) users Source: Authors based on interviews and regional laws (law 8/1993 and law 9/2010)

In the municipalities of the Ría de Vigo, indirect management is the dominant management system adopted, with private companies assuring the provision of local water services on behalf of the municipalities: among these, Aqualia S.A. is the company in charge of the management of the full waste water services in Vigo, Redondela and Moaña, and Geseco S.A.

69 According to estimates by the regional administration, those who have a relatively low water consumption (corresponding to about 30% of the population) will pay less than with the previous system, while the remainder will have to pay more (http://www.elcorreogallego.es/galicia/ecg/canon-agua-solo-subira-media-recibo-un-euro-mes/idEdicion-2011-09-08/idNoticia- 698725/). 70 According to the ”polluter pays” principle, stated in Directive 2004/35/CE, the operator whose activity has caused the environmental damage or the imminent threat of such damage is to be held financially liable. The objective of this principle is to induce operators to adopt measures and develop practices to minimise the risks of environmental damage so that their exposure to financial liabilities is reduced.

operates the infrastructures in Gondomar; in Nigrán, Cangas, Vilaboa and Soutomaior the management is shared between companies in charge of operating the pipeline network, and other companies operating the waste water treatment plants. These companies were all selected through competitive tenders by the municipalities, with the exception of the private company Adantia S.L., which was selected directly by Augas de Galicia. Adantia S.L. carries out the treatment service in the towns of Soutomaior and Vilaboa, by managing the three small treatment plants of Arcade, Rio Verdugo and Riomaior. The involvement of Augas de Galicia in the infrastructure operation was made necessary because the municipalities lacked the capacity to autonomously set up the public tenders. Hence, today these are the only three treatment plants in Ría de Vigo that are managed by Augas de Galicia (through Adantia S.L.), rather than by municipalities.

Table 1.4 BODIES RESPONSIBLE TODAY FOR THE WASTE WATER INFRASTRUCTURES OPERATION IN RÍA DE VIGO Municipality Body responsible for the infrastructure operation Pipeline network and pumps Waste water treatment plant Vigo Aqualia S.A. Aqualia S.A. Redondela Aqualia S.A. Aqualia S.A. Moaña Aqualia S.A. Aqualia S.A. Nigrán Aqualia S.A. Geseco S.A. Cangas Aqualia S.A. Acciona S.A. Gondomar Geseco S.A. Geseco S.A. Soutomaior and Vilaboa Fergo S.A. Adantia S.L. (Augas de Galicia) Source: Augas de Galicia website

2 ORIGIN AND HISTORY

2.1 BACKGROUND The environmental situation of Ría de Vigo before the implementation of the projects under analysis was considered highly deficient. The lack of waste water treatment plants and the poor coverage of the urban sewage network had been causing severe environmental damage to the Ría, which were constantly increasing as the population grew. The existing pipes were conveying sewage directly to the sea or to rivers, without undergoing any prior treatment process. It has been calculated that in the Nineties the Ría was receiving more than 150,000 m3 of waste water every day, carrying 40,000 tonnes/day of organic matter and 30 tonnes/day of solid waste in suspension71.

Despite the dilution and self-purification capacity of the Ría, ensured by the clean oceanic water carried into the inlet by the tides, Ría de Vigo was suffering a serious pollution problem: floating solid debris, bad odours, bio-accumulation of contaminants in the wildlife, decreased dissolved oxygen in the water. In the Seventies and the Eighties, the mussel fishery in the Ría experienced sporadic outbreaks of paralytic shellfish poisoning, because of the presence of toxins in shellfish72. This situation was negatively affecting the environment, human health and the main economic sectors of the area, i.e. shellfish, aquaculture and tourism.

In some areas, the problem was temporarily, but only partly, alleviated by facilities reducing bulky pollutants (through screening and sedimentation processes) and by the use of septic tanks, consisting in tanks installed in the ground receiving domestic waste waters73 for the fermentation of organic substances by means of anaerobic bacteria contained in the sewage. Most of them, however, were in a poor functional state74.

Since the end of the Eighties, municipalities started to draft programmes for the implementation of a more efficient waste water treatment system. In January 1987 Vigo drafted the Special Plan for the Integrated Environmental Regeneration of Vigo. The plan was aimed at addressing and solving the problems related to the deficient water infrastructure system and it highlighted the necessity to build urban and rural conveyor pipes and treatment plants. In June 1990 the project for the construction of the primary conveyor pipe bordering Ría de Vigo (divided into twelve sections) was elaborated by the municipality of Vigo. This pipe was designed to convey urban sewage to the outfall of the river Lagares, where a treatment plant was expected to be built in the following years. In 1991, when the private company Seragua75 obtained the concession to operate the sewage network of Vigo76 it elaborated a

71 Augas de Galicia, 2002. 72 Anderson et al., 1988. 73 Rain waters are not collected in the septic tanks. 74 Source: field interviews. 75 This is the former name of Aqualia, the private company which today operates most of the water infrastructures of the municipalities of the Ría. 76 The concession, signed in October 1990 and effective since 1st January 1991, lasts for 25 years.

more detailed investment programme to improve both the water supply and the waste water treatment systems of the city77. In addition to the primary conveyor pipe’s project, other interventions were foreseen in different areas of the city and the preliminary projects started to be drafted in 1991 and 1992: a project was designed for the environmental rehabilitation of the parish of Cabral and the construction of a treatment plant close to the university campus was foreseen. Section 11 and 12 of the primary conveyor pipe bordering the Ría were built in 1994, taking advantage of the contemporary excavations for the construction of the underground road tunnel along the coast.

In the same years, other municipalities, too, were elaborating their own plans to improve the waste water infrastructures. Redondela, for example, in 1992 put into operation a sewage treatment plant78 providing secondary treatment to waste water from 24,000 population equivalent. However, large areas of the city were not yet covered by the pipeline network. In Nigrán various works have been carried out to improve and extend the sewer system79.

In 1994, the Government of Galicia recognised the serious environmental conditions of the Ría and in order to implement in a coordinated way the investments for waste water treatment infrastructures, it assigned Augas de Galicia the task of planning, financing and implementing all the interventions in all the municipalities of the target area. The preliminary projects that had already been designed were resumed and included into a more general plan (the “Hydrological plan of the basins of the Galician coast”80) having the common objective of achieving the environmental rehabilitation of Ría de Vigo. Minor changes to the original projects were adopted, mainly aimed at making the functioning of the infrastructure more effective and at minimising the costs. The sub-projects implemented by Augas de Galicia are described in the next Section.

2.2 FINANCING DECISION AND PROJECT IMPLEMENTATION When the regional administration took responsibility for improving the waste water treatment system in Ría de Vigo, it was driven by the aim of achieving two concurrent goals: to ensure an effective solution to the serious environmental conditions of the Ría and to comply with the Directives of EU environmental policy, particularly Directive 91/271/EC concerning urban waste water treatment. In February 1995 the region submitted the major project “Integrated environmental regeneration of Ría de Vigo – Installation of waste water treatment plants and construction of conveyor pipes”, requesting co-financing through EU funds. The major project was composed of fourteen independent infrastructural sub-projects81; these were:

i. The River Lagares waste water treatment plant (Vigo);

77 The total value of investments amounted to Ptas 14,232 million (EUR 85.54 million in current terms). 78 Waste waters are purified through biological processing. 79 In this city it was decided to separate domestic waste waters from run-off waters. 80 Government of Galicia, 1995b. 81 Plus one sub-project involving the organisation of awareness campaigns aimed at the media, students and the general population about the functioning of and the objectives achieved by the new infrastructures.

ii. Conveyor pipes in Cabral (Vigo);

iii. Conveyor pipe bordering the Ria: sections 1, 2 and 3 (Vigo);

iv. Conveyor pipe bordering the Ria: sections 7 and 8 (Vigo);

v. Conveyor pipe bordering the Ria: sections 9 and 10 (Vigo);

vi. Pre-treatment, spilling and pump in Calle Coruña (Vigo);

vii. Environmental regeneration of Valladares and University Campus (Vigo);

viii. Conveyor pipes and the Teis waste water treatment plant (Vigo);

ix. Environmental regeneration of Moaña;

x. Conveyor pipes and waste water treatment plant in Cangas;

xi. Environmental regeneration of the lower Ría de Vigo (Soutomaior and Vilaboa);

xii. Extension of conveyor pipes in Redondela;

xiii. Extension of conveyor pipes and waste water treatment plant in Nigrán;

xiv. Environmental regeneration of Gondomar and rio Miñor (Gondomar).

The reasons why this group of projects was considered as a single major project, rather than a set of independent projects to be separately financed, are: firstly, they were located in the same area; secondly, they were aimed at achieving a common measurable goal, i.e. the improvement of the Ría’s water quality; thirdly, they belonged to a general plan for that area (the aforementioned “Hydrological plan of the basins of the Galician coast”82) and, fourthly, the different sub-projects were coordinated and monitored by the same agency, Augas de Galicia83.

The implementation of this project would have ensured the treatment of an average of 8,000 m3/h of waste waters generated in the surrounding towns of Ría de Vigo, meaning about 192,000 m3 per day. The number of beneficiaries was estimated at about 620,000 population equivalent84, including residents (approximately 420,000), but also tourists and others who are non-resident but who live or carry out their economic activities in the area. As pointed out by the Government of Galicia (1995), the project’s beneficiaries corresponded to 13.74% of the population equivalent of the whole region. The project was expected to generate 600 new direct and 1,200 indirect temporary jobs during the construction phase, stabilising at 82 and 164 permanent jobs respectively during the operational phase.

The positive expectations in terms of the project’s effects were supported by the ex-ante Cost Benefit Analysis (CBA), which estimated a positive economic internal rate of return, amounting

82 Government of Galicia, 1995b. 83 These are the criteria allowing the identification of a group of projects as a single major project (European Commission, 2008). 84 Source: Government of Galicia, 2002.

to 7.4%. This resulted from the quantification and monetisation of the environmental benefits deriving from the reduction of pollution load in waste water discharged in the Ría. Other benefits of an economic nature were identified by the regional administration: these were related to the impact that the higher water quality was expected to have on the aquaculture, shellfish and tourism sectors. These effects, however, were treated only in qualitative terms, without quantification; they will be more extensively described in Section 3.2 of this report. The details of the methodology applied for the valorisation of the environmental benefits in the ex-ante CBA are presented in Box 2.1.

Box 2.1 METHODOLOGY AND RESULTS OF THE EX-ANTE COST BENEFIT ANALYSIS Although going into the details of the CBA methodology adopted ex-ante is outside the scope of this case study, for the sake of completion it is nevertheless presented in brief. From a financial perspective, the ex-ante CBA presented in the application considered the following items:  investments costs occurred in the period 1995-2000;  operational and ordinary maintenance costs;  extraordinary maintenance, by hypothesising a single investment at half of the life time of the infrastructures (assumed to be 20 years), amounting to 20% of the initial investment;  revenues from the tariff, equivalent to the annual operational costs. From an economic perspective, a formula was elaborated to determine the economic value of the water quality improvement:

Environmental benefit calculated in 1995 = (KB – KA) * V * P’ * CS where:

 K is the coefficient depending on the pollutant load of waste water, before (KB) and after (KA) the treatment;  V is the volume of waste water treated in the plants;  P’ is the unit price of pollution, derived from national guidelines;

 CS is the coefficient for the environmental sensitivity (CS = 1, 1.5 or 2 respectively in areas with normal, high and very high environmental relevance and sensitivity). An internal rate of return of 7.4% for the whole major project was estimated. The internal rates of return of specific sub-projects have also been calculated and these are (ordered from the highest to the lowest one): 8.3% for the integrated regeneration of Moaña, 8.2% for the waste water treatment plant of Cangas, 8% for the regeneration of Gondomar, 7.9% for the treatment plant and the pipes of Teis, 7.3% for the regeneration project of the bottom of the Ría and of Redondela and 6.9% for the regeneration of the Lagares basin. The CBA was revised after the project’s completion in 2001, using the same methodology but including additional coefficients to account for other benefits:

Environmental benefit calculated in 2001 = (KB – KA) * V * P’ * CS * CE * CV * CP

 CE is the coefficient of economic significance, being 1.5 if the impact on the economic activities (shellfish aquaculture and tourism) is considered particularly relevant;

 CV is the coefficient of waste valorisation, depending on whether the sludge is transported to the landfill (in this case the coefficient’s value is 1) or is treated to be used in the agriculture sector (the value is 1.5);

 CP is the coefficient related to population, being 1.5 for areas having between 100,000 and 500,000 inhabitants. Once these factors have been taken into account, the overall internal rate of return increases to 17.4%. Source: Authors based on the Government of Galicia (1995b and 2002) and European Commission (1995).

Before the financing decision was taken, the Commission submitted the project design to an independent consulting company85, asking their technical assessment about the infrastructures86. The consultants highlighted that the design was still at a preliminary stage, while a more detailed level of study of the facilities was needed to estimate the actual costs and benefits of the investment.

Some clarifications on the projects were requested by the European Commission, in particular by the General-Directorate for the Environment. From the perspective of the project’s history, the most relevant doubt expressed concerned compliance with the EU Directives. The application prepared by the Region stated that the project would have taken into consideration the requirements of Directive 91/271/EC on waste water treatment. Since no mention was made about the other pertinent Directives, in particular Directive 79/923/EC on shellfish waters and Directive 76/160/EC on bathing waters, the Commission asked whether these would have been enforced with the project’s implementation too.

Behind this request for clarification there was the need to ensure that the project had been appropriately designed. While the Directive on urban waste water treatment required the installation of secondary waste water treatment facilities in the urban agglomerations of the Ría, the other two Directives imposed more stringent water quality criteria which would have required the installation also of a disinfection system (advanced/tertiary treatment). The Commission’s concern was justified by the fact that a full description of all infrastructures had not been provided and that the project design of most plants still had to be completed, as highlighted by the independent consultants.

Following the regional administration’s assurance that all the waste water treatment plants would have complied with the requirements set by all the relevant Directives, in December 1995 the Commission agreed to co-financing 80% of the total investment cost87, estimated at ECU 85,459,23988.

While most of the infrastructures were already under construction, on 29 July 1998 a request for the project’s modification was presented, in which the project design, the completion date and, consequently, the financial plan were revised, without however any variation of the eligible cost. The project’s modification concerned the sub-projects for the regeneration of Valladares and the University Campus area89 and the project for the regeneration of Gondomar and Rio Miñor. The two projects envisaged the construction of two treatment plants in the neighbouring cities of Vigo and Gondomar, but as the works were proceeding, Augas de Galicia considered it more logical and cost-effective to install only one plant in Gondomar and to convey the waste waters produced in the Vigo university district to the

85 S.T.C. Consulting Engineers, an Italian company based in Rome. 86 Their brief evaluation note was presented in September 1995. 87 Decision C(95) 3233. 88 The Cohesion Fund allocation amounted to ECU 68,367,391; the remaining ECU 17,091,848 were paid by the regional administration. The financing period was between 11 April 1995 and 31 December 1999. 89 Drafted by the company operating the water services in the municipality of Vigo.

nearby town. In November 1999, the Commission authorised the project’s modification90. The works were implemented between 1995 and 2000 and the infrastructures started to be operated over a number of years, from 1998 to the end of 2000 (Figure 2.1 illustrates the timeline of the progress of works by each sub-project)91.

As a matter of fact, the high level of attention paid by the Region and, in particular, by Augas de Galicia, to cost saving and the maximum use of the available financial resources is the common denominator of the design and implementation phase of this major project. The available documentary evidence92 frequently stresses that much effort was made by Augas de Galicia to ensure the achievement of the objectives at minimum cost. The application93, specifically, puts cost efficiency as the basis of the strategy followed by Augas de Galicia in piecing together the sub-projects located in different municipalities. The number of treatment plants was optimised with the objective of both simplifying their management and limiting operational cost. The cost of pumps was optimised too, by exploiting the natural slope of conveyor pipes as far as possible.

Notwithstanding a slight increase in the costs related to the regeneration of Gondomar project, as shown in Table 2.1, no cost overrun was recorded thanks to the savings achieved in other sub-projects (the waste water treatment plants of Lagares and Teis and the regeneration of the University Campus): thus, the overall financial sustainability of the project in the investment phase was secured. The full allocation of the available financial resources without overspending was made possible by the high emphasis on cost reduction and the fact that not all the treatment plants had been provided with the advanced disinfection system. This technology, necessary to comply with the water quality requirements of Directives for bathing and shellfish water, was installed in the sewage treatment plants of Moaña, Teis, Arcade, Vilaboa, Nigrán and Gondomar, but not in the plants of Cangas, Soutomaior and Lagares; also the existing plant at Redondela lacked any kind of disinfection mechanism. Because these interventions were not included in the major project, further investments needed to be financed in the following years, to improve these plants so as to comply with EU legislation. These are listed and described in the following Sections.

90 The new completion date was set at 31 December 2000 (Decision C(99) 3667 of 11 November 1999). 91 On 24 October 2000, a further extension of the completion date was requested, additional to the request presented in 1998 (Authorised by the Commission’s Decision C(2001) 1257). As reported in the project’s completion report, this was a precautionary measure done with the sole purpose of “guaranteeing the Commission’s payment in case any inconvenience had occurred”. Yet no inconvenience actually occurred and by the end of 2000 all the works had been finalised. 92 Also confirmed by the interviewees consulted (Annex V). 93 Government of Galicia, 1995a.

