9 26. By the end of 1995, the National Water Commission had processed water rights applications accounting for about 85 percent of volumetric water rights. During 1995, there was widespread leasing and selling of both surface and ground water rights in Mexico's waterscarce regions. Even prior to 1994, water trades were common. However, they were limited largely to informal sales of water for a year or season, typically between neighbors. Since such trades were illegal, albeit tolerated by public authorities, permanent sales of water rights were rare and little consideration was given to third-party water rights being affected by such trades. The new law has facilitated such leasing and allowed permanent sales of water rights with better protection for aquifer recharge and third party rights. Most of the recent water sales would either not have been undertaken under the previous regime, thereby inhibiting private investment, or would have occurred surreptitiously, thereby depleting aquifers. The bulk of recent water trades involve farmers selling to industrial users, water companies or more efficient farmers, thereby encouraging investment in more productive activities. It has also allowed unprofitable farmers to reduce their farming debts and to work as laborers on more efficient farms or to seek alternative employment.

27. _Peru._ The motivation for Peru's water reform came with the realization that existing water legislation and policies, which had caused serious problems, were poorly suited for a future of tighter fiscal constraints and weakened public institutions. By 1992, following several years of virtually no public spending for maintenance or rehabilitation of public irrigation structures, many irrigation systems faced a high risk of failure. Water delivery became more irregular, quality deteriorated and water conflicts grew. There was also widespread water theft. Even in areas where water was scarce, it continued to be used wastefully. Thus, while water was rationed in Lima, the water company incurred high water losses, and farmers just outside Lima continued to grow low-value, water-intensive crops. In addition, the threat of having the State expropriate water rights for higher priority uses discouraged many worthwhile investments that required assured supplies of water.

28. To address these problems, the Ministry of Agriculture proposed a new water law modeled along the lines of the 1981 Chilean water code. Under the proposed Peruvian law, existing water users are to be given rights to water _without charge._ Rights to _new or unallocated_ surface water are to be distributed via _public auction._ The rights may be traded at freely negotiated prices provided that the trade would not reduce water availability to others and that there is enough water to maintain a minimnum ecological flow and to maintain the accustomed quality of life in cities and towns. Rights may also be mortgaged or leased. The law prohibits altering water quality to the detriment of flora or fauna; however, rather than proposing specific sanctions and fines, it defers to the Environmental Code and Environmental Authority to set and enforce water quality standards. (World Bank 1995.) 29. Under the draft law, water rights are to be acquired by being recorded in a public Water Rights Registry, specifying, _inter alia,_ the flow or volume (which may be specified in terms of percentage of stream flow or in shifts); the point at which the water will be diverted; whether it is for consumptive or non-consumptive use and whether it is for permanent or temporary use; the point and form in which the water will be returned to the