Management of Water Resources: Bulk Water Pricing in Brazil (World Bank Technical Papers)

"Although procedures for pricing "retail" distribution have been established for a long time, methods for pricing bulk or "wholesale" water supplies are still evolving." How to finance the infrastructure and service of bulk water supply, and how to use pricing to achieve efficient allocation and use of water as a resource are the central issues that emerge from discussions about bulk water pricing. Efficiency will lead to allocating water resources better, reducing water losses caused by poor maintenance of the supply systems, and increased monitoring of water quality. At first glance, Brazil may not appear to be a relevant country from which to draw lessons in distributing scarce water resources, since it contains 12 percent of the world's fresh water supply. However, with its vast territory and issues of regional drought and population explosion, Brazil provides a unique environment in which to demonstrate how adequate pricing of bulk water on a regional level can help allocate water efficiently. This paper offers a framework for bulk water pricing reform and examines the lessons from recent analytical work and practice in Brazil, as well as relevant international experience. It then offers recommendations for the development of both water pricing and allocation policies to facilitate continued implementation of bulk water pricing in Brazil. This document compares analytical work done on Brazil with the experience of bulk water pricing in other countries to arrive at practical recommendations for determining fair bulk water pricing in Brazil. Adequate pricing of bulk water is critical to ensure efficient allocation of water, and to properly fund the maintenance and operation costs involved with collecting water at its natural source and distributing it to intermediate water users. Two central issues emerge from these discussions: How to finance the infrastructure and service of bulk water supply, and how pricing can be used to achieve efficient allocation and use of water as a resource. Attaining efficiency will lead to better allocation of water resources, which will reduce water losses caused by poor maintenance of water supply systems and inadequate attention to water contamination. Of the varied methods used to address these issues, public water allocation is regarded by the authors as being the least effective and efficient when you compare relevant international experiences. Although Brazil has recognized the need for bulk water pricing, it has not yet established an overall framework of regulations and pricing mechanisms. Without such a framework, the willingness to establish appropriate water pricing mechanisms may descend.