Figure 2.1 START AND COMPLETION OF WORKS BY SUB-PROJECT 3th 1st 2nd 3th 1st 2nd 3th 1st 2nd 3th 1st 2nd 3th 1st 2nd 3th 1st 2nd 3th quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter quarter Sub-project 1994 1995 1995 1995 1996 1996 1996 1997 1997 1997 1998 1998 1998 1999 1999 1999 2000 2000 2000 The river Lagares waste water treatment plant Conveyor pipes and waste water treatment of Cangas Conveyor pipes in Cabral Conveyor pipe bordering the Ria: sections 1, 2 and 3 Conveyor pipe bordering the Ria: sections 7 and 8 Conveyor pipe bordering the Ria: sections 9 and 10 Pre-treatment, spilling and pump in Calle Coruña Regeneration of Valladares and University Campus Regeneration of Moaña Conveyor pipes and waste water treatment plant of Teis Regeneration of the lower Ria de Vigo Extension of conveyor pipes in Redondela Extension of conveyor pipes and secondary waste water treatment of Nigrán Regeneration of Gondomar and rio Miñor Legend: Orange lines = programmed time; Blue lines = Execution time Source: Authors’ elaboration based on Government of Galicia, 2002

Table 2.1 INVESTMENT COSTS BY SUB-PROJECT (EURO, CURRENT PRICES) Sub-project Programmed Actual Variations investment costs investment costs (%) (EUR) (EUR) The river Lagares waste water treatment plant 22,556,697 21,514,833 -1 Conveyor pipes and waste water treatment of Cangas 4,090,794 3,994,656 0 Conveyor pipes in Cabral 1,957,731 1,881,082 0 Conveyor pipe bordering the Ria: sections 1, 2 and 3 3,569,837 4,403,526 0 Conveyor pipe bordering the Ria: sections 7 and 8 1,749,034 1,681,757 0 Conveyor pipe bordering the Ria: sections 9 and 10 2,797,827 2,705,410 0 Pre-treatment, spilling and pump in Calle Coruña 1,912,107 1,852,952 0 Regeneration of Valladares and University Campus 3,145,099 2,627,173 -1 Regeneration of Moaña 8,701,224 10,104,950 2 Conveyor pipes and waste water treatment plant of 10,253,404 7,413,515 -3 Teis Regeneration of the bottom of Ria de Vigo 7,321,860 8,410,602 1 Extension of conveyor pipes in Redondela 2,426,963 2,067,747 0 Extension of conveyor pipes and secondary waste 7,178,037 7,087,271 0 water treatment of Nigrán Regeneration of Gondomar and rio Miñor 7,182,570 8,993,500 2 Advertising 616,056 720,265 0 Total 85,459,240 85,459,239 0 Source: Government of Galicia, 2002

2.1 CURRENT PERFORMANCE AND OTHER INVESTMENT NEEDS Today, all municipalities of Ría de Vigo are provided with a system to purify urban waste waters before discharge into the sea: each urban agglomeration has a waste water treatment plant and almost 100% of buildings, even the most peripheral, are connected to the sewage network. The nine treatment plants built by Augas de Galicia and co-financed through the Cohesion Fund were all provided with a secondary treatment. This allowed the municipalities to successfully comply with the requirements of Directive 91/271/EC on waste water treatment, i.e. the provision of all waste waters generated in the Ría with secondary treatment by the end of 2000. In order to comply also with the requirements of Directives 79/923/EC applying to shellfish waters and 76/160/EC for bathing waters, which both aim at limiting the concentration of escherichia coli bacteria in water, most of the treatment plants included in the major project were designed so as to provide sewage with an advanced disinfection process though UV rays.

Yet, as discussed in the previous section, no advanced purification technology was installed in the plants at Cangas, Soutomaior, Redondela and the largest plant of the river Lagares, and this led to the financing of further investment expenditures in subsequent years: Augas de Galicia provided the plants of Cangas and Soutomaior with a disinfection process in 2007 and

Rendondela in 2008, at an investment cost of almost EUR 3 million94. These interventions were aimed at improving the quality of water treatment, so as to comply with the EU legislation; but the main motivation behind the Region’s decision to implement these additional investments is ascribed to the economic sanction imposed on Spain by the European Court of Justice for non-compliance with the shellfish water Directive in Ría de Vigo.

The proceedings were initiated by the European Commission in July 200395 and led to an infringement judgment in 2005 and the imposition of an economic sanction of EUR 20 million. As stated in the judgment of the Court96 and in the opinion of the Advocate General97, the Commission considered that: i) Spain failed to adopt a pollution reduction programme for Ría de Vigo to fulfil the obligations pursuant to the shellfish waters Directive by 30 October 1987 (the deadline established by the European Commission for the implementation of this Directive98); ii) the programmes99 put in place by the Galician administration to reduce pollution in the Ría de Vigo were not enough to implement the obligations arising from the shellfish waters Directive: these were rather adopted to give effect to other EC Directives in the field of water treatment and water quality, specifically Directive 91/271/EC, generally concerning the regulation and control of discharges of urban and industrial waste water in the Galician Ría100.

«As the Commission points out without being contradicted by Spain, neither of those measures contains precise provisions to ensure that the quality of Galician waters, and in particular in the Ría de Vigo, complies with the detailed and precise physical and chemical parameters laid down in the Annex of the directive, something which, moreover, should have been attained by October 1987. [...] Whereas such general measures may indirectly contribute to the improvement in the cleanliness of waters, it is not obvious, at least without corroboration, that they will of necessity have the effect sought by the Shellfish Waters Directive, namely to support shellfish life and growth». Source: Court of Justice, 2005

In view of the assurances given by the Region to improve the existing waste water treatment infrastructures and to implement new measures to comply with the water quality standards for shellfish waters, in 2007 the Commission agreed to suspend the sanction. Yet, notwithstanding additional investments have been financed to introduce disinfection of waste water in Cangas, Soutomaior and Redondela101, so far no improvements have been made to the Lagares plant: this is the only facility for waste water treatment in Ría de Vigo which today

94 Current prices (these data were provided by Augas de Galicia). 95 http://www.europolitics.info/environment-non-compliance-with-water-quality-directives-artr184556-10.html. 96 Dated 15 December 2005 in Case C-26/04; action under Article 226 EC for failure to fulfil obligations, brought on 27 January 2004. 97 Delivered on 7 July 2005. 98 Established in the Act of Accession of Spain and Portugal. 99 The “General Plan of regeneration of Galicia” 2000-2015 and Law 8/2001 are mentioned by the Advocate General. 100 One argument made by Spain was that the shellfish water Directive does not apply to Ría de Vigo, because its shellfish are not ready for immediate consumption, but need to undergo purification. The Court did not accept this argument, claiming that the Directive’s scope is broader and applies to shellfish waters, whether the shellfish living in them are intended for direct human consumption of for consumption after treatment (Court of Justice, 2005). 101 Among other additional investments undertaken in recent times, there is the construction of a waste water treatment plant in the municipality of Baiona in 2008 (approximately EUR 25 million). This plant was not included in the major project under analysis because Baiona is located at the entrance of the gulf and its waste waters have only a limited effect on the contamination load of the Ría (as assessed by AcuaNorte, 2009a).

lacks a tertiary treatment process. Given the capacity of the Lagares plant, this implies that the sewage produced by 65% of the population equivalent along the Ría’s coast does not yet receive adequate purification before its discharge. It also implies that the project under assessment has not yet ensured full compliance of the already mentioned directives.

As confirmed by evidence collected in the field, the Region considered that the installation of UV rays should be postponed until the major functional problems of the plant were solved. In addition to the lack of a tertiary treatment system, the Lagares plant is affected by additional structural problems that prevent most of the waste waters from undergoing even secondary treatment. Currently, the facility is capable of treating a maximum of 3 m3/s of water through the primary treatment and 1.5 m3/s in the secondary treatment process. Its size is adequate for the number of population equivalent to be served (400,000). However, it often happens, especially in autumn and winter, that the actual volume of water arriving at the plant and requiring secondary treatment purification is higher. This is because of heavy rains, which increase the volume of water conveyed through the pipes to the plant. While the plant is able to purify, through primary treatment, most of the mixture of rain water and domestic sewage, the capacity of the secondary treatment system is insufficient and part of the sewage has to be discharged into the sea. When this happens, a poor quality of sea water is recorded next to the submarine effluent outfall of the Lagares plant. It has to be stressed that heavy rainfalls are not extraordinary in Vigo, but they occur every year generally between the months of October and February, as shown in Section 1.1.

In order to reduce the volume of water arriving at the Lagares plant during rainy periods, thus improving its treatment capacity, additional actions were implemented even before the Lagares plant’s construction was finalised. In 1997 the Region applied for additional EU resources to co-finance, in parallel, another project: the “Recovery of natural waterways, separation of rain water and specific actions to the sewage system of Vigo”102 (see Box 2.2). This project, implemented between 1998 and 2001, was aimed at improving the already existing sewage pipelines in Vigo, by separating the rain water flows from waste water in selected areas. It cost about Ptas 5 billion, corresponding to EUR 30 million. Although it was expected to improve the functioning of the Lagares plant, it actually produced no significant effect. The works on the sewerage network were, in fact, very limited and did not considerably reduce the volume of rain water conveyed into the sewage pipelines. It was evident that direct intervention in the plant was necessary, aimed at both increasing its capacity and at installing UV treatment for advanced purification of the sewage.

102 Decision number C(1998) 926, modified by Decision C(2000)3223.

Box 2.2 PROJECT “RECOVERY OF NATURAL WATERWAYS, SEPARATION OF RAIN WATER AND SPECIFIC ACTIONS TO THE SEWAGE SYSTEM OF VIGO” This project included a set of sub-projects to achieve the total regeneration of a large part of the sewerage system of the municipality of Vigo. In more detail, the project’s main objective was to improve the sewerage of the city of Vigo and to optimise the functioning of the Lagares treatment plant by avoiding the overload of water arriving at the plant through the separation of rain water drainage from the sewage; as a secondary objective, it was expected to regenerate a series of degraded sites for the use and recreation of inhabitants. The project included the following interventions: i) Recovery of water used to wash the filters in the drinking water purification system, previously discharged directly to the sewers; the proposed action allowed the recovery of this water for further processing. ii) Separation of rain water in Plaza de América, in the city centre. The confluence of a number of roads in the square Plaza de América and the existence of an underpass with insufficient rain drainage caused storm water to infiltrate the sewerage network. When storms were very strong, flooding occurred, forcing the temporary closure of the road to traffic. The intervention proposed the construction of a new primary pipe for the collection solely of rain water, to be discharged directly into the harbour. iii) Specific actions to improve the sewage system of Vigo, which suffers from a number of serious shortcomings because of its age. The heavy volumes of water conveyed to the plant were the cause of many cracks and leaks. The works consisted in replacing several sections of the network that were in poor condition. iv) Connection of the dwellings in the fast-growing districts Coia and Balaidos-La Florida to the urban sewage network. v) Restoration of natural waterways and separation of storm water: the connection to the sewerage system of storm water runoff from roofs and gardens has not only caused problems for the pumping and treatment facilities, but also a drastic decrease in the flow of several tributaries of the river Lagares. This action sought to restore the natural state of the channels, which have an important landscape and environmental value, by better regulating the flow through the pipelines and favouring the discharge of rain waters into the natural waterways. vi) Adjustments of the Lagares river bank’s conveyor pipes and specific interventions for the evacuation of rainwater directly to the river. This was supposed to prevent the water load of the Lagares treatment installation and restore the natural function of the river, consisting in draining rainwater and offering a place for recreational activities. Source: Authors based on European Commission (1999a)

From 2000, when the plant entered into operation, to the end of 2005, no solutions were identified, but the EU sanction finally pushed the Region to think about a long-term and sustainable way to reduce water pollution, by taking into account the specific criteria set for shellfish waters. This necessarily involved also adjustment works in the Lagares plant. Since 2006 a number of studies and analyses have been carried out to identify the best solution to the problem and improve the purification system of Vigo.

AcuaNorte, the National Company of the Spanish North Basin Waters, was given the task to design a new plant in Vigo and on 9 March 2007 a general agreement of collaboration was signed between AcuaNorte and the Government of Galicia103. The project, designed in 2009,

103 Given its national relevance, the project was assigned to AcuaNorte rather than Augas de Galicia.

involves an investment of about EUR 170 million, which may be co-financed by Structural Funds: AcuaNorte has already applied for ERDF funds and a decision is pending.. The new project includes:

1) the construction of a completely new waste water treatment plant where the current Lagares plant is located;

2) the construction of a larger outfall, adequate for the amount of waste water treated in the plant;

3) a new electrical connection suitable for the energy needs of the new treatment plant.

This new plant, provided with a UV disinfection system, will be capable of treating the volume of waste water generated by 800,000 population equivalent, twice as much as the actual demand. This should solve the existing contamination problems of the Ría related to the higher volume of water arriving at the plant during the rainy periods. The project’s construction is planned to start in July 2012 and to be completed by October 2015. During the works, waste water treatment will be ensured by the instalment of a temporary chemical-physical treatment facility (see Box 2.3 for a more detailed description).

This project design was considered the most appropriate solution compared to other alternative options104. One of the possibilities considered involved the construction of additional plants receiving part of the waste water currently piped to the Lagares plant. However, since it was considered particularly difficult to find a big enough area in Vigo to build a new plant, the option of constructing the new facilities in the same area where the Lagares plant is currently located was eventually chosen. Additionally, this solution would allow the exploitation of technical and economical economies of scale.

Box 2.3 STRUCTURAL FEATURES OF THE NEW LAGARES PLANT The new project “Saneamiento de Vigo” designed by AcuaNorte, is about the enlargement and modernisation of the Lagares plant; the new plant is expected to operate for 45 years. The maximum volume of water entering the plant and undergoing pre-treatment and primary treatment will be increased from the current 3 m3/s to 8 m3/s. In order to improve the overall performance, during rainy periods a physical-chemical process will complement the primary settlement process, by making it faster and increasing its capacity. The maximum waste water capable of being subjected to secondary treatment will increase from 1.5 m3/s to 3.4 m3/s. The biological treatment will involve the use of bio-filtration, including also a process to eliminate nitrogen and phosphorus: this technology requires a smaller space than traditional biological treatment. This project envisages also the tertiary treatment of sewage, which is currently missing: a maximum volume of 4 m3/s of water will be purified by means of UV treatment. The new Lagares plant is expected to release water that complies with all the current limits of contamination.

104 AcuaNorte 2009a.

In order to favour the integration of the new facilities within the landscape, the pre-treatment and primary treatment facilities will be built underground, while the remaining infrastructures should be lower than 9 metres in height105. Volume of inflow Now (m3/s) Estimated (m3/s) Percentage increase (%) Daily average 1.4 2.2 57 Dry seasons 2.0 3.4 70 Rainy seasons 8.0 12.0 50

Parameter Now (kg/day) Estimated (kg/day) Percentage increase (%)

BOD5 30,600 48,000 56.9 Chemical demand of oxygen 42,300 66,500 57.2 Ammonium 3,024 4,700 55.4 Nitrogen total 4,475 7,000 56.4 Phosphorus – Phosphate ion 47 1,400 2878.7 Suspended solids 20,684 32,500 57.1 Coliformes faecalis 1x107 mg/l 1x107 mg/l 0

Source: Authors based on AcuaNorte, 2009a and 2009b

105 This measure was considered necessary by AcuaNorte given the existence of a natural park and of private houses nearby.

3 LONG-TERM DEVELOPMENT EFFECTS

3.1 KEY FINDINGS The project implementation produced positive and significant environmental effects. The provision of all the municipalities of the Ría with waste water treatment eliminated all sewage directly discharged into the Ría’s water, which was putting at risk the sustainability of the natural ecosystem of Ría de Vigo. The reduction of the solid and bacterial contamination load and the protection of the wildlife were ensured by the new secondary treatment plants and, especially, the UV disinfection process.

The project produced positive and significant effects also in terms of direct welfare and economic growth. On one hand, cleaner water in the Ría affected the beneficiaries’ quality of life, for instance thanks to improvements to the landscape, the possibility of enjoying better quality bathing water and increases in buildings’ values: these effects have been monetised via the estimation of the willingness to pay of the project beneficiaries (620,000 population equivalent) for the waste water treatment service. The CBA results are positive, indicating a net present value of EUR 46.81 million106 and an economic internal rate of return of 5.86% (Annex II).

Additionally, evidence collected in the field shows that higher water quality and the new bathing beaches have favoured the development of tourism. This effect, however, has not been quantified because of: i) the difficulty of disentangling the actual project contribution to the increase in the total tourism inflow and ii) the lack of data related to the turnover of the new economic activities opened on the new bathing beaches and offering tourists a variety of services, especially in summertime (beach umbrella renting, beverage and food sales, etc.). An economic effect which was originally expected by the Region and Augas de Galicia107, but which actually did not materialise, is on the aquaculture and shellfish sectors. Data show no significant relationship between the improved water quality and either shellfish productivity and fertility or the costs of mussel purification before being put onto the market. It has to be recognised that, in fact, the project was unlikely to produce any real effect on these, as clarified in Section 3.2.

Other minor benefits which have not been included in the CBA, but which nevertheless have to be mentioned, are:

 Stimulus to local development by increasing the technological expertise concerning waste water purification, explained in Section 3.3 on endogenous dynamics;

106 At 2011 prices. 107 Government of Galicia, 1995a and 2002.

 Reduction of the territorial gaps between the peripheral and rural areas and the centre of municipalities, thanks to the extension of the sewerage and to the provision of the same waste water treatment service to all inhabitants: this issue is addressed in relation to the effects on territorial cohesion, described in Section 3.5;

 Development of new skills among the municipalities in charge of operating the new infrastructures, but without any significant effect on the regional level, as presented in Section 3.6 on institutional quality;

 Subjective perception of increased wellbeing, manifesting itself as a stronger sense of pride for living in Ría de Vigo, which is further explored in Section 3.7 on social happiness.

However, the analysis of the project’s impact highlights that all these benefits could have been greater. The structural problems of the Lagares plant and the delay in installing tertiary treatment technology to the other treatment plants limited the effects on economic growth, environment and social happiness; additionally, the effects on endogenous dynamics and municipal institutional quality pertained to the largest municipalities of the Ría, while no significant skills and technological progress were achieved in the smallest municipalities, because the new treatment infrastructures are operated directly by Augas de Galicia.

As far as the remaining category of effects, i.e. social cohesion, no evidence showing that the project contributed to reduce differences between social groups has been detected. The project benefitted all the individuals with an interest in the area, including residents and tourists.

Table 3.1 summarises the nature and strength of the identified project’s impact, Table 3.2 disentangles the project’s impact by focusing on the different stakeholders affected and Table 3.3 shows that minor effects have already stabilised while the largest one are expected to further increase in the future. The criteria considered to assign the scores shown by the following Tables are presented in Annex I.

Table 3.1 SUMMARY OF NATURE AND STRENGTH OF IMPACTS Effects Strength* Level Identified and Analysed (-5 to +5) Quantitatively (CBA) Qualitatively 1. Direct economic growth +3 Local, regional √ √ 2. Endogenous dynamics +2 Local √ 3. Social cohesion 0 4. Environmental effects +3 Local √ 5. Territorial cohesion +2 Local √ 6. Institutional quality +1 Local √ 7. Social happiness +2 Local, regional √ *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect.

Table 3.2 IMPACTS* ON DIFFERENT STAKEHOLDERS STAKEHOLDERS Effect Augas de Galicia Municipalities Inhabitants Tourists 1. Direct economic +3 +3 growth 2. Endogenous +2 dynamics 3. Social cohesion 0 4. Environmental +3 +3 effects 5. Terr. cohesion +2 6. Institutional • +1 quality 7. Social happiness +2 *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect.

