Charging for Water Use -- A Brazilian Case Study

This paper develops a methodology for charging for water use through simulating investment scenarios to improve the quantity and quality of water resources. The case study involves the Paraopeba river basin in the Brazilian state of Minas Gerais, which includes 48 cities and covers an area of 13,300 km². The basin is home to some 900,000 individuals and besides the drinking supply, the most important water uses are agriculture and mining The study first considers physical, hydrological, social, and economic aspects by inventorying the current and potential uses and users of water resources. Then, a water budget is developed regarding supply and demand for use and/or sewage dilution for current and year-2006 scenarios. Facilities and equipment are proposed to improve water quality and to optimize water resource allocation in the basin, the costs of which are also evaluated. The model considers water quality goals according to users' capacity to pay. The use of economic instruments is based on the recognition that water is an economic good and hence must be linked to its actual monetary value.