Price Setting for Water Use Charges in Brazil

Abstract

This paper analyses one of the essential aspects of water pricing, which is the mechanism on the basis of which appropriate water charges could be levied. This is why, in matters of water pricing, the question of ‘quantum’ is still a subject of consideration. The diversity of the results is often simply due to the specific regions or basins, or even rivers, lakes or aquifers, of the country. In other words, the diversity will occur according to the natural differences between bulk water markets, and not because of the existence of many different methodologies for water pricing.

Notes

In economics, price differentiation implies using the concept of price-elasticity demand, and confirms, with precision and via prices, the unequal treatment of stakeholders with unequal economic situations.

The demand curve was obtained by the contingent evaluation method, by means of combining open and closed type of questions. The research considers, although imprecisely, the willingness-to-pay as a surplus measure of the consumer. The surplus of the consumer is defined by the difference between the maximum value and that which the consumers are willing to pay and the value that they effectively pay for a greater quantity of the good or service.

The author adopted the rate of 11% because of the opportunity cost capital.

This concept will vary from basin to basin in terms of the outflow level which includes the demand for human supply and that to small users in rural areas who use water for their own sustainability.

The accepted definition for price offers by users in rationing situations is done through a study of demand ‘all or nothing’, applied to the methodologies First Best and Second Best.

Note that price definition goes through the basin committee and, in the case of this methodology, performs the auction. However, the possibility of the basin agency developing price setting studies should not be disregarded as a starting point for the negotiation to be developed in the committee's environment.