Table 3.3 TEMPORAL DYNAMICS OF THE EFFECTS* Effect Short run Long run Future Comments (years 1-5) (years 6- 10) years 1. Direct + ++ +++ The project produced immediate positive effects economic on tourism activities and public wellbeing, which growth further increased in 2007-2008, when the tertiary treatment system was installed in all the treatment plants (except the Lagares plant). When the structural problems of the Lagares plant are solved, the long-term effects on welfare and economic growth will be maximised. 2. Endogenous + + + Positive and stable effects over time. dynamics 3. Social No effect. cohesion 4. + ++ +++ As for the effects on “Direct economic growth”, Environmental the effects on environment have increased with effects the level of purification delivered by the infrastructures. 5. Territorial + + + Positive and stable effects on the reduction of cohesion the peripheral-central gap of the waste water service in Vigo. 6. Institutional + + + Development of new skills in municipalities quality involved in the operation of the new infrastructures. 7. Social + + ++ The perception of benefits has been positive happiness since the start, but partly limited by the remaining problems, mainly related to the Lagares plant. The perception may improve in the future when the problems will be solved. *+ = slight positive, ++ = positive, +++ = strongly positive, +/- = mixed effect.

3.2 DIRECT WELFARE AND ECONOMIC GROWTH The documents consulted (project’s application for EU co-financing108, the project’s completion report109 and, more recently, the application and the CBA of the project to construct the new Lagares plant110) underline that the interventions providing waste waters discharged in Ría de Vigo with proper purification systems have been undertaken not only to meet the standards set by EU environmental Directives, but also to tackle real problems of both an economic and environmental nature. Having clean and good quality sea water in the Ría is generally recognised as a necessary condition for the development of some of the most important activities on which the local economy is based: shellfish extraction, aquaculture and tourism. According to AcuaNorte’s estimates111, in 2007 the labour participation rate in the shellfish and aquaculture activities was respectively 15% and 18%. Additionally, it is estimated that for each employee in the fishing sector, other four indirect jobs are generated in the fish trading and transformation fields, related, for instance, to ship building, whole sale, transportation, canning and frozen-fish industries112. Hence, since these sectors represent one of the most important sources of income of inhabitants, any improvement in their productivity and economic return would have implications for people’s incomes and quality of life. In this Section the project’s effects on these economic activities and, in general, on direct economic growth and welfare, are identified and analysed in more detail, especially via the results of the CBA exercise (Annex II)113.

Ría de Vigo is the most economically developed area of Galicia, with the city having the largest number of inhabitants of the Autonomous Community114. The Ría represents a source of income for its shellfish, aquaculture and, obviously, tourism sectors. It is evident that improving the water quality will have a beneficial effect on all these sectors, by increasing their activity and thus creating wealth. Source: Government of Galicia, 1995, p. 62.

3.2.1 Effects on the shellfish and aquaculture sectors The improvement of water quality in the Ría, ensured by the treatment process implemented in the biological or chemical physical sewage treatment plants, was awaited to have a positive effect on aquaculture and shellfish extraction. Such an effect was expected to be reflected in the reduction of costs required to purify the shellfish grown in Ría de Vigo. Shellfish, both farmed or naturally grown in the Ría, cannot be immediately sold: in order to be safe for

108 Government of Galicia, 1995a. 109 Government of Galicia, 2002. 110 AcuaNorte, 2009b. 111 AcuaNorte, ibidem. 112 More than 60 companies operating in the trading and transformation activities are based in Vigo. The main Spanish fishery associations are also based here: the Spanish Association of Fish sellers (Acopevi), the Spanish association of wholesalers, processors, importers and exporters of fishery products (Conxemar) and the Spanish association of preserves manufactures (Anfaco). (European Commission, 2005.) 113 In assessing the economic value of the project, the analysis of Pearce, Mourato and Atkinson (Pearce et al., 2006) is taken as a reference. The authors define the total economic value of environmental projects as the net sum of any variation in wellbeing due to the project itself, both in positive and negative terms. The sources of value can be distinguished between use related and non- use related. Use values refer to the actual, planned or possible use of a good, while non-use values refer to the willingness to pay to maintain some goods in existence, even if there is no actual, planned or possible use. The non-use value is assigned only in relation to the existence of a certain good, or for altruistic reasons, i.e. reflecting the value of making the good available to others of the current and future generations. 114 In density terms.

human consumption, mussels need to spend a certain amount of time in the cleaner waters of the Atlantic Ocean or other seas115. Many interviewees pointed out that after the project’s implementation, the purification process for the shellfish originating in the Ría requires a shorter period of time, because the bacteria contained in the Ría’s waters are lower. This is considered to have positive economic benefits, quantified in the AcuaNorte CBA for the new Lagares treatment plant, in terms of a reduction of the costs related to the purification process. Additionally, the project’s completion report states that: “thanks to the project, the quality of water necessary to recover the fertility and productivity of the mussel species living in the Ría, whose survival was under threat, has been achieved”.

Data have been collected and experts consulted in order to confirm the existence of these effects and, subsequently, to estimate their economic value. What the evidence clearly shows is that the project is unlikely to have produced any significant effect on either aquaculture or shellfish extractions.

On one hand, the cost of shellfish purification has not been reduced as a consequence of the project. The length and cost of purification depends on the water quality of the production areas, which can be classified in three typologies, according to Directive 91/492/EC116: production areas of class ‘A’ where shellfish can be harvested and directly consumed, thanks to the very good water quality117; areas ‘B’118 where aquaculture is allowed, but shellfish can be consumed only after being purified; areas ‘C’119 where aquaculture is allowed, but shellfish have to undergo a longer (more than one month) purification process. Today all shellfish produced in Galicia are harvested in ‘B’ areas and they undergo the same purification process, which may last from 6 to 48 hours, in compliance with Directive 91/492/EC. For sake of safety all Galician shellfish are purified for the maximum time needed, i.e. 48 hours, regardless of the actual slight differences in water quality: in principle, cleaner Rías and waters may allow a shorter purification, lasting, for instance, 12 hours; in any case, this would not significantly affect the total cost of purification (which ranges between EUR 0.10 and EUR 0.18 per kg120).

Official data provided by the Technological Institute for the Control of Marine Environment of Galicia (INTECMAR) shows that the classification of the Ría de Vigo waters generally did not change over the past decade. Water areas classified as type ‘C’ or ‘B’ have not been upgraded to type ‘B’ or ‘A’ respectively (Table 3.4). This confirms that the shellfish purification length and costs was not significantly affected by the project.

115 Such as the Mediterranean Sea. Depuradora Servimar S.L., for example, is a Catalan-Galician company that manages the production of 172 floating trays of mussels at Ría de Vigo, by providing for their purification in the Mediterranean Sea before marketing them. 116 Laying down the health conditions for the production and placing on the market of live bivalve molluscs. 117 I.e. a very low level of excherichia coli bacteria in the water (less than 230/100g). 118 Less than 4,600 escherichia coli bacteria in 100g of water. 119 Less than 46,000 escherichia coli bacteria in 100g of water. 120 Source: expert opinion and interviews.

Table 3.4 CLASSIFICATION OF SHELLFISH PRODUCTION AREAS IN RÍA DE VIGO Production area 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 External area of Ría de Vigo B B B B B B B B B B B B B B B Bay of Barra B B B B B B B B B B B B B B A Bay of Moaña C C C C C C C C C C C C Closed Estuary of Río Miñor B B B B B B B B B B B B B B B Middle area of Ría de Vigo B B B B B B B B B B B B B B B Internal area of Ría de Vigo B B B B B B B B B B B B B B B Bay of Arcade B B B B B B B B B B B B B B B Bay of Larache B B B B B B B B B B B B C B B Bay of Baiona B B B B B B B B B B B B B B B Polygon of Cangas F B B B B B B B B B B B B B B B Polygon of Cangas G B B B B B B B B B B B B B B B Polygon of Cangas H B B B B B B B B B B B B B B B Polygon of Cangas C B B B B B B B B B B B B B B B Polygon of Cangas D B B B B B B B B B B B B B B B Polygon of Cangas E B B B B B B B B B B B B B B B Polygon of Redondela A B B B B B B B B B B B B B B B Polygon of Redondela B B B B B B B B B B B B B B B B Polygon of Redondela C B B B B B B B B B B B B B B B Polygon of Redondela D B B B B B B B B B B B B B B B Polygon of Vigo A B B B B B B B B B B B B B B B Polygon of Baiona A B B B B B B B B B B B Note: Shellfish harvested in production areas ‘A’ can be directly consumed; in areas ‘B’ aquaculture is allowed but shellfish can be consumed only after being purified; in areas ‘C’ aquaculture is allowed, but shellfish have to undergo a long and more intense purification process (Directive 91/492/EC). Source: Data provided upon request by the Technological Institute for the Control of Marine Environment of Galicia (INTECMAR) on 07-05-2012

On the other hand, the project appears not to have influenced the productivity of shellfish either. The trend in the volume of shellfish either extracted or produced by aquaculture in the Ría seems to be unrelated to the improvement in water quality recorded after the treatment plants entered into operation. As illustrated in Figure 3.1, after an initial increase in the volume of shellfish extracted, from 920 tonnes in 2004 to 1,400 in 2007, subsequent years saw a decrease. As far as the volume of shellfish produced by aquaculture is concerned, despite growing in certain years, it declined by 15% over the period 2004-2010 (from 66,648 to 56,540 tonnes). These data and the experts consulted indicate that the volume of shellfish production is not directly related to the functioning of the waste water treatment plants. In fact, a larger number of factors intervene in determining the optimal conditions for animal species to grow. The Ría is a natural place for shellfish development, because of its mild water temperature, the appropriate amount of nutrients (nitrogen, calcium and phosphate) carried by the Ocean stream (which feeds the animals without causing eutrophication), the tides that allow a good exchange of inner water over about 4 days and other specific environmental and biological characteristics. Moreover, in interpreting the trend shown in Figure 3.1, it has to be stressed that a number of other factors may also influence these economic activities, such as investment in aquaculture equipment and market demand.

Figure 3.1 VOLUME OF SHELLFISH PRODUCTION (TONNES) – 2004-2010

Shellfish extraction Aquaculture 1,600 70,000 1,500 65,000 1,400 1,300 60,000 1,200 1,100 55,000 1,000 50,000 900 800 45,000 700 600 40,000 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010

Source: Authors’ elaboration based on data provided by the Government of Galicia on request

For all these reasons, the project is considered not to have influenced in a significant way the shellfish and aquaculture sectors and, accordingly, this category of benefit is not included in the ex-post CBA. As a matter of fact, the regional authorities may have been too optimistic about the possibility of the project to affect the aquaculture sector from an economic viewpoint.

3.2.2 Effects on tourism By improving the quality of the Ría’s water, the project was expected to have real effects on tourism. The increase in the number of bathing beaches has been confirmed by several interviewees and by official data: the number of beaches for which municipalities asked the

Region for water quality control, a necessary condition to make them available for bathing and public use, increased by 40% between 1993 and 2010121.

The tourism sector has been enhanced by the set of works implemented, which made the Ría a clean and comfortable place for leisure activities. This, coupled with the incomparable beauty of the landscape, makes it a focus of attraction for tourism, with beneficial effects on the accommodation industry. Source: Government of Galicia, 2002.

An analysis has been carried out on the water quality of the beaches of Ría de Vigo. An homogenous sample of 23 beaches has been selected122. In 1998 the number of non-bathing beaches represented 9% of the total, those with good-quality water were 39% and those of very good quality were 52%, according to the standards set by Directive 76/160/ECC123. In 2005 no beaches were in the non-bathing waters category, while the beaches with excellent water increased and in 2010 were 65% of the total; good quality beaches slightly decreased to 35% (see Figure 3.2). Despite the fact that in the most recent years the water quality has slightly declined, for reasons which are unclear, it is reasonable to state the since all the waste water treatment plants have entered operation (2000), the contamination values of water have reduced and the quality of bathing waters has improved.

Figure 3.2 WATER QUALITY OF THE BEACHES IN RÍA DE VIGO (VIGO, MOAÑA, CANGAS, REDONDELA AND NIGRÁN) – 1998-2010 100% 90% 80% 70% 60% 50% Very good quality Good quality 40% Non bathing 30% 20% 10% 0%

Source: Author’s elaboration based on Government of Galicia, 2010

121 Government of Galicia, 2010. 122 Having the following characteristics: i) to be located along the Ría (the beaches facing the rivers or the Atlantic Ocean, as some of the beaches of Cangas, were not considered; ii) to have been monitored every year over the period 1998-2010. In fact, every year municipalities can ask the regional administration to verify the quality of certain bathing waters: the number of beaches monitored depends on their actual use, but also on the available municipal budget. 123 In order to assess the water quality of beaches, three requirements have been checked: i) at least 95% of the samples did not exceed the mandatory requirements of the parameters related to escherichia coli and enterococcus; ii) at least 80% of the samples did not exceed the guideline requirements related to the Escherichia coli; iii) at least 90% of the samples did not exceed the guideline requirements of Enterococcus. Very good quality water meet simultaneously the three conditions; good quality waters meet the first condition, but do not fulfil the second and/or the third one; waters unfit for bathing do not meet the first condition.

Along with water quality, the level and quality of tourist services provided also improved, as shown by the rising number of beaches awarded with the “blue flag”, a prize that takes into account water quality, but also environmental management education and information and service provision of beaches (such as supply of drinking water, good accessibility, availability of first aid equipment, etc.)124. In 2007 “blue-flag” beaches in Vigo, Cangas, Moaña and Nigrán numbered 17, against fewer than 3 in the period before the project (Figure 3.3).

Figure 3.3 TOTAL NUMBER OF “BLUE-FLAG” BEACHES IN THE MUNICIPALITIES OF VIGO, NIGRÁN, CANGAS AND MOAÑA – 1987-2007 18 16 14 12 10 8 6 4 2

2004 1991 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007

1993 1988 1989 1990 1992 1994 1987 Source: Association of Environmental and Consumer’s Education125

The improvement of beaches and water quality has very reasonably led to an increase of the number of tourists. A study by the Chamber of Commerce of Vigo (2007) highlights that the tourist offering in Vigo increased over the period 2000-2005 by 28%, reflecting a rise in demand. The increase of the inflow of tourists has been confirmed by the tourism office of Vigo and it is also reflected in the rising number of cruise ships docking every year in the port of Vigo (Section 1.1).

The number of tourists which were received at the different tourism offices in the city of Vigo has more than doubled between 2002 and 2006, passing from 31 thousand to 68 thousand, with the highest peak in 2005, with 74 thousand tourists. Although these figures do not take into account all the visitors along the Ría, they provide for indication of the rising trend of the tourism sector in the area (Figure 3.4). As far as the typology of tourists is concerned, the majority (approximately 70-75%) comes from Spain and, in particular, from the Autonomous Community of Madrid, Castilla León, Andalucia, Cataluña and Galicia; foreign tourists comes particularly from the United Kingdom, Portugal and France126.

124 Source: http://www.blueflag.org/Menu/Criteria/Beaches. 125 Data provided by email (http://www.adeac.es). 126 Source: information provided by the tourism office of Vigo.

It is however difficult to disentangle the project’s effect on the overall tourism sector, which is influenced, in reality, by a large number of external factors: the economic situation, investments in the sector, other tourist attractions in the area not related to water use (including fairs and cultural exhibitions), and others. For this reason, it has not been quantified in the CBA. What could be more easily valued is the economic use attributed to the bathing beaches of Ría de Vigo. Even if these are freely used by the public, a number of activities and services are provided on the beaches (against the payment of a concession fee), such as beverage kiosks and beach umbrella rental: these are likely to have enjoyed higher revenues, as a consequence of tourism development and the higher number of bathing areas. The lack of data relating to the turnover of these economic activities made it impossible to estimate this benefit, which nevertheless exists.

Figure 3.4 TOURISTS RECEIVED AT THE TOURISM OFFICES IN VIGO (2002-2006)

Source: Authors’ elaboration based on data provided by the Municipal Tourism Office in Vigo

3.2.3 Effects on the welfare of beneficiaries The main benefit produced by the project is on people’s welfare. The collection and treatment of waste water, before its discharge into the Ría, succeeded in reducing the severe water contamination characterising the area in the Nineties. Today inhabitants benefit from a general improvement in wellbeing, as a result of the enhancement of the Ría’s water quality. More specifically, the reduction in the number of non-bathing beaches, the possibility of enjoying new recreational activities linked to the use of water and beaches and the increase of buildings’ economic value are the main factors which positively affect the beneficiaries’ quality of life.

This benefit can be valued by estimating the willingness to pay of users for the construction of the sewage treatment plants. In the ex-post CBA, the benefit transfer approach has been adopted, by considering the willingness to pay estimated for 28 waste water treatment projects. The sample projects were selected from a database of 40 cases127, by taking into account only those considered similar to the Ría de Vigo case: projects for the construction of

127 US Environmental Protection Agency (2000a, 2000b, 2000c), Norton (2003) and Källstrøm (2010).

treatment plants, implemented in cities of developed countries already provided with a sewerage system were considered. From the average of the willingness to pay values, adjusted by the per capita GDP of each country considered, the yearly economic value of the treatment service in Ría de Vigo was estimated: it amounts to EUR 88.11 per household (2011 prices). When the number of population equivalent128 is considered, the total benefit corresponds to approximately EUR 20.6 million per year.

The positive effect captured by the willingness to pay is reflected in the results of the ex-post CBA: the net present value amounts to EUR 46.81 million and the economic internal rate of return is 5.86%. The sensitivity of results to the willingness to pay is tested in the scenario and risk analyses: with variations of ±10%, the CBA results remain positive with a very high probability (see Annex II for details).

3.3 ENDOGENOUS DYNAMICS The project has stimulated local economic development through the endogenous dynamics of growth, and, in particular, by increasing the technological expertise of the operating companies in the waste water management field. Aqualia, the company providing most of the Ría’s municipalities with waste water management services, employs a large number of professionals129 involved in research, development and innovation projects aimed at improving environmental quality and preserving natural resources. For example, Aqualia is working on the design of new devices capable of reducing by 35% the noise produced by treatment plants; it is studying the possibility of separating water rain in selected sections of the urban sewerage network, so as to maximise the effectiveness of the whole system; it is involved in a regional- scale R&D project to design new bioreactors in the sewage purification process to be used in all the treatment plants in Galicia. Aqualia also regularly collaborates with the Universities of Vigo and Santiago de Compostela in the implementation of thematic conferences130.

The construction of sewage treatment plants, some provided with physical-chemical and some with biological treatment systems, gave the opportunity to expand local skills and knowledge about these technological processes. Academic publications by the University of Vigo in international journals concerning the treatment of waste water have increased. Galicia is the Spanish region with the third highest number of scientific publications in the waste water management field (10.46% of the total131): in 2004, 2005 and in the first months of 2006 the University of Santiago de Compostela produced 12 scientific publications (out of a total of 124 published by all Spanish universities), followed by the University of Vigo with three articles132. Moreover, new secondary and tertiary education courses on water sanitation have been

128 The willingness to pay is calculated for the total population equivalent, to capture also the benefits for commercial users and tourists. 129 More than 6,000 professionals are employed by Aqualia all over Spain and in other countries where the firm operates. 130 Source: Aqualia’s website (http://www.aqualia.es/vigo/es/calidad_ma/i+d+i.asp). 131 The first is Cataluña (35.29%) and the second is Andalucia (24.18%). 132 Source: CITME – Círculo de Innovaciόn en Tecnología Medioambientales y Energía, 2006.

organised133 and a municipal laboratory has been established to monitor water quality, and also to organise awareness campaigns on the water cycle.

The project did not promote the same degree of technological progress among all of the Ría’s municipalities. As a matter of fact, no relevant learning process was put in place after the construction of the new infrastructures in the small towns of Soutomaior and Vilaboa: here Augas de Galicia took over the municipalities’ responsibilities for operating the treatment plants, which reduced the possibility of developing new local skills (see Section 1.4).

The project effect on the endogenous dynamic dimension is more limited compared to the direct economic growth effect and its quantification is particularly uncertain: therefore it was not included in the ex-post CBA.

3.4 ENVIRONMENTAL EFFECTS The main short-term expected benefit of the project under assessment was to improve the water quality of the Ría, to guarantee the overall sustainability of the fragile ecosystem of Ría de Vigo, which was subject to strong urbanisation pressure.

The provision of all waste waters generated in the area with secondary treatment and the elimination of all pipes directly discharging into the sea or rivers succeeded in significantly improving the water quality, and reducing bad odours and floating solids in the bay, thus better valorising the beautiful landscape of the Ría. UV disinfection further helped in reducing the contamination load, in compliance with the EU Directives for waters where bathing and shellfish harvesting take place.

The river Lagares, before the implementation of this project, was more an open-air conveyor of waste water than a river. Source: interviewee

Shortly after the treatment plants became operational and when the first project’s benefits began to appear, the water quality and the natural species of Ría de Vigo faced a great risk at the end of 2002, when the petroleum tanker “Prestige” was shipwrecked near the Galician coast (see the chronicle of the disaster in Box 3.1). The effects of the petroleum slicks on the Western Galician coast at the time appeared to be very serious. Nevertheless, no significant long-term effects have been recorded inside the Ría de Vigo thanks to a large mobilisation of volunteers134, but especially to the hydrological and morphological features of the Ría: the protection offered by the Cíes Islands at the entrance of the Ría, the action of the rivers bringing fresh water into the Ría and the high level of water exchange ensured by tides in fact limited the entrance of oil into the sea inlet. In July 2004, the director of the Centre for the

133 For instance, the professional Masters course “Curso de Fontaneria y Saneamiento” (http://www.tumaster.com/Cursos:-Curso- de-Fontaneria-y-Saneamiento-solo-preparan-a-alumnos-de-Madrid-Galicia-y-Baleares-mmasinfo12977.htm) and the Masters in Engineering and Industrial constructions, including waste water facilities (http://webs.uvigo.es/master_ingenieria_construccion/). 134 At the beginning of December 2002 about 10,000 persons, including volunteers, soldiers and employees of TRAGSA (a Spanish public holding that provides services in emergency cases, actions for rural development and for environmental protection), rushed to the coast to cooperate in the clean-up.

control of the quality of the marine environment declared that: “One year and half after the disaster the short and medium term effects have virtually disappeared everywhere. Unfortunately, it is unknown what will be the consequence over the next five, ten or twenty years”135. These longer term effects may include severe injuries to animal species and the disappearance of the plankton136 in the area.

Box 3.1 THE PRESTIGE DISASTER On 19 November 2002 the petroleum tanker Prestige sank off the Galician coast and released a huge petroleum slick which damaged a wide area between the North of Portugal and the French Atlantic coast: Galicia was the region most severely hit by this disaster. The Prestige, which belonged to the Liberian company Mare Shipping Inc. and was managed by the Greek Universe Maritime Company, set sail from Saint Petersburg bound for Gibraltar. On the day of the accident it was transporting 77,127 tonnes of oil. The accident was probably caused by a water leak during a heavy storm when the Prestige was 28 miles from Cape Finisterre, on the 13 November 2002: part of the ship was damaged and this caused a petroleum leakage into the sea. In two days the petroleum slick had expanded to 37km long and 200 metres wide. The environmental disaster was not immediately announced by the Spanish Government. In fact, during the first few days, the Government claimed that that the accident would have not provoked any environmental disaster, but six days after the accident, the Prestige sank and in the following weeks more than 60,000 tonnes of oil were released into the sea. The disaster caused by the sinking of the Prestige was characterised by uncertainties in the assignment of responsibilities and the Government was criticised for a lack of transparency and late decisions and reactions. Moreover the poor condition of the petroleum tanker, which was not in line with the dispositions provided by the International Maritime Organisation, helped the damaging of the ship’s body.. The event greatly upset the public: a march of 200,000 people was organised in Santiago de Compostela on 2 December 2002, to demonstrate against the failure to prevent the disaster and the lack of coordination in addressing it. This represented the largest public demonstration in the history of Galicia. Source: Authors based on European Union (2004) and the press (http://marenostrum.org/ecologia/medio_ambiente/prestige/)

The timeframe of this evaluation study, which occurs almost eight years after the disaster, gives the opportunity to assess whether the accident actually affected environmental quality in Ría de Vigo. This is crucial to isolating the real benefits brought about by the project under analysis, “net” of the possible effects of any external events, such as the sinking of the Prestige. Among the data and information gathered, none has indicated any negative effect that could have been caused by oil contamination inside the Ría. Hence, it can be argued with a high degree of certainty that the Prestige disaster did not have any significant environmental consequences for the Ría’s water and coast.

Notwithstanding that the project’s environmental benefits were evident from the very early stages and even though the pollution risk deriving from the Prestige’s oil did not materialise, the benefits could have been higher. The malfunctioning of the Lagares plant, the largest one built, receiving the waste water produced by 65% of the population equivalent of the area137,

135 Quoted by European Union, 2004. 136 Sea organisms which provide an important source of food to fish. 137 400,000 population equivalent of Vigo out of the total 754,000 population equivalent that benefits from the major project.

is having negative consequences on the environment and on people’s quality of life. As described in Section 2.3, during rainy periods the plant does not operate effectively: a part of the sewage, moreover, receives only the primary treatment because of the limitation of the plant’s capacity. The high concentration of pollutants in the water close to the plant’s effluent pipe puts fish and mussels in danger and leads to a serious environmental situation. Another negative environmental effect determined by the Lagares plant, but having a relatively minor importance, concerns the generation of bad odours. This externality, which has been occasionally reported by a dozen households located near the plant, has not been included in the ex-post CBA because its economic cost is not considered relevant.

The partial ineffectiveness of the current system would need additional investments and the project designed by AcuaNorte represents a possible solution: if, in accordance with the plans, a new plant provided with the most advanced treatment technology is built, by the end of 2015 all urban waste water in Ría de Vigo will receive adequate treatment, thus further improving the environmental conditions of the Ría. Also the local and sporadic odour problems will be solved by the new plant, thanks to the installation of an odour treatment system.

Besides the structural limits of the Lagares plant, what still represents a problem for water quality is residual illegal discharges by industrial users138. In 2007 the Government of Galicia reported the existence of 190 points of discharge, about 50 with a high level of contamination139, and identified 24 firms which were regularly contaminating the Ría140. By April 2011 the number of points of discharge had reduced to 60; in 13 of these the presence of serious polluting emissions has been confirmed141. Although contamination deriving from industrial illegal discharges has been decreasing over time, both the press142 and interviewees emphasised the persistent contamination caused by some industries, which illegally dump their sewage into the rivers or sea without adequate treatment. What the interviewees also highlight is the lack of effective control by the regional administration to sanction firms which do not properly use their treatment plants (see also Section 4.5 discussing about the project governance). It has been reported that firms, even if they have internal treatment facilities, often choose not to use them in order to save on operating costs. This is made possible by the fact that in Galicia, as in the rest of Spain, when the authorities decide to carry out monitoring of the contamination level of industrial waste water discharges, the procedure requires that firms are pre-alerted some days in advance. According to the interviewees, this gives them enough time to activate their treatment plant, thus avoiding sanction.

Even if, in fact, the problems of the industrial sewage network are not part of the project analysed, they have already caused environmental damages in the river Lagares and the Ría, through contamination by heavy metals and other pollutants. A large outflow of detergents in

138 As reported by the environmental associations and the press. 139 http://www.farodevigo.es/secciones/noticia.jsp?pRef=2008121400_2_281251__GRAN-VIGO-contaminacion-castiga-Vigo- desde-focos-situados-ocho-concellos 140 Greenpeace, 2010. 141 http://www.lavozdegalicia.es/vigo/2011/04/24/0003_201104V24C4996.htm. 142 http://www.verdegaia.org/index2.php?option=com_content&do_pdf=1&id=1327.

the river, for instance, led to the deaths of thousands of fishes in September 2008143. However, the Government of Galicia estimates that these contamination points generate a small percentage of the total pollutant load of the Ría (between 5 and 10%); the remainder can be entirely ascribed to the malfunctioning of the Lagares plant144. Moreover, no significant effect of industrial discharges on the aquaculture sector was recorded.

3.5 TERRITORIAL COHESION Even if the most relevant set of interventions (in financial terms) implemented by the project is related to the construction of waste water treatment plants, it is worth remembering that complementary measures were implemented on the sewerage network, through the installation of sewage pipelines. The objective was twofold: on one hand, to replace some of the existing pipes, originally flowing into the Ría, to convey the waste water to the new treatment plants; on the other hand, to extend the sewerage network so as to guarantee the treatment of all the waste water produced by the inhabitants of the target areas. In the cities of Moaña, Nigrán, Gondomar, Redondela, Vilaboa, Soutomaior and Cangas there was no sewerage network in some of the most rural areas; also in Vigo, despite being more densely populated, the pipeline network did not cover some peripheral areas of the city, such as the Teis parish and the University Campus district.

In connecting these areas to the new treatment system, the project generated positive effects on territorial cohesion: today almost 100% of residents in Ría de Vigo, including those living in peripheral and sparsely populated districts, are connected to the urban sewerage network and can benefit from the same service as all other citizens living in more central areas.

However, given the relatively minor importance of these measures within the overall major project, these effects are deemed not to be particularly important, at least compared with the impact on environment. Additionally, the credit for having extended the sewerage in the municipality of Vigo cannot be completely taken by the project itself, rather it is shared with the municipality. A municipal decree of Vigo, actually, stated that all houses and buildings distant less than 100 metres from the sewage pipelines must be connected to the network: both Augas de Galicia and the municipal operating company had to take this requirement into account when designing the project and implementing additional minor interventions to the sewerage. Hence, this decree, in fact, also contributed to fostering territorial cohesion in the area.

143 http://www.vieiros.com/nova/68851/os-vertidos-no-rio-lagares-provocan-a-morte-de-milleiros-de-peixes. 144 A last remark related to the environmental conditions of the area relates to the so-called Red Tide phenomenon. It periodically occurs every year in Galicia, but also in other regions of Spain and of the world. It is caused by a rapid accumulation in fresh water of microscopic algae. Some red tides are associated with the production of natural toxins which may negatively affect bivalve molluscs. For this reason, when this event occurs a fishing ban for bivalve molluscs is put in place: in Galicia it affects about 80% of the shellfish production areas of the region. This is a natural phenomenon which occurs at habitual times and is kept under control by the regional administration. The project under assessment is not considered to have the possibility to influence the occurrence of this event or its effects (http://www.rtve.es/alacarta/videos/telediario/marea-roja-galicia/1199942/).

3.6 INSTITUTIONAL QUALITY From the institutional quality perspective, the project produced very minor effects at local level. Municipalities had to develop or strengthen their competences in order to efficiently and effectively manage the elements of the project in their territory. Even where the infrastructures are operated by external private companies, municipalities were responsible for their selection and public tenders had to be organised. Most of the Ría’s municipalities were able to put in place the mechanisms to assign the management of the infrastructures, but two of them did not prove to have this ability: these were the municipalities of Soutomaior and Vilaboa. In those cases, as foreseen by the law, Augas de Galicia took charge of their duties, by directly organising the competitive tenders and selecting the operating companies. It is probably because of the small size of these municipalities that their local administrators did not develop the skills for organising public tenders to assign the operation of such a complex service as waste water treatment145. The analysed project could have provided the opportunity to improve their institutional capacities, but in fact this effect has not been generated.

On the regional level, no significant institutional improvement can be highlighted. The project under analysis was a particularly complex one, involving nine municipalities simultaneously. One could argue that the issues faced in Ría de Vigo, such as the high level of urbanisation, the resulting lack of land on which to build the treatment facilities (this matter is addressed in Section 4.2) and the inability of some municipalities to autonomously select the service operating companies, enabled Augas de Galicia to acquire experience on how to address these specific difficulties. Yet, it is uncertain whether this effect could be directly attributed to the project, since over the same time period Augas de Galicia has been implementing a large number of waste water treatment interventions, including around Ría de Pontevedra, which share most of the characteristics of Ría de Vigo146.

What the project was certainly expected to produce is greater knowledge of the specific requirements of the shellfish waters Directive. When the Region submitted the project to the EU for co-funding, its declared objective was to fulfil the urban waste water treatment Directive, neglecting to consider also the water quality requirements for shellfish waters. The Commission drew its attention to this issue, by explicitly asking to clarify whether the EU relevant Directive in this field had been taken into account as well. In response, the Region confirmed that these specific water quality criteria would be fulfilled and, for this reason, it included in some of the sub-projects the installation of water disinfection systems.

However, not all the treatment plants were designed to have the disinfection technology, thus limiting the project’s benefits for water quality. Moreover, the first Galician water purification plan, published in 2000 and covering the period 2000-2015147, lacked any specific mention of the shellfish water Directive. As we know, the lack of proper interventions and measures

145 This interpretation was confirmed by the interviewees. 146 Government of Galicia, 2000. 147 Government of Galicia, ibidem.

specifically aimed at implementing EU legalisation in this field led to an infringement procedure and to a financial sanction against Spain in 2005. The experience gained with the “Integrated environmental regeneration of Ría de Vigo” project and, specifically, the explicit interest of the European Commission in the protection of shellfish waters, should have alerted the Region and Augas de Galicia to the mistake of taking into consideration only the urban waste water treatment Directive and not also other more specific requirements.

3.7 SOCIAL HAPPINESS All the social groups affected by the project, including both the inhabitants and tourists, experienced a significant improvement in wellbeing. According to the field interviews and to the press of the Nineties148, the project’s effects were clearly perceived by the beneficiaries, as the ex-ante situation was particularly dramatic and an improvement of waste water management services was required. As previously explained, cleaner water favoured the development of economic activities and environment, and it affected another, more subjective, dimension: people’s pride and pleasure for living in a beautiful place such as Ría de Vigo. This effect was perceived during the field interviews and it is captured in the willingness to pay calculation.

Social happiness generated after the project’s completion fully offset the inconveniences arising during the construction phase: bad odours, noise and traffic jam because of the works to the underground sewerage network. What still remains to limit people’s perception of wellbeing is the disappointment and, in some cases, anger, over the failure so far to solve the problems affecting the Lagares plant. Since the plant commenced operations in 2000, its capacity has been inadequate with respect to the volume of water to be treated. As described in Section 2.4, after Spain was sanctioned for non-compliance with EU legislation for the shellfish waters in Ría de Vigo, a solution to the malfunctioning of the Lagares plant has been pursued by the Regional administration, in order to preserve the quality of the Ría’s waters. Up to now, although many years have passed, no additional investments have been financed, and people complain149 that the problem is still there and that it will not be solved before 2015/2016, at which point AcuaNorte’s project will be finally implemented.

Citizens and the press150 also criticise the ineffective control over industrial sewage discharges and the illegal behaviour of some firms, which regularly causes episodes of contamination to the water basin. People interviewed agreed that any attempt to improve the urban waste water treatment system should be complemented by more effective interventions addressing industrial discharges, since both contamination sources have an effect on the Ría.

148 A review of which is included as Annex III of the project’s final implementation report (Government of Galicia, 2002). 149 Source: field interviews. 150 http://www.lavozdegalicia.es/vigo/2011/01/12/00031294835074105526986.htm,http://www.lavozdegalicia.es/vigo/2007/08/15/ 0003_6061165.htm.

The project allowed us to move from a third-world situation to the second-world. Even if the benefits have been significant, some improvements are still needed to get to the first-world level. Source: interviewee

4 DETERMINANTS OF PROJECT OUTCOMES

4.1 KEY FINDINGS The positive effects generated by the project and discussed in the previous Section were ensured by three determining factors:

 The project’s appropriateness to the context: the implementation of a single, integrated, major project contemporaneously addressing the waste water treatment needs of all the municipalities of Ría de Vigo represented the most effective way to reduce the contamination level of the Ría; moreover, the high population density, which imposed space limitations on the location of infrastructures was duly taken into account by Augas de Galicia and appropriate solutions were found (see Section 4.2).

 The prompt managerial response of Augas de Galicia which intervened when the municipalities of Soutomaior and Vilaboa were shown to be unable to organise a competitive tendering process for the operation of the new treatment facilities of Arcade, Rio Verdugo and Riomaior. By taking over their responsibilities and directly selecting the operating company, Augas de Galicia ensured a timely and effective functioning of the infrastructures.

 The overall adequate design of the sub-projects in Moaña, Gondomar, Nigrán, Vilaboa and of the Teis plant of Vigo. The construction of waste water treatment plants, provided also with an advanced disinfection system, enabled compliance with the relevant legislation and the generation of significant benefits on the environment.

While project design of the mentioned sub-projects was appropriate, the treatment plants of Cangas, Soutomaior and Redondela could have been better designed, since they lacked tertiary treatment until 2007 and 2008 respectively. The project design of plant of Lagares, finally, is unsatisfactory: the plant’s under capacity and, secondarily, the lack of tertiary treatment, are considered the main factors that prevented the maximisation of the economic, environmental and wellbeing effects. Since this is the largest plant among the nine that were built, treating almost 65% of the total urban waste waters produced by the Ría’s inhabitants, the overall impact of the major project design on the long-term effects generated is deemed to be negative.

Forecasting capacity and project governance had a minor impact on project’s performance. On one hand, evidence suggests that Augas de Galicia was aware of the problems that the Lagares plant would face, i.e. the under capacity as respect to the volume of water received. On the other hand, the distribution of responsibilities between Augas de Galicia and the local administrations did not affect the project; however, if more effective control over illegal industrial discharges had been put in place by the regional authorities, the Ría’s water quality would have enjoyed greater benefits.

Besides the five mentioned determinants (whose impact is summarised in Table 4.1), the role of the European Commission is discussed in a separate Section. The Commission had an important role only at the initial stage of this project, by co-funding almost 80% of the initial investment and by explicitly asking Augas de Galicia to fulfil the requirements of the shellfish waters Directive, thus encouraging the installation of UV treatment for further purification of waste waters before their discharge. Yet, by taking the financial decision when the project was at a very preliminary stage, it could not be certain that its recommendations were actually taken into account. This limited the Commission’s overall contribution to project design.

Table 4.1 IMPACT OF KEY DETERMINANTS ON PROJECT’S PERFORMANCE Strength* 1. Appropriateness to the context +4 2. Project design -4 3. Forecasting capacity 0 4. Project governance -2 5. Managerial response +2 *-5 = very strong negative effect; 0 = no effect; 5 = very strong positive effect (see in Annex I the criteria adopted to assign these scores).

4.2 APPROPRIATENESS TO THE CONTEXT The project was highly appropriate to the context from two perspectives. On one hand, the integrated nature of the intervention, involving eight different municipalities simultaneously and including nine treatment plants under the same major project, was the only solution to comprehensively improve the water quality of Ría de Vigo. The Ría is a semi-closed water basin, with fast water exchange: because of this, an extensive and joint action aimed at simultaneously eliminating all direct waste water discharged to the Ría was the only reasonable option to pursue.

On the other hand, the project properly took into account the morphological and urban density peculiarities of the beneficiary municipalities. Steep slopes towards the sea and a particular high population density, as described in Section 1.1, imposed a space constraint on the project’s design. As stressed by the interviewees, Augas de Galicia and the municipalities faced serious difficulties in finding enough space to locate the treatment plants, in particular those relying on biological treatment, whose space requirements are much greater than for physical-chemical plants. This problem was exacerbated by the difficulties faced in expropriating the lands, as residents were reluctant to move.

In these cities, people’s attachment to land is so strong that when it has to be expropriated we use to say that the sale price has to be set per centimetre rather than per meter. Source: Interview

Augas de Galicia showed a certain flexibility in coping with such a situation. Where land was unavailable, it “created” the necessary space, by building artificial platforms on the sea, as in the case of the plants of Teis (see the Figure below) and Moaña, or, alternatively, it exploited at the most all the available space. This is the case with the Lagares plant, which is situated

between a natural park to the left side and residential buildings that could not be expropriated to the right. These decisions show that the unchangeable context’s traits were adequately taken into account in order to ensure the project’s implementation.

Figure 4.1 THE TEIS AND LAGARES PLANTS IN VIGO

Source: Augas de Galicia’s pictures provided on demand

4.3 PROJECT DESIGN The project’s goal was ambitious: providing within five years all the municipalities of Ría de Vigo with waste water management and secondary treatment systems, so as to comply with the EU Directive 91/271/ECC, but also ensuring advanced disinfection of waste water to eliminate the contaminants potentially affecting beaches and shellfish living in the Ría, in compliance with Directives 76/160/ECC and 79/923/ECC.

The project design, elaborated by Augas de Galicia on the basis of some already existing investment plans drafted by the local administrations, proved to be logical and cost-effective: it managed to convey all waste waters to a number of treatment plants distributed along the Ría’s coast, thus fulfilling the expected objectives with regard to Directive 91/271/ECC. No cost overrun occurred thanks to the cautious behaviour of Augas de Galicia, which gave great importance to the optimisation of resources (as strongly stressed in the application for EU funds151): cost savings were achieved, for instance, by reducing the number of pumps to be installed, through a better use of the natural decline of pipelines, and by omitting the construction of a treatment plant originally envisaged in the university district of Vigo and directing the sewage to the nearby town of Gondomar. By requiring the fulfilment of the criteria envisaged by the shellfish water Directive, the European Commission contributed to some extent to the project design. In order to cater for this request and ensure compliance with Directives 76/160/ECC and 79/923/ECC, Augas de Galicia revised the preliminary project designs and provided some of the waste water treatment plants with tertiary treatment systems, so as to guarantee the appropriate water quality152.

151 Government of Galicia, 1995a (see Section 2.3). 152 This was confirmed by the field interviews.

Yet, the project design was affected by relevant weaknesses that prevented the maximisation of the project’s performance. First, not all the treatment plants were designed with the disinfection treatment system. UV treatment was installed in the plants of Soutomaior and Cangas only in 2007, respectively 7 and 9 years after their completion; the up-grade of the plant of Redondela, built at the beginning of the Nineties, was not included in the major project and the infrastructure was upgraded with the disinfection system only in 2008. Because of this delay, the total water quality benefits so far generated have been positive, but not as positive as they would have been if the advanced treatment had been originally envisaged for all the plants.

Second, the Lagares plant, which receives the urban waste waters produced by the majority of the total project’s beneficiaries, still lacks UV treatment. If a new plant is built, according to the Region’s expectations, this large volume of sewage will only receive adequate purification from the end of 2015, i.e. approximately 17 years after the completion of the first Lagares plant.

The Lagares plant is also affected by another structural limitation: its under capacity with respect to the total volume of water received. As a matter of fact, the plant capacity is adequate for the population equivalent to be served153, but it is insufficient to properly treat all the volume of waste water arriving during the rainy periods. In explaining the reasons for this deficiency, people interviewed pointed to the lack of a big enough area on which to build a much larger plant from the beginning, with the capacity to treat all the waste water collected. But, in reality, the limited availability of space is an external constraint which Augas de Galicia dealt with, as already described in the previous Section: it is plausible that its room for manoeuvre in determining the size of the Lagares plant was restrained by this factor, but the project design could have been adjusted accordingly. Actually, the new AcuaNorte plant, by involving the use of a treatment technology that requires a smaller space than traditional biological treatment154, will be built on exactly the same site as the current plant, thus indicating that the space could have been better exploited from the beginning. This would have not only saved part of the investment costs for the new project (EUR 170 million), but would also have maximised the plant’s effectiveness and the resulting benefits since the end of the Nineties.

Strong emphasis has been given by Augas de Galicia to fulfil the urban waste water Directive, which set the deadline of 31st December 2000 to provide secondary-type treatment for all waste waters produced in the municipalities of the Ría. The objective of building secondary treatment plants was put in the foreground, but less degree of emphasis was given to the need to install the disinfection system in all the plants, so as to comply with other relevant Directives. Similarly, it is likely that the need to comply with the urban waste water Directive over-ride the most important requirement, i.e. a full capacity and properly functioning plant at Lagares.

153 400,000 population equivalent. 154 As explained in Box 2.3.

At the same time, the limits affecting the project design were due to a shortage of financial resources. Between 1990 and 1999, the Region has been financing a large number of interventions all over the region to ensure compliance with the urban waste water treatment Directive: almost 90 sewage treatment plants were built, ensuring the compliance of the Directive’s requirements for more than 1.27 million population equivalent155. Although the Cohesion Fund covered a very high share of the investment costs (almost 80%), the total amount of regional financial resources allocated was too limited to fully and immediately address the investment needs in Ría de Vigo. All the efforts made by Augas de Galicia to optimise the investment costs, the decision to delay the installation of tertiary treatment system in some plants and the under capacity of the Lagares plant can be interpreted as ways to use to the optimum the limited resources available. With the implemented project, the Region mostly succeeded in complying with the EU Directive on waste water requiring urban agglomerations to be provided with secondary treatment facilities by the end of 2000; yet, funds were probably not enough to design the best project which would have also allowed the maximisation the benefits and ensured full compliance with the requirement of the shellfish water Directive. Moreover, as already explained, the malfunctioning of the Lagares plant in some periods of the year makes the compliance to Directive 91/271/EC only partial.

The general strategy consists, in brief, in achieving the compliance of Directive 91/271 by the year 2000 at the minimum cost. Source: Government of Galicia, 2005

4.4 FORECASTING CAPACITY The difficulty in adequately forecasting the effect that rain water would have on the functioning of the Lagares plant has been put forward by the interviewees as one of the reasons to justify the current malfunctioning of the plant, besides the space constraints which prevented Augas de Galicia from building a larger plant (as already discussed in the previous Section).

Yet, the high volume of rainfalls in Vigo is not an exceptional event. When the Region applied for EU funds in 1995, the under capacity of the plant and the necessity to enlarge it in subsequent years were already acknowledged. More specifically, the application form to EU funds admitted that the facility would have required an enlargement intervention, recognising the impossibility of properly treating all the water received during the rainy periods:

«The treatment plant of the river Lagares […] has been designed to treat through the biological process half of the average volume of waste water received. For this reason, in future it will be necessary to enlarge it» (Government of Galicia, 1995, p. 28).

Hence, the fact that the large volume of rain water conveyed through the unitary sewage pipeline system of Vigo to the treatment plant represented a problem was recognised by

155 Government of Galicia, 2002.

Augas de Galicia and acknowledged by the European Commission. This is supported by the fact that in 1997, before the Lagares plant’s construction had been completed, a new project was designed and co-funded by the Commission, aimed at providing the sewerage network of Vigo with rain water separation in specific sections. It is likely that this project was not expected to completely solve the limits of the Lagares plant, but just to reduce them.

In synthesis, our analysis shows that Augas de Galicia was in a position to know the role that rain water would have played and to correctly determine the plant capacity on the basis of the volume of waste water collected, as it managed to do with the other treatment plants of the Ría. Since forecasting capacity has not been considered wrong per se (while project design was), it is not identified as one of the main determinant factor which limited the project’s performance.

4.5 PROJECT GOVERNANCE AND MANAGERIAL RESPONSE Numerous actors are involved in waste water service provision in the project’s target area, including eight municipalities, Aqualia and other operating companies and Augas de Galicia. All of them have some competence over the investment and management of infrastructures in the waste water sector, as described in Section 1.4. The distribution of responsibilities among them has been ensured by the regional law 8/1993 and no major coordination difficulties have been either detected or reported by interviewees. Overall, the project governance is not a particularly relevant dimension to explain the long-term effects produced by the project.

However, even if the legislative framework was not a major determinant per se of the project’s impact, it ensured an effective managerial response by Augas de Galicia, which in turn produced some effects. After the project’s construction had been completed, the Augas de Galicia had to counteract an unforeseen event: the incapacity of two municipalities to select a company to operate the infrastructures, in particular three waste water treatment plants, thus putting at risk the overall purification system. Augas de Galicia’s reaction in that case was prompt and effective, as it immediately took charge of operating the purification system. Its intervention ensured the immediate functioning of the infrastructure, thus contributing at the generation of the project’s effects.

The public bodies in charge of waste water treatment facilities shall ensure their proper operation to achieve the objectives concerning the protection of water quality, established by law and plans approved in this field. The autonomous body Augas de Galicia shall temporary take over the operation of public or private waste water treatment facilities for reasons of public interest, when the cessation of the activities producing waste water was neither appropriate nor possible. Source: Regional Water Law 8/1993, Art. 30

The only governance mechanism that should have been more effective in order to maximise the project’s impact was control of illegal discharges. In Galicia the competent body for the control of waste water management is the regional administration. In August 2009 a new

Control Plan of Discharges was launched by Augas de Galicia, provided with a budget of more than EUR 6 million156 and aimed at eliminating all the existing illegal discharges, including in Ría de Vigo. As stated in Section 3.4, the polluting points have been decreasing in the past years, but there is still a number of illegal industrial effluent discharges which limit the protection of water quality in the Ría. The press and some interviewees accuse firms of only providing their waste water with proper treatment when they expect to receive an official inspection, so as to save on the operational costs of the treatment plants. This is made possible by the fact that in Spain firms have to be pre-alerted when a control visit is going to take place.

Although the industrial waste water purification systems are outside the scope of this evaluation, problems of control over them necessarily influence the overall impact of all the other facilities, whose objective is ensuring the good quality of the receiving water body. Nevertheless, the Government of Galicia estimated that industrial pollutant discharges represent a very small part157 of the total pollutant load of the Ría (with a much greater role ascribed to the malfunctioning of the Lagares plant): for this reason the impact of this determinant factor on the project’s performance is not particularly significant.

4.6 THE ROLE OF THE EUROPEAN COMMISSION It has been already pointed out that the EU played an important role at the decision stage of the project under assessment, not only by co-financing a very high share of the investment costs, but also contributing in shaping the design of the infrastructure (Section 4.3).

Before deciding to co-finance the major project, the Commission asked an independent consulting company its technical assessment about the infrastructures. As explained in Section 2, the consultant highlighted that the project design was still at a very preliminary stage and that this made it impossible to assess the actual costs and benefits of the investment. Taking in regard this technical judgment, the Commission asked the Spanish authorities158 for some clarifications and more details on the type of treatment to be implemented by the plants, in order to make sure that all the relevant Directives would be fulfilled, in particular Directive 79/923/EC on shellfish waters. This caused Augas de Galicia to revise the project design, by providing some of the treatment plants with advanced disinfection technology, which had not originally been envisaged. Hence, the Commission at this stage had quite a decisive role, as it ensured the installation of an adequate treatment process, which would have substantially improved the benefits generated by the project.

However, after having requested the fulfilment of the shellfish water Directive and having received the Region’s assurance that all the plants would be revised accordingly, there is no evidence that the Commission insisted on the installation of the disinfection system in all the treatment plants. As a matter of fact, the final project design of each treatment plant to be

156 Source: http://augasdegalicia.xunta.es/es/7.6.htm. 157 Less than 10% (Greenpeace, 2009). 158 The Commission is in contact only with the national Managing Authority, which then re-addressed the request to the relevant regional administration.

built was not provided by Augas de Galicia before the financing decision was taken, because the design of most of the infrastructures still had to be finalised159.

To conclude, our analysis suggests that although the Commission’s involvement was very important at the initial stage, it was not enough to overcome the limitations of the project related to the lack of disinfection system in some of the co-financed treatment plants, which mostly derived, as highlighted in Section 4.3, by lack of focus, within the regional administration, on implementation of the shellfish water Directive and by financial constraints.

159 In the application for EU financing, only the plants of Lagares and Cangas were described in more detail.

5 CONCLUSIONS

The group of projects “Integrated environmental regeneration of Ría de Vigo” evaluated in this case study succeeded in generating long-term positive effects on economic development, environment and, more widely, public wellbeing. It enabled the restoration of several coastal areas for recreational use: this effect is attested to by the growing number of bathing beaches and the improvements in their water quality. This contributed to fostering the touristic attractiveness of the Ría, along with the satisfaction and pride of inhabitants. The willingness to pay of the inhabitants for the provision of adequate waste water treatment and purification in Ría de Vigo has been estimated and included in the ex-post CBA of the project, which produced positive results: an economic net present value of EUR 46.81 million and an economic internal rate of return of 5.86%160.

An expected effect which, in fact, did not materialise, was on the productivity and profitability of the shellfish and aquaculture sectors. The documents elaborated by the regional authorities to describe and justify the project intervention (both the application and the project’s completion report) state that the poor water quality of the Ría was putting at risk one of the main industries of the area, i.e. shellfish extraction and farming, and that, by improving the water quality, the project would favour increased productivity in these sectors and reduce the time and cost needed to depurate the mussels before their consumption. However, these benefits have been discussed only in qualitative terms and no quantification or detailed analysis providing evidence in support of this expectation has ever been undertaken by Augas de Galicia. The analysis carried out within this evaluation study does not highlight any direct effect of the project on shellfish: both their fertility and the depuration costs seem to be unrelated to the introduction of the waste water treatment service, as explained in Section 3.2. Hence, the regional authorities were probably too optimistic on the economic potential of the project in this regard, which nevertheless were overall positive.

The project’s benefits could have been even higher if two important conditions had been met. The first is that all the waste water treatment plants built had been provided from the start with a UV treatment process to reduce the level of escherichia coli bacteria in the discharged water. On the contrary, the plants of Redondela, Soutomaior, Cangas were only upgraded in 2007 and 2008, while the largest plant at Vigo, on the river Lagares, treating the majority of the urban waste water discharged into the Ría, still lacks a disinfection system. Because of this, the benefit for the water quality has not been maximised from the initial stages of operations. The second condition is that the whole project would have generated greater benefits if the Lagares plant had not been undersized with respect to the volume of waste water to be treated. Built with the capacity to treat the urban waste water produced by 400,000 population equivalent, including about 250,000 residents, tourists and some industrial activities connected to the urban sewerage, the plant cannot treat all the incoming water

160 At 2011 prices.

when there is heavy rain. This is due to the existence of a sewerage network that conveys, in most of its sections, both waste water from houses and rain water.

Among the factors that may have contributed to generating the project’s effects and to limiting its performance, poor project design is the most relevant. The limitations concerning project design have made it necessary to design new facilities in Lagares to replace the existing plant, which require an investment of about EUR 170 million. Notably, the structural weaknesses were not determined by poor forecasting capacity: the project proposal submitted to the European Commission in February 1995 admitted that the river Lagares plant’s capacity was insufficient and that the infrastructure would require enlargement in subsequent years. The plant was built in any case in order to comply with the waste water treatment Directive, which imposed a deadline of 31st December 2000 to provide secondary treatment for all waste waters in the cities of Ría de Vigo. This deadline probably pressurised Augas de Galicia in the planning and design stage: a treatment plant was actually built and in operation by that date, and its limitations, although well-know, were probably pushed to the background.

A certain weakness in the planning phase by Augas de Galicia can be highlighted also as far as compliance with the shellfish water Directive is concerned. By being too focused on compliance with the waste water treatment Directive, Augas de Galicia did not put much emphasis on the water criteria set for shellfish waters. Because of the Commission’s request, UV treatment systems were installed in some plants, but not in all of them, as already pointed out. These were installed only after a financial sanction was imposed by the European Court of Justice for non-compliance with the shellfish water Directive in Ría de Vigo. The assessment of weak planning capacity on the part of the regional administration is corroborated by the fact that the Galician plan of water purification, published in 2000 and planning regional investments in the waste water sector for the period 2010-2015, also lacked any specific measures to ensure adequate water quality to support shellfish life and growth as required by Directive 79/923/ECC. Yet the Region should have been aware of the importance of taking the shellfish water Directive into account, especially because of the strong interest expressed by the Commission regarding compliance with the shellfish waters requirements by the Ría de Vigo project, and the already expired compliance deadline (October 1987).

In designing the project, Augas de Galicia was subject to an external constraint, i.e. a shortage of funds, as the great emphasis on cost control during the design and construction phases would indicate (Section 2.3): notwithstanding the very high support granted by the Cohesion Fund, which covered almost 80% of the investment expenditure, the financial resources allocated by the Region to the Ría de Vigo project were limited. Actually, during the same time period, the Region had been financing a large number of interventions in the waste water sector and resources were not sufficient to immediately address all the financing needs, as admitted by one interviewee. This prevented Augas de Galicia from designing the best technical option, so as to provide a long-term solution to the Ría’s water pollution problems.

From other perspectives, it has to be recognised that Augas de Galicia contributed to the generation of positive long-term effects, by overcoming the difficulties faced before and after the construction of the infrastructures. The relevant space constraint determined by the

specific context peculiarities (high urban density and very steep slopes towards the sea) was duly taken into account by Augas de Galicia in designing the project: when space to build the treatment plants was missing, artificial platforms extending over the sea were built; in the case of the Lagares plant, on the other hand, the facilities were located so as to optimise the use of the limited area available, between a natural park on one side and houses on the other. Later, when the infrastructures were already built, Augas de Galicia effectively and promptly took charge of the operation of the three small treatment plants, given the inability of the municipalities to manage their operations.

As a synthesis of this evaluation, it can be stated that, according to the evidence collected, an overall positive impact on economic growth, welfare and environment was generated by the project, in part because the ex-ante situation was particularly negative, but also thanks to the good project appropriateness to the needs. These effects could have been maximised via more accurate planning of the interventions and project design. But this was prevented by the short- sighted planning perspective on the part of Augas de Galicia in addressing the waste water management issues and by a shortage of regional funds.

This case study provides a lesson on the importance of good project design to generate the expected benefits and to avoid the need to finance further investments aimed at overcoming the weaknesses caused by an improper initial design. This is particularly true in the case of a complex project such as this one, where an extensive and joint intervention in more municipalities was necessary to pursue the common objective of cleaning the waters discharged in Ría de Vigo.

ANNEX I. METHODOLOGY OF EVALUATION

The present Annex summarises the methodological approach undertaken for carrying out the project case studies and presented in the First Intermediate Report of this evaluation study. Moreover, the Annex further elaborates on and specifies the definition of long-term effects considered throughout the case study and the typology of determinant mechanisms analysed in interpreting the project outcomes. The main objective is to provide the reader with a set of information describing how the project evaluation was conducted and to enable him/her to replicate this methodology.161

The Annex is divided into three parts: in the first one, the overall conceptual framework of the evaluation study is recalled and the definition of long-terms effects and project determinants are laid out; in the second one, the methodology of analysis followed to implement the ex-post evaluation is discussed; finally, the structure of the case study reports and the tools used to standardise them is described in the third part.

CONCEPTUAL BASIS The Conceptual Framework of this evaluation study is based on three dimensions of analysis: the object of the evaluation (the ‘What’), the timing of the long-term effects (the ‘When) and the determinants of the project’s outcomes (the ‘How’).

The ‘What’ dimension

The Team developed a classification of long-term effects, with the aim of identifying all the possible impacts of public investments on social welfare. A broad distinction of project effects is among effects on ‘Economic development’ or ‘Quality of life’. Investment projects can foster economic development, which is generally quantifiable by aggregate indicators, such as the Gross Domestic Product; although economic development is not disconnected from the wellbeing of society, it is acknowledged that there are a number of other factors that may affect public welfare, that are not captured by the traditional economic indicators162. For the purpose of this study, the notion of quality of life163 refer to the factors that affect social development, the level of social satisfaction, the perception of social reality and other dimensions which are outside the conventional economic dimension. Under these two broad categories, a taxonomy of more specific long-term development effects of investment projects has been developed. The definition of each type of effect is provided in Table I.1.

161 Specific recommendations which may enable application of the same evaluation methodology to future projects are discussed in the Final Report of this evaluation study. 162 Dasgupta, 2011 and Stiglitz et al., 2009. 163 Used also as synonymous with wellbeing, as mentioned in the ToR.

Table I.1 TAXONOMY OF LONG-TERM DEVELOPMENT EFFECTS Effects Definition Checklist Economic development Direct Following the traditional growth theory164, both Did the project have effects on the endowment of economic public and private investment contribute to labour or capital production factors? Did it contribute growth increasing the stock of capital and thus economic to employment creation? Did it attract new growth. The direct contribution of a project to investments? Did it create new business opportunities? economic growth, in terms not only of real growth of Did it produce time savings for business trips? Did it GDP, but also, more generally, on economic welfare produce decreases in travel costs? is discussed within this category of effect. Endogenous Endogenous dynamics comprise all the factors that Did the project contribute to the improvement of the dynamics have an indirect effect on economic growth, by productivity of the economic system? Have social improving the productivity of inputs: the increase of behaviours changed as a result of the project? Did the the stock of competences and knowledge of human project provide new/improved skills, R&D investment, capital165, the introduction of a more advanced organisational changes that translated into an increase technology166 and changes in the organisational in labour productivity? model of economic actors, making them more efficient167, are analysed insofar they contribute to increasing the production function. Quality of life Social Public investment can affect social cohesion, by Did the project promote social inclusion? Did it improve cohesion minimising disparities, avoiding social the conditions of specific segments of the population marginalisation and reducing income inequalities (e.g. elderly, migrants)? Did it improve the affordability across different socio-economic, gender or ethnic of services? groups. Environmental Polluting emissions, biodiversity loss and depletion Did the project improve the quality of the natural effects of natural resources caused by large infrastructural environment? Did it alter wildlife habitats? Did it affect projects can affect social wellbeing of both the the ecosystem? Were there any environmental issues present and future generations. related to project implementation? Territorial The project can contribute to reducing welfare Did the project improve the territorial cohesion of the cohesion disparities caused by unequal distribution of region/country? Did it play any role in urban-rural or resources and opportunities among regions and core/periphery or cross-border dynamics? Did it expand their population. The focus, in particular, is on core- the territorial coverage of the delivery of a basic periphery and urban/rural differences. service? Institutional Investment projects can bring wide spill-over effects Did the project induce any institutional learning at learning to the quality of Public Administration and other regional administrative level? Did it raise political institutions at national, regional or local level. awareness regarding a specific theme? Did it have Institutional quality is strongly related to economic effects on the level of corruption? growth168, but it can also affect the quality of life of people, because of the intrinsic value that individuals can attribute to a well-ordered society169. Social This category encompasses all those variables which Are the project beneficiaries overall satisfied with the happiness may affect the subjective perception of people’s project’s implementation and outcomes? Did the wellbeing, and have to do with their psychology, project have any effect on the perception of quality of family context, religion and cultural traits. life? Did it affect the sense of security of the target population?

In researching all the possible long-term effects of project investments, it is acknowledged that there is a risk of duplication and double-counting: for example, a project for water treatment clearly has effects on environment, which may contribute to the development of new economic activities that foster economic growth.

164 Solow, 1956. 165 Becker, 1962. 166 Griliches, 1992 and Griffith, 2000. 167 Tomer, 1982 and Martinez, 2009. 168 See, for instance, Easterly et al., 2006. 169 Sen, 1987.

The ‘When’ dimension

The temporal dimension of analysis relates to the point in the project’s lifetime at which the effects materialise for the first time, how they develop over time and whether they have already stabilised or are still evolving. A clear distinction emerges between short-term and long-term effects, with the former being the first contributions made by the project and enjoyed by society after a relatively short time following project completion (about 1-5 years); the latter, on the other hand, become visible after a longer period of time and tend to stabilise over many years. It is acknowledged that, given the varying timeframe for different effects to appear and stabilise, the choice of the time horizon and the timeframe at which the ex-post evaluation is carried out can significantly affect the results of the evaluation.

The ‘How’ dimension

Project outcomes, i.e. the way projects affect the generation of certain effects and the varying timeframe for effects to appear and stabilise, are not certain, but result from a non- deterministic combination of different and interrelated factors. Five stylised determinants of project outcomes have been identified: appropriateness to the context, project design, forecasting capacity, project governance and managerial response. Five Working Hypotheses are related to these dimensions and explain how each of them can influence the generation of the project’s short or long-term effects (see Table I.2).

The three dimension of analysis are logically interconnected and by combining the ‘What’, ‘When’ and ‘How’ dimensions the evaluator can disentangle the causal chain between the project’s inputs and the outputs.

METHODOLOGY OF ANALYSIS The methodology developed to answer the evaluation questions consists of a combination of quantitative (Cost Benefit Analysis) and qualitative (personal interviews, surveys, searches of government and newspaper archives, etc.) techniques. Qualitative techniques are probably better at determining why certain effects are generated, along what dimensions, and underlying causes and courses of action of the delivery process. The media (including websites or blogs), in particular, have proved to be an excellent source of evidence identifying or revealing both objective information and perceptions about the project, thus concurring to assess the project’s impact on social happiness. At the same time, quantitative data can provide an important support to test and validate certain findings derived from interviews and other sources. The most important contribution of the CBA exercise is to provide a framework of analysis to identify the most crucial aspects of the projects’ ex-post performance and final outcome170.

170 More details on the approach adopted to carry out the ex-post CBA exercise and, in particular, indications on project identification, time horizon, conversion factors and other features are extensively described in the First Intermediate Report of this evaluation study.

Table I.2 KEY DETERMINANTS OF PROJECT OUTCOMES CONSIDERED Determinant Definition Working Hypothesis Questions to be answered Appropriateness Includes the Context traits can be more or less favourable for project performance Has the (political, cultural, socio-economic, institutional, regulatory) context to the context consideration of and deserve early and careful consideration about which to take or to played a role in influencing the attainment of long-term effects? institutional, cultural, make. Were there any political, social, cultural, economic, regulatory, or institutional social and economic The terminology of context traits that can be either ‘taken’ (that is, constraints to project implementation and performance? environment into accepted, as they are considered unchangeable) or ‘made’ (by changing Was the project ‘trait taking’ or ‘trait making’ in its nature? If it was intended to which the project is existing or creating new traits) is drawn from Hirschman (1967). be trait making, did it succeed? inserted. Project design Refers to the technical The technical and engineering capacity to design an infrastructure and to To what extent and in what way did the technical, structural and financial capacity to design the provide the appropriate mechanism for its financial sustainability should features of the project influence its performance? infrastructure project be sufficiently disciplined to reduce future risks; at the same time it Did the option selection process lead to the implementation of the most and to select the best should leave some degrees of ‘latitude’ to enable adjustments for promising project idea? project option. unforeseen circumstances. Was project design capacity a relevant factor in determining the observed ex- Following Hirschman, latitude is the characteristic of a project that post performance of the project? permits the project planner and operator to mould it, or to let it ‘slip’, in Was the project design flexible enough to be adjusted, if needed, to external and one direction or another. Some projects are so structured that latitude is unexpected constraints? severely restricted or completely absent: in these cases, the project is considered highly ‘disciplined’. Forecasting Relates to the A good initial investment in building the forecasting capacity does not Were the ex-ante forecasts based on a sound methodology and a comprehensive capacity feasibility and capacity eliminate risks, but it increases the knowledge of the context, improves set of information? to predict future the project design and optimises the distribution of responsibilities Were some important factors not sufficiently considered ex-ante? variables, such as the without lowering the commitment to performance. Was the forecasting capacity a relevant factor in determining the observed ex- demand level. post performance of the project? Project Concerns the number High stakeholder involvement, well-defined roles and responsibilities and What are the interests and motives of different actors and incentives for governance and type of incentive mechanisms require commitment of resources and increase the decision-making? How did they change over the time-span considered? stakeholders involved complexity of the decision-making process, which may be subject to Was the ownership of the project clearly identified? throughout the project particular pressures, but they can favour the project performance and its Did contractual arrangements improve the co-ordination of different cycle and how sustainability over time. stakeholders towards achievement-oriented results? responsibilities are attributed and shared. Was project visibility a relevant political incentive to foster proper project implementation? Was the project subject to political or other forms of pressure? Managerial Defined as the Unpredicted events that occur and undermine the sustainability of the How did the project react to exogenous, unpredictable, events? response managerial and project and its capacity to lead to expected benefits can be overcome by What remedial actions were put in place? What mechanisms were used to professional ability to prompt and adequate response from the decision-makers and project incentivise proactive responses? react to unforeseen managers, driven either by professionalism and experience or by Why were these events unexpected? Was it due to their purely exogenous and events. creativity and imagination. ex-ante unpredictable nature? Or, was it due to poor planning capacity?

STRUCTURE OF CASE STUDIES AND STANDARD TABLES OF RESULTS Qualitative and quantitative findings are integrated in a narrative way, in order to develop ten project ‘histories’ and to isolate and depict the main aspects behind their long-term performance. All case study reports share the same outline, presented in the following Table:

Table I.3 OUTLINE OF THE CASE STUDY REPORT SECTION CONTENT Projects The first section provides a brief sketch of the unit of analysis. It describes the key structural description features of the infrastructure and the service delivered, the context in which it takes place, the target population and the current performance of the project. Origin and history This section describes the background in which the decision to initiate the project was taken, the need and objectives expected be met and the key stakeholders involved and their role. The section should present a brief chronicle of the main developments after the construction phase and the most recent facts. Description of long- This section should describe the main long-term development effects provided by the term development project. The seven categories of effects should be considered and for each of them an effects assessment of the contribution of the project to that specific effect, and the timing of their materialisation and evolution, should be given. Determinants of The main drivers influencing the performance observed are described and elaborated here. project outcomes The evaluators should provide their own assessment for each of the five key determinants of project outcomes identified in the conceptual framework. Conclusions The key messages in terms of lessons learnt are developed here. Annexes Ex-post cost-benefit analysis report, list of interviewees, other ad hoc analysis if relevant (such as stakeholder mapping).

In order to maintain the structure of all the case study reports as similar as possible, and facilitate the cross-project analysis of findings, a set of standard tables is used to summarise the main evaluation results related to three dimensions of analysis (‘What’, ‘When’ and ‘How’). Section 3 and 4 of each case study include standardised tables in which scores are assigned to each type of long-term effect and each determinant. Scores ranging from -5 to +5 are given in order to intuitively highlight which are the most important effects generated for each case study and which are the most relevant determinants explaining the project outcomes. In other words, scores are used to rank the effects and determinants, showing which ones are the most relevant. Moreover, the plus or minus signs indicate the nature of the effects produced by the project (was the impact positive or negative?) and of the determinant of project performance (did the determinant positively or negatively contribute to the project outcome?).

The same scores are used to disentangle the project’s impacts on different stakeholders. This table allows one to better interpret the aggregated score given to each effect, by understanding on which actor the project impacted the most: for example, a +3 score to “Direct economic growth” may be reflected by a very high positive effect on the infrastructure operator (valued, for instance, +5) and a slightly negative effect on other actors (valued -2). As shown by this example, the aggregate score of each effect and the scores related to different stakeholders should be consistent with each other and should results from a sort of weighted average of the impacts on individual stakeholders: an aggregate positive score is inconsistent with negative impact scores on all the different stakeholders involved.

Table I.4 SCORES ON PROJECT’S IMPACT AND DETERMINANTS OF PROJECT OUTCOMES Score Meaning +5 Given the existing constraints, the highest positive effects have been generated. +4 Given the existing constraints, high positive effects have been generated, but more could have been achieved under certain conditions. +3 Moderate positive effects have been generated, with large scope for further improvement. +2 Some positive effects have been produced. +1 Very little, almost negligible, positive effects have been generated. 0 No effects have been generated. -1 Very little, almost negligible, negative effects have been generated. -2 Minor negative effects have been produced. -3 Moderate negative effects have been generated, but they could have been worse. -4 Highly negative effects have been generated. -5 The highest negative effects have been generated. Note: The same scores have been used for assessing both the project’s impacts and determinants. In the first case, they have to be interpreted as the nature and strength of effect generated by the project; in the latter, they indicate the strength of each determinant factor in influencing the project outcomes.

The ‘When’ dimensions results are synthetically presented by means of another table: for each kind of effect, a score is given to explain how the nature and strength of the impact evolved over the years, by focusing in particular, on the short-run (approximately 1-5 years after the project’s completion), the long-run (6-10 years after the project’s completion) and the future period. The Table contains information that allows the reader to immediately understand whether the project impacts have already stabilised or not. The meaning of the symbols used and an example of their application is presented in the following two Tables.

Table I.5 SYMBOLS USED TO DESCRIBE THE TEMPORAL DYNAMICS OF THE EFFECTS Symbol Meaning + or - Positive or negative effect. ++ or -- Positive or negative effects reinforced (in positive or negative direction) with respect to the previous stage. +++ or --- Positive or negative effects further reinforced (in positive or negative direction) with respect to the previous stage. +/- Mixed effect, it is not possible to assess whether the impact was positive or negative.

Table I.6 EXAMPLES OF TEMPORAL DYNAMICS OF THE EFFECTS Short run Long run Future Comments (years 1-5) (years 6- 10) years + + + The positive effect stabilised in the short-run. + ++ ++ The positive effect stabilised in the long-run. + ++ +++ The effect has grown over the years and will increase also in the future. - + ++ The effect was at first negative; after some years it turned positive and it is still not stabilised yet. +/- + ++ Effects have been mixed in the initial stage, became positive in the long- run and are expected to further increase in the future.

ANNEX II. COST-BENEFIT ANALYSIS

The present Annex illustrates the ex-post CBA of the major project “Integrated regeneration of Ría de Vigo”, undertaken to quantitatively assess the performance of the project. The methodology applied is in line with the technical note provided in the First Interim Report and, more generally, with the EC Guide (European Commission, 2008). This annex aims to present in more detail the assumptions, results of the CBA and the scenario analysis for the project.

METHODOLOGY, ASSUMPTIONS AND DATA GATHERING Ex-post CBA has been made on the following assumptions:

 Project identification

The unit of analysis is the interventions to build nine waste water treatment plants in the municipalities of Vigo (Lagares and Teis), Cangas, Redondela, Moaña, Gondomar, Nigrán and Soutomaior (Arcade and Rio Verdugo) and Vilaboa, and the installation of sewage conveyor pipes and 59 pumping stations. The project also included minor interventions to the drainage system, but they have not been considered in the analysis, because of the impossibility of separating their effects from those of the overall sewerage network. The planned upgrade of the Lagares plant is not considered in this analysis.

 Time horizon

The time horizon has been set at 30 years for all the project case studies of this evaluation. This means that the timeframe for the CBA of the project spans from 1995 (year zero), the year in which the project’s proposal has been submitted to the European Commission, to 2025. Since the point of view is today (2011), the analysis presents a mix of historical data and forecasts: data from 1995 to December 2010 are historical (corresponding to 16 years) and from January 2011 onwards (covering 14 years) estimates are applied.

 Constant price

The analysis is carried out at constant prices: data from 2012 onwards are estimated in real terms (2011 prices, no inflation), while available data up to 2011 are historical and therefore expressed in the official documents and sources of information in nominal terms: they have been reflated so as to turn them into prices at 2011 prices.

 Discount rates

Consistent with the choice of using constant prices for inflows and outflows, both the financial and social discount rates that have been used are real. The financial discount rate is 5.0% for both the backward and forward period of analysis, as suggested in the current EC Guide. In the economic analysis, specific social discount rates for Spain for

the past and the future periods have been calculated. A real backward social discount rate of 5.4% and a real forward social discount rate of 3.3% have been used (see the First Interim Report for more details how the social discount rates were estimated).

 Without-the-project scenario

All cash flows are incremental against a without-the-project scenario, consisting in the collection of waste water through the already existing sewerage system without the introduction of any waste water treatment plants (do-nothing case). In this scenario, urban waste water continues to be directly discharged into the sea without any treatment. This choice is due to the impossibility of identifying a do-minimum scenario for this project. In fact, under the current regulations, primary, secondary and advanced treatment are all necessary and these have been introduced by the project under assessment (with the exception of the Lagares plant, which still lacks advanced treatment). It should be note that this scenario ignores the possibility of EU fines being levied on Spain for non-compliance with the Urban Waste Water Directive.

 Data source

The data used were provided by Augas de Galicia, the municipality of Vigo and the companies that operate the waste water treatment plants (Aqualia S.A., Geseco S.A., Acciona S.A. and Adantia S.L.). Additionally, the opinions and information provided by the stakeholders and experts interviewed, the relevant literature and the press were taken into account.

FUTURE SCENARIO This CBA is neither an ex-ante nor a pure ex-post analysis, since the time horizon covers 16 years in the past, for which historical data are available, and 14 years in the future. Hence some hypotheses and considerations have to be made on the future trend of variables:

1. The operating costs for waste water treatment can be divided into fixed and variable costs, depending on two factors: the waste water flow treated and the concentration of pollutants;

2. Given the technological nature of the treatment plants, fixed costs outweigh variable costs;

3. The waste water flow entering the plants171 depends on three factors: the number of inhabitants served, their water consumption patterns and rainfall, since the sewerage network collects waste water and run-off waters in the same pipelines;

171 Waste water by large industries is not treated at the municipal plants.

4. The annual volume of rainfall is overall constant, while the intensity of each precipitation may vary: when rain is particularly strong, the capacity of the Lagares plant is exceeded and not all the waste water collected can be adequately treated;

5. According to data provided by the Galician Statistics Institute, between 2011 and 2025 the population of Galicia is expected to decrease cumulatively by 0.59% (see Figure I.1);

6. The water consumption pattern is assumed to remain unchanged in future years.

On the basis of these considerations, the operating costs for future years are kept constant.

Figure II.1 POPULATION GROWTH FORECAST (2011-2025)

2,900,000

2,850,000

2,800,000

2,750,000

2,700,000

2,650,000

2,600,000

Source: Authors’ elaboration based on GSI data

FINANCIAL ANALYSIS Projects investments

The main investments were made between 1995 and 2000. They include the following items:

 Planning172;

 Land;

 Building and construction;

 Plant and machinery;

 Communication;

 Contingencies.

172 This activity includes the design, planning and management of tenders.

Additional investments were made in subsequent years to upgrade the existing facilities and to install UV treatment technology in some plants. At the end of the time horizon, the residual values of land, buildings, plant and machinery are assumed to be equal respectively to 100%, 60% and 20%: the total residual value amounts to EUR 41.33 million. In total, the investment cost considered in the analysis amounted to EUR 130 million. The planned upgrade of the Lagares plant, which in fact is a completely new infrastructure that will replace the current existing Lagares plant, is not included in the analysis.

Source of financing

All the investments incurred between 1995 and 2010173 have been financed with public funds. The European Commission co-funded almost 80% (approximately EUR 117 million in real terms)174 of the investment expenditures between 1995 and 2000. Additional investments between 2001 and 2010 were financed by Augas de Galicia and the municipality of Vigo. When the total investment costs are considered, the share of the EU contribution reduces to 69%. In parallel, the Government de Galicia and the Municipality of Vigo contributed 29% and 2% of the total investment costs respectively.

173 All the investments have been valued at 2011 prices. 174 The Cohesion Fund co-financing rate was 80% but almost EUR 2 million were deducted because of some irregularities in the tender implementation.

Table II.1 PROJECT INVESTMENTS (EUR THOUSAND, 2011 PRICES) Project Year TOT 0 1 2 3 4 5 6 7 8 9 Calendar Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Planning 1,159 251 405 257 114 133 0 0 0 0 0 Land 7,655 0 0 0 0 0 0 7,655 0 0 0 Building and construction 84,035 1,982 10,723 15,680 19,545 17,117 18,988 0 0 0 0 Plant and machinery 69,109 312 6,333 14,981 17,172 12,995 5,292 0 0 0 0 Start-up costs 1,268 0 184 183 171 253 478 0 0 0 0 Contingency 8,298 0 0 0 2,320 4,032 1,946 0 0 0 0 Total residual value -41,331 Total investement 130,193 2,545 17,644 31,100 39,321 34,529 26,705 7,655 0 0 0

Project Year TOT 10 11 12 13 14 15 16 17 18 19 Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Planning 1,159 0 0 0 0 0 0 0 0 0 0 Land 7,655 0 0 0 0 0 0 0 0 0 0 Building and construction 84,035 0 0 0 0 0 0 0 0 0 0 Plant and machinery 69,109 4,029 1,186 3,009 2,678 1,064 59 0 0 0 0 Start-up costs 1,268 0 0 0 0 0 0 0 0 0 0 Contingency 8,298 0 0 0 0 0 0 0 0 0 0 Total residual value -41,331 Total investement 130,193 4,029 1,186 3,009 2,678 1,064 59 0 0 0 0

Project Year TOT 20 21 22 23 24 25 26 27 28 29 30 Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Planning 1,159 0 0 0 0 0 0 0 0 0 0 0 Land 7,655 0 0 0 0 0 0 0 0 0 0 0 Building and construction 84,035 0 0 0 0 0 0 0 0 0 0 0 Plant and machinery 69,109 0 0 0 0 0 0 0 0 0 0 0 Start-up costs 1,268 0 0 0 0 0 0 0 0 0 0 0 Contingency 8,298 0 0 0 0 0 0 0 0 0 0 0 Total residual value -41,331 -41,331 Total investement 130,193 0 0 0 0 0 0 0 0 0 0 -41,331

Table II.2 SOURCE OF FINANCING (EUR THOUSAND, 2011 PRICES) Project Year TOT 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Calendar Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 European Commission 117,618 0 11,248 27,143 26,643 27,926 24,658 0 0 0 0 0 0 0 0 0 0 Government of Galicia 50,248 2,545 6,396 3,957 12,678 6,603 2,047 3,996 0 0 0 4,029 1,186 3,009 2,678 1,064 59 Municipality of Vigo 3,659 0 0 0 0 0 0 3,659 0 0 0 0 0 0 0 0 0 Total financial resources 171,524 2,545 17,644 31,100 39,321 34,529 26,705 7,655 0 0 0 4,029 1,186 3,009 2,678 1,064 59

Operating cost and revenues

The major project is composed of a number of sub-projects which began their operational phases at different times. The Lagares plant was the first one to be completed and it became operational in 1998. On the basis of the agreements for the management of the service, tariffs are set to be equal to operating costs plus the industrial benefit and any interest on the reimbursement of investments made by the private operating company. Revenues are collected by the operating companies on behalf of municipalities through a municipal tariff, or by Augas de Galicia in the municipalities where it is responsible for running the treatment facilities. In the latter case, no municipal tariff is collected: costs are covered by the regional sanitation fee charged by Augas de Galicia, which is used to finance all the actions and initiatives undertaken by Augas de Galicia throughout the region. Hence, the revenues cover the following items:

 Variable operational costs;

 Overheads and industrial benefits.

It was not possible to distinguish the operational cost data of the treatment process from those of the sewerage network, but the total costs are available. The operational costs of treatment were derived by applying a standard ratio of 0.7 to the total costs: this ratio was obtained as an average standard value available in the literature175. Costs from 1998 to 2010 are historical data, while those from 2011 onwards are estimates based on the future scenario.

175 Comitato di sorveglianza sull’uso delle risorse idriche (2001) and Osservatorio prezzi Emilia Romagna (2010).

Table II.3 OPERATING COST AND REVENUES (EUR THOUSAND, 2011 PRICES) Project Year TOT 0 1 2 3 4 5 6 7 8 9 Calendar Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Variable operating costs 191,475 0 0 0 3,729 5,193 5,095 6,542 6,712 6,862 7,009 Hoverheads 0 0 0 315 571 560 719 738 755 771 Total operating cost 212,582 0 4,043 5,763 5,655 7,262 7,449 7,616 7,779 Operating Revenues 212,582 0 0 0 4,043 5,763 5,655 7,262 7,449 7,616 7,779 Total operating revenues 212,582 0 4,043 5,763 5,655 7,262 7,449 7,616 7,779 Net operating revenue 0 0 0 0 0 0 0 0 0

Project Year TOT 10 11 12 13 14 15 16 17 18 19 Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Variable operating costs 191,475 7,876 8,407 8,595 7,081 6,905 7,100 6,958 6,958 6,958 6,958 Hoverheads 903 987 1,017 840 818 819 753 753 753 753 Total operating cost 212,582 8,780 9,394 9,612 7,921 7,723 7,919 7,711 7,711 7,711 7,711 Operating Revenues 212,582 8,780 9,394 9,612 7,921 7,723 7,919 7,711 7,711 7,711 7,711 Total operating revenues 212,582 8,780 9,394 9,612 7,921 7,723 7,919 7,711 7,711 7,711 7,711 Net operating revenue 0 0 0 0 0 0 0 0 0 0 0

Project Year TOT 20 21 22 23 24 25 26 27 28 29 30 Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Variable operating costs 191,475 6,958 6,958 6,958 6,958 6,958 6,958 6,958 6,958 6,958 6,958 6,958 Hoverheads 753 753 753 753 753 753 753 753 753 753 753 Total operating cost 212,582 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 Operating Revenues 212,582 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 Total operating revenues 212,582 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 7,711 Net operating revenue 0 0 0 0 0 0 0 0 0 0 0 0

RETURN ON INVESTMENT AND NATIONAL CAPITAL Using the cost-benefit methodology, the Financial Net Present Value and the Financial Rate of Return of the investment – FNPV(C) and FRR(C) – have been calculated and they amount to EUR -292.14 million and -5.33%. These results confirms that, on a purely financial basis, the project as an investment would not have been viable, and required subvention. With EU grant aid, it generates a financial return on national capital of EUR 20.88 million.

ECONOMIC ANALYSIS Externalities considered and methodology applied for their quantification

The methodology adopted to estimate the benefits generated by the project is based on the Pearce, Mourato and Atkinson’s approach (2004) for the evaluation of environmental projects (see the following box). A similar approach is also proposed by WATECO in the Guidance Document No 1, edited under the Common Implementation Strategy of the Water Framework Directive (2000/60/EC).

Box II.1 TOTAL ECONOMIC VALUE The total economic value of the project is represented by the net sum of any variation of wellbeing due to the project, both in positive and negative terms. The total economic value is usually divided into use and non-use values. Use values relate to the actual use of the good in question, planned used or possible use. Actual and planned uses are fairly obvious concepts, but possible use could also be important since people may be willing to pay to maintain a certain good in existence in order to preserve the option of using it in future. Non-use values refer to the willingness to pay to maintain some good in existence even though there is not actual, planned or possible use. Non-use values can be classified in:  existence value: they refer to the WTP to keep a good in existence when there is no actual or planned use for anyone;  altruistic value: it may arise when the individual is concerned that the good should be available to others in the current generation;  bequest value: similar to the altruistic value but it concerns future generations (as a famous Native American proverb says: "We have not inherited the Earth from our ancestors, we borrow it from our children"). Source: Pearce et al., 2004

The identified positive effects relating to the use of the water basin of the Ría de Vigo are:

1. Improvements in tourism. The improvement in water quality of the Ría de Vigo achieved through the project made a positive contribution to tourism activities in the area, as testified by the interviewees. Thanks to the opening of new bathing beaches and to the improved water quality, the economic activities related to the use of beaches are likely to have experienced a positive effect. The economic value of this benefit, however, cannot be valued because of the lack of disaggregated data on the turnover recorded by these activities over the years.

2. The positive effect of the increased wellbeing for living in Ría de Vigo. This has been evaluated using the willingness to pay (WTP) of the beneficiaries, calculated using the Benefit Transfer method. This is the practice of adapting economic values estimating the benefit for the provision of a certain service or infrastructure, which are available in the literature, to evaluate other similar services or infrastructures for which an economic value is not available. The results obtained in one context are transferred to another one where the value of the same benefits has to be estimated.

The reference studies to estimate the WTP for the waste water treatment of Ría de Vigo were selected from a database of 40 cases176. Two criteria were considered: the type of project and the socio-economic context of the country. Only waste water treatment projects which were effective in improving the quality of the water basin and in which the sewerage system was already in place, as in the municipalities of Ría de Vigo, were selected. In this way, the WTP related only to waste water treatment is considered, without considering the benefit (on the environment and human health) deriving from the construction of the sewerage system.

As an approximation of the socio-economic context of the country we used the Human Development Index calculated by United Nations Development Programme. The selected projects are in countries which belong to the first 94 countries in the ranking of the Human Development Index (corresponding to countries with “very high” and “high” human development).

A sample of 30 study cases has been obtained, for which the WTP for the improvement of the water basin was evaluated by means of interviews of the direct beneficiaries. Having excluded the highest and lowest values, the WTP for the Ría de Vigo project was calculated as a weighted average of the WTPs of the reference cases, with weights being the per capita GDP of each country: this amounts to EUR 88.11 per household (2011 prices).

The total benefit has been calculated by multiplying this value by the equivalent number of households which benefit from the project (234,284 households for a population in the Ría’s municipalities of 619,555). The WTP already incorporates the operating revenues actually paid by the users, which are not included in the economic analysis. It has also to be stressed that the WTP reflects also the increase of the number of bathing beaches, which are free for public use.

For further details on the calculation of the WTP see the following Box.

176 US Environmental Protection Agency (2000a, 2000b, 2000c), Barton (2003) and Källstrøm (2010).

Box II.2 INCOME ELASTICITY OF WTP The formula used for adjusted transfer (retrieved from Pearce et al., 2006) is the following: e WTPP= WTPS (YP/YS) where Y is income per capita, P indicates the policy site for which the WTP has to be estimated, S indicated the study site from which the WTP value is transferred, and e is the income elasticity of WTP. This latter term is an estimate of how the WTP for the good in question varied with changes in income. In our analysis, e has been assumed equal to 1, meaning that the ratio of WTP at sites S and P is equivalent to the ratio of per capita incomes at the two sites. Following Pearce (2003) who suggests that the value of income elasticity of WTP may be lower than 1, a sensitivity test on e has been carried out, by letting it vary between 0.4 and 1.30.

93.00

92.00

91.00

90.00

WTP estimated WTP 89.00 WTP base case 88.00 e base case

87.00

86.00 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 1.20 1.30 Elasticity

The test shows that the WTP’s trend is not linear as respect to income elasticity, but it has a parabola- shape. The minimum WTP is EUR 87.61, corresponding to an elasticity of approximately 0.85. It can also be pointed out that the WTP selected (EUR 88.11), assuming an income elasticity of 1, would not change if an elasticity of 0.70 had been assumed. Source: Authors

From market to accounting price

In the economic analysis all input data are converted from financial to shadow prices, in order to reflect their opportunity cost. The conversion factors defined in the First Interim Report have been applied to the investment and operating costs. The specific shadow wage of Galicia, estimated by Del Bo et al. (2011177) and amounting to 0.85 has been used.

Economic performance

The economic performance of the project – economic Net Present Value (NPV) and economic Internal Rate of Return (IRR) – has been calculated by applying a 5.4% real discount factor for the period 1997-2011 and 3.3% for the years 2012-2027.

The economic NPV has been calculated in EUR 46.81 million and the IRR in 5.86%.

177 Del Bo et al., 2011.

Figure II.2 RESULTS OF THE ECONOMIC ANALYSIS (EUR THOUSAND, 2011 PRICES) Project Year Conversion factor 0 1 2 3 4 5 6 7 8 9 Calendar Year 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Improvement of wellbeing 20,644 20,644 20,644 20,644 Total external benefits 0 0 0 0 20,644 20,644 20,644 20,644 Total operating costs 0.85 0 0 0 3,437 4,899 4,807 6,172 6,332 6,474 6,613 Planning 0.997 250 404 256 113 132 0 0 0 0 0 Land 1.3 0 0 0 0 0 0 9,951 0 0 0 Buildings and costruciones 0.9 1,784 9,651 14,112 17,591 15,405 17,089 0 0 0 0 Plant and machinery 0.997 311 6,314 14,936 17,121 12,956 5,277 0 0 0 0 Start-up costs 1 0 184 183 171 253 478 0 0 0 0 Contingency 1 0 0 0 2,320 4,032 1,946 0 0 0 0 Total residual value 1.169 0 0 0 0 0 0 0 0 0 0 Total investment cost 2,345 16,552 29,487 37,315 32,778 24,790 9,951 0 0 0 Total outflows 2,345 16,552 29,487 40,752 37,677 29,597 16,123 6,332 6,474 6,613 Net cash flow -2,345 -16,552 -29,487 -40,752 -37,677 -29,597 4,520 14,312 14,170 14,031 Discounted net cash flow -5,440 -36,429 -61,574 -80,737 -70,821 -52,783 7,648 22,975 21,582 20,276

Project Year Conversion factor 10 11 12 13 14 15 16 17 18 19 Calendar Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Improvement of wellbeing 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 Total external benefits 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 Total operating costs 0.85 7,463 7,985 8,170 6,733 6,565 6,731 6,554 6,554 6,554 6,554 Planning 0.997 0 0 0 0 0 0 0 0 0 0 Land 1.3 0 0 0 0 0 0 0 0 0 0 Buildings and costruciones 0.9 0 0 0 0 0 0 0 0 0 0 Plant and machinery 0.997 4,017 1,182 3,000 2,670 1,061 59 0 0 0 0 Start-up costs 1 0 0 0 0 0 0 0 0 0 0 Contingency 1 0 0 0 0 0 0 0 0 0 0 Total residual value 1.169 0 0 0 0 0 0 0 0 0 0 Total investment cost 4,017 1,182 3,000 2,670 1,061 59 0 0 0 0 Total outflows 11,480 9,168 11,170 9,403 7,625 6,790 6,554 6,554 6,554 6,554 Net cash flow 9,164 11,476 9,474 11,241 13,018 13,854 14,089 14,089 14,089 14,089 Discounted net cash flow 12,564 14,928 11,692 13,162 14,462 14,602 14,089 13,639 13,203 12,782

Project Year Conversion factor 20 21 22 23 24 25 26 27 28 29 30 Calendar Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Improvement of wellbeing 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 Total external benefits 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 20,644 Total operating costs 0.85 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 Planning 0.997 0 0 0 0 0 0 0 0 0 0 0 Land 1.3 0 0 0 0 0 0 0 0 0 0 0 Buildings and costruciones 0.9 0 0 0 0 0 0 0 0 0 0 0 Plant and machinery 0.997 0 0 0 0 0 0 0 0 0 0 0 Start-up costs 1 0 0 0 0 0 0 0 0 0 0 0 Contingency 1 0 0 0 0 0 0 0 0 0 0 0 Total residual value 1.169 0 0 0 0 0 0 0 0 0 0 -48,316 Total investment cost 0 0 0 0 0 0 0 0 0 0 -48,316 Total outflows 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 6,554 -41,762 Net cash flow 14,089 14,089 14,089 14,089 14,089 14,089 14,089 14,089 14,089 14,089 62,405 Discounted net cash flow 12,373 11,978 11,595 11,225 10,866 10,519 10,183 9,858 9,543 9,238 39,611

SCENARIO ANALYSIS A simplified sensitivity analysis has been undertaken on key variables, in order to observe the extent to which certain variations of these variables affect the economic performance indicators. The authors tested the project sensitivity of a number of variables, for which the future forecasts are considered the most critical. The variables that are made vary in the scenario analysis and the ranges of variation are the following:

 The willingness to pay for the service: in the base case of the CBA a WTP of EUR 88.11 per year has been used, calculated as described above. This variable is made vary by - 10%, and +10%178.

 The operating costs: taking into account that in the 2015 the contract for the management of the Lagares plant (the biggest among those built) will be reassigned through a public auction, the operating costs could change. In the CBA this variable is made vary by -10% and +10%.

The results that are generated when each variable varies and all the others are kept constant are summarised in the table below.

Table II.4 VARIATION OF SELECTED INDICATORS Variable Base assumption in Hypothesis ENPV ERR the CBA (EUR thousand): (%): base case EUR 46,811 th. base case 5.86% WTP EUR 88.11 per year -10% -5,987 4.64% per household +10% 99,609 7.01%

Total EUR 165.67 million -10% 64,527 6.26% operating costs +10% 29,096 5.46%

The sensitivity analysis shows that the CBA results are particularly sensitive to the WTP value. Actually, the project is no longer desirable from a social viewpoint for a WTP that is at least 7% lower than the value used in the reference case.

The scenario analysis can be implemented by constructing two paths concerning future variable trends: an optimistic and a pessimistic scenario, where all the optimistic and pessimistic hypotheses made in the sensitivity analysis are respectively considered.

The hypotheses of the two scenarios are presented in the following table:

178 This range of variation captures also the uncertainty on the value of the income elasticity of WTP.

Table II.5 HYPOTHESES FOR THE SCENARIO ANALYSIS Optimistic scenario Pessimistic scenario The WTP increases by 10% The WTP decreases by 10% The annual (and total) operating costs decrease by The annual (and total) operating costs increase by 10% 10%

The results of the scenario analysis show that the positive economic performance indicators are robust to the variation of the most significant variables:

i. In the pessimistic scenario, the ENPV would be EUR -23.7 million, with an economic rate of return of 4.22%.

ii. In an optimistic scenario, the ENPV would be EUR 117.3 million with an economic rate of return of 7.40%.

In addition to the sensitivity and scenario analysis, the authors aim to test also the elasticity of results to the social discount rate used in the analysis, as a sort of test of the methodology. The social discount rate was estimated at 5.4% for the backward period and 3.3% for the forward period: however, the social opportunity cost of capital, i.e. the return that can be generated on the marginal project in the private sector179, is equivalent to a 5% real rate, as recommended by the EC Guide. When this rate of return is used in both the past and future periods, the economic NPV decreases but remains positive, amounting to EUR 35.52 million.

RISK ANALYSIS The risk assessment has been conducted on the two variables on which the sensitivity analysis has been performed: WTP and operating costs. For sake of simplicity, it was assumed that the probability distribution of each of these variables is triangular, with the value with the highest probability being the reference one – that is, the “base value” adopted for carrying out the CBA – and the lower and upper bounds being the “pessimistic” and “optimistic” values defined in the scenario analysis.

The analysis has been elaborated through an experimental Monte Carlo simulation with 1,000 random repetitions. In a nutshell, at each iteration it is randomly extracted a value from the distribution of each of the independent variables. The two extracted values are adopted for computing the ENVP and ERR, and the output results are then stored. Finally, the Monte Carlo numerical algorithm is exploited in order to approximate the probability distribution of the two outputs.

The risk analysis procedure shows that the expected value of the ENPV is equal to EUR 46.64 million (slightly lower than the reference case), and that the expected value of the ERR is 5.85% (against a reference case of 5.86%). There is a minor probability, amounting to 1.6%,

179 In a closed economy with perfect information, no distortions and no externalities the social discount rate and the social opportunity cost of capital are equivalent.

that the ENVP is smaller than 0 and the probability that the ERR is smaller than 3.3% (the reference discount rate). In any case, the CBA outputs appear to be robust to future possible variations in the key variables. These results indicate that the residual risk of the project over the remaining years of the time horizon is quite low.

Table II.6 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND, 2011 PRICES) Reference value of the ENPV 46,811 Mean 46,641.811 Median 46,722.862 Standard deviation 22,577.618 Minimum value -19,996.908 Central value 41,417.454 Maximum value 102,831.815 Probability of the ENPV being not higher than the reference value 0.502 Probability of the ENPV being higher than the reference value 0.498 Probability of the ENPV being lower than zero < 0.016 Source: Authors

Figure II.3 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND, 2011 PRICES)

Punctual probability Cumulated probability Reference value Minimum Central Maximum Mean SD low SD upp Median

1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 -20,000 0 20,000 40,000 60,000 80,000 100,000 ENPV Source: Authors

Figure II.4 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC NET PRESENT VALUE (EUR THOUSAND, 2011 PRICES) 0.12

0.10

0.08

0.06

0.04

0.02

0.00

1,498.12 7,639.55

4,643.32

13,780.99 26,063.86 38,346.74 50,629.61 56,771.04 62,912.48 69,053.92 75,195.35 81,336.79 87,478.22 93,619.66 19,922.43 32,205.30 44,488.17 99,761.10

16,926.19 10,784.75

- - ENPV Source: Authors

Table II.7 RESULTS OF THE RISK ANALYSIS ON THE ECONOMIC INTERNAL RATE OF RETURN Reference value of the ERR 5.86% Mean 5.85% Median 5.86% Standard deviation 0.51% Minimum value 4.31% Central value 5.70% Maximum value 7.09% Probability of the ERR being not higher than the reference value 0.500 Probability of the ERR being higher than the reference value 0.500 Probability of the ERR being lower than the reference discount rate (3.3 %) < 0.000 Source: Authors

Figure II.5 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF (EUR THOUSAND, 2011 PRICES)

Punctual probability Cumulated probability Reference value Minimum Central Maximum Mean SD low SD upp Median 1.00 0.90 0.80 0.70 0.60 0.50 0.40 0.30 0.20 0.10 0.00 4.3% 4.8% 5.3% 5.8% 6.3% 6.8% ERR Source: Authors

Figure II.6 PROBABILISTIC DISTRIBUTION OF THE ECONOMIC INTERNAL RATE OF RETURN (EUR THOUSAND, 2011 PRICES)

0.12

0.10

0.08

0.06

0.04

0.02

0.00

4.5% 4.7% 4.8% 5.1% 5.2% 5.3% 5.5% 5.6% 5.8% 5.9% 6.0% 6.2% 6.3% 6.5% 6.6% 6.7% 6.9% 7.0% 4.4% 4.9% ERR

Source: Authors

ANNEX III. MAP OF STAKEHOLDERS

Actor Role Level Interest in the project European Commission  Co-financing of 80% of total investment costs. European High:  Appraisal of the application. Complian  In 2005 the EU Justice Court condemned Vigo for ce with non-compliance with the EC Shellfish Waters the EU Directive. A sanction of EUR 20 million was legislatio imposed on Spain. n  AcuaNorte applied for EU Funds (O.P. Cohesiόn- FEDER 2007-13) to co-finance the new project “Saneamiento de Vigo”. Spanish Ministry of Economy -  Body responsible for the application for EU Funds National Low General Director of Planning, in February 1995. (Direcciόn General de Planificaciόn) Government of Galicia - General  Responsibility for supervising and approving the Regional Medium Directory of Public Works – investment projects, and for its implementation Department of Territorial (for example by releasing the necessary Policies, Public works and authorisations). Housing, now the Department of Environment, Land and Infrastructure Government of Galicia - Augas  Agency of the Water Administration of Galicia Regional Very high de Galicia (regulated by law 8/1993), within the Department of Environment, Land and Infrastructures of the Board of Galicia.  It is regulated by Law No.3/2002 of 29 April 2002 and its main functions derive from Act 8/1993. They include: the development of the water plan, the control of public water, the design, construction and operation of waterworks, the approval of the works , any other functions assigned by the Minister of the Board. Government of Galicia – Health  Department of the Government of Galicia in charge Regional Low Department (Consellería do of control of pollution related to water quality of Sanidade) beaches, so as to prevent any damage to human health. Government of Galicia – Rural  Department of the Government of Galicia in charge Regional Low and Sea Department of control of water pollution. (Consellería do Medio rural y do mar) Aqualia  Spanish company operating water services in Local High different municipalities of Ría de Vigo: Vigo, Redondela, Moaña, Nigrán and Cangas.  Aqualia’s staff in Vigo amounts to about 223 people. Geseco, Adantia, Acciona and  Other companies (besides Aqualia) which received Local High Fergo concessions for the management and maintenance of the waste water treatment system in different municipalities facing onto Ria de Vigo. AcuaNorte – Sociedad Estatal  AcuaNorte is under the control ofthe Ministry of National Medium Aguas de las Cuencas del Norte Environment. Its function is to ensure effective

S.A. investment and management of public works in the water sector. It is responsible for designing the new project ‘Saneamento de Vigo’ and building the infrastructure.  The maximum amount of financing allocated by AcuaNorte is EUR 112 million (65% of eligible costs). It is expected that the works will be co- financed by the European Commission. Port Authority of Vigo  Collaboration agreement with Augas de Galicia to Local Medium carry out daily monitoring and control of water quality in the port area.  Implementation of relevant works to connect the port sewage network to the city’s (involving an investment of approximately EUR 2,050,000). FAVEC Federation of the  Representative body of the Vigo inhabitants, Local High Associations of Vigo whose mission is to contribute to improving the Neighbourhoods ‘Edoardo Chao’ quality of life in Vigo. It is composed of 36 (Federación de Asociacións de associations involved in different activities and Veciños de Vigo) sectors: participatory democracy, social justice, protection of environment, artistic and cultural heritage, etc.  FAVEC has reported the illegal dumping of industrial sewage, as well as identifying the guilty companies.

ANNEX IV. GLOSSARY

In this Annex the definitions of a number of terms related to the waste water management field and mentioned in the case study are detailed for sake of clarity.

TERM DEFINITION Agglomerations Area where the population and/or economic activities are sufficiently concentrated for urban waste water to be collected and conducted to an urban waste water treatment plant or to a final discharge point. Appropriate treatment Treatment of urban waste water by any process and/or disposal system which after discharge allows the receiving waters to meet the relevant quality objectives and the relevant provisions of this and other Community Directives. BOD5 Five-days Biochemical Oxygen Demand, expressed in milligrams per litre (mg/l). It is the amount of dissolved oxygen consumed in five days by bacteria that perform

biological degradation of organic matter. Coastal waters Surface water on the landward side of a line, every point of which is at a distance of one nautical mile on the seaward side from the nearest point to the baseline from which the breadth of territorial waters is measured, extending where appropriate up to the outer limit of transitional waters. COD Chemical Oxygen Demand, expressed in milligrams per litre (mg/l), indicates the mass of oxygen consumed per litre of solution. It is commonly used to indirectly measure the amount of organic compounds in water. Most applications of COD determine the amount of organic pollutants found in wastewater or surface water (e.g. lakes and

rivers), making COD a useful measure of water quality. Conveyor Pump Device used to move fluids through physical or mechanical action. Collecting system A system of conduits which collects and conducts urban waste water. Conveyor pipe A pipe for transporting water. Domestic waste waters Waste water from residential settlements and services which originates predominantly from the human metabolism and from household activities. Emission limit values The mass, expressed in terms of certain specific parameters, concentration and/or level of an emission, which may not be exceeded during any one or more periods of time. Environmental cost It represents the cost of damage that water uses impose on the environment and ecosystems and those who use the environment. Estuary The transitional area at the mouth of a river between fresh-water and coastal waters. Eutrophication The enrichment of water by nutrients, especially compounds of nitrogen and/or phosphorus, causing an accelerated growth of algae and higher forms of plant life to produce an undesirable disturbance to the balance of organisms present in the water and to the quality of the water concerned. Imhoff tank It is a chamber suitable for the reception and processing of sewage. It may be used for the clarification of sewage by simple settling and sedimentation, along with anaerobic digestion of the extracted sludge. The Imhoff tank is in effect a two-storey septic tank (see below) and retains the septic tank's simplicity while eliminating many of its drawbacks, which largely result from the mixing of fresh sewage and septic sludge in the same chamber. Industrial waste waters Any waste water which is discharged from premises used for carrying on any trade or industry, other than domestic waste water and run-off rain water. Less sensitive areas Marine water bodies or areas where the discharge of waste water does not adversely affect the environment as a result of morphology, hydrology or specific hydraulic conditions which exist in the area. When identifying less sensitive areas, Member States shall take into account the risk that the discharged load may be transferred to adjacent areas where it can cause detrimental environmental effects. Member States shall recognise the presence of sensitive areas outside their national jurisdiction. The following elements shall be taken into consideration when identifying less sensitive areas: open bays, estuaries and coastal waters with a good water exchange and not subject to eutrophication or oxygen depletion or which are considered unlikely to become eutrophic or to develop oxygen depletion due to the discharge of urban

waste water. Pollution The direct or indirect introduction, as a result of human activity, of substances or heat into the air, water or land which may be harmful to human health or the quality of the aquatic ecosystems or terrestrial ecosystems directly depending on aquatic ecosystems. Population equivalent The organic biodegradable load having a five-day biochemical oxygen demand (BOD5) of 60 g of oxygen per day. Primary treatment Treatment of urban waste water by a physical and/or chemical process involving settlement of suspended solids, or other processes by which the BOD5 of the incoming waste water is reduced by at least 20% before discharge and the total suspended solids of the incoming waste water are reduced by at least 50%. Raw sewage Untreated wastewater. River basin The area of land from which all surface run-off flows through a sequence of streams, rivers and, possibly, lakes into the sea at a single river mouth. Secondary treatment Treatment of urban waste water by a process generally involving biological treatment with a secondary settlement or other process in which the requirements established in Table 1 of Annex I of the directive 91/271/EC are met. Sedimentation Physical water treatment process used to settle out suspended solids in water through gravity. Sensitive areas Sensitive areas, within the meaning of the directive 91/271/EC, include:  freshwater bodies, estuaries and coastal waters which are eutrophic or which may become eutrophic if protective action is not taken;  surface freshwaters intended for the abstraction of drinking water which contain or are likely to contain more than 50 mg/l of nitrates;  areas where further treatment is necessary to comply with other Directives, such as the Directives on fish waters, on bathing waters, on shellfish waters, on the conservation of wild birds and natural habitats, etc. Sewerage Infrastructure that conveys sewage. It encompasses receiving drains, manholes, pumping stations, storm overflows, screening chambers, etc. of the sanitary sewer. Sewerage ends at the entrance to a sewage treatment plant or at the point of discharge into the environment. Tertiary treatment Advanced treatment of urban waste water employed when specific wastewater constituents which cannot be removed by secondary treatment must be removed. Sludge Residual sludge, whether treated or untreated, from urban waste water treatment plants. Urban waste water Domestic waste water or the mixture of domestic waste water with industrial waste water and/or run-off rain water. Septic tank Key component of the septic system, a small-scale sewage treatment system common in areas with no connection to main sewage pipes provided by local governments or private corporations. The term "septic" refers to the anaerobic bacterial environment that develops in the tank and that decomposes or mineralises the waste discharged into the tank. Sludge digestion A biological process in which organic solids are decomposed into stable substances. Digestion reduces the total mass of solids, destroys pathogens, and makes it easier to dewater or dry. Water services All services which provide, for households, public institutions or any economic activity, abstraction, impoundment, storage, treatment and distribution of surface water or groundwater; waste water collection and treatment facilities which subsequently discharge into surface water. Waste water treatment An installation used for purifying waste water from urban settlements and possibly plant production plants (mixed systems), that can be mixed with the rain water and the water from the cleaning of road surfaces. Biological treatment The idea behind all biological methods of wastewater treatment is to introduce contact with bacteria (cells), which feed on the organic materials in the wastewater, thereby reducing its BOD content. Chemical-physical Chemical Physical treatment generally includes the dosing of suitable chemicals to treatment react with the water impurities to form an insoluble precipitate. This precipitate containing the impurity is then generally removed by sedimentation and filtration. Source: Authors

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ANNEX V. LIST OF INTERVIEWEES

Interviews and correspondence were undertaken with the following individuals. We would like to thank them for their assistance in compiling our report.

Interviewee Affiliation Position Date and place Ms. Ma Carmen Hernández Ministry of Economics - General sub-director of 7 November Martín General Directory of Cohesion Fund and European 2011, Madrid Communitarian Funds Territorial Cooperation María Gorriti Gutiérrez- Ministry of Economics - Adjunct deputy director for 7 November Cortines General Directory of Territorial programming and 2011, Madrid Communitarian Funds evaluation of Community programmes Francisco Alonso Fernández Augas de Galicia Chief of the territorial service 10 November in the South of Galicia 2011, Vigo José María Ardoy Carrillo Aqualia Director U.T.E. Vigo 10 -11 November 2011, Vigo Miguel Ángel Rodríguez AcuaNorte Economic and administrative 10 November Fernández director 2011, Vigo Rafael Díaz Martínez AcuaNorte Sub-director of projects and 10 November works of water rehabilitation 2011, Vigo Alvaro Crespo Municipality of Vigo Director 'Area Fomento' 11 November 2011, Vigo Serxio Regueira Gómez Cíes Platform for the defence President 11 November of Ría de Vigo 2011, Vigo Andrea Leira FAVEC Federation of Administrative director 11 November Association of Vigo Residents 2011, Vigo Carlos Gabin Sanchez Government of Galicia – Officer at the Sea Department 16 February General Directorate of Marine - Fishing production 2012, telephonic Resources interview Enrico Marconato Aquaprogram Biologist 22 February 2012, telephonic interview Laia Pinós-Mataró European Commission - Unit G.1 – Galicia / Illes 13 March 2012, Directorate-General Regional Balears/ Coordination telephonic Policy Transports sector Spain interview

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ANNEX VI. REFERENCES

List of cited references

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Augas de Galicia, Informe EDAR de Soutomaior.

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Vigo Port Authority: http://www.apvigo.com

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