ECONOMIC AND ENVIRONMENTAL WATER PRICING

1. ECONOMIC AND ENVIRONMENTAL WATER PRICING Tortosa, Spain, December 2004 Lecturer: René Castro castro_rene@att.net Case and Presentation prepared by René Castro and Sarah Cordero

2. Latin American countries waste 9 Billions of M3 annually, around 30% of the one collected for public consumption BID???? “Agua Perdida”

3. Growing World Population and Freshwater Scarcity

4. COSTA RICA GENERAL PROBLEMS • High deforestation rates • High population growth rates • Confused legal system • Problem with funds management • Water not an issue of concern

5. Overuse and pollution in important WATERSHEDS Bosque 38.72% Uso y cobertura del suelo Cuenca Río Tempisque Uso y cobertura del suelo Cuenca Río Tárcoles Bosque 17.7%

6. Water Economics in Costa Rica • Demand Increasing with high elasticity at higher prices that the current level. • Inelastic Supply due to fresh water scarcity. • Reservoirs and large dams require more budget for maintenance and operating costs. • Growing competition among different users • Extreme weather events and water variability increasing

7. Water Economics in Costa Rica • Negative Externalities such as aquifer over-exploitation and pollution. • Subsidizing social water costs and reducing budget deficits are at odds.

8. Disperse LEGAL FRAMEWORK Constitutionally challenged Water Law from 1942 was never modified New Environmental Organic Law was approved National Parks Law was passed New Forestry Law was published Biodiversity Law was approved 1977 1995 1996 1998 Now Law on the Regulatory Agency for Public Services was passed Law for the payment of environmental services? No current decision Confusing concept of environmental sustainability

9. EVOLVING CURRENT SITUATION • Extreme weather events like El Ñino are changing overall water availability • Geographic distribution of water supply in growing conflict with demand • Government response based on payment for environmental services • Water as an intermediate good • Water for recreation • Water as a final good

10. Ground water: From free access to raising concern about pricing, quality and quantity • Private consumers need a government permit • From free to a miniscule user fee established since 1998, currently in process of up dating it by Env. Ministry • New water law entering the national assembly

11. SISTEMATIZACIÓN DELCANON Ley de Agua No. 276 • Pago por el derecho de uso de un recurso de dominio público (agua, frecuencia, espacio aéreo, etc.) • Para aprovechar agua toda persona dentro del sistema requiere concesión (excepto ICE/AyA) • Caudal fijo o periódico • Un uso o varios • Temporal (Max. 30 años) • Semestral • Recargos: 25% 1er semestre 50% 2do semestre • Caduca concesión por no pago al 3er semestre • Aplica hipoteca a la propiedad Valor actual del Canon Decreto 26635-MINAE Enero 1998 Ingresos estimados para el año 2004: 120 millones de colones

12. Full pricing: Economic, environmental and social considerations • CANON = Va + SAH • Va: valor del derecho de uso del agua • SAH: Servicio ambiental hídrico

13. User fee environmentally adjusted

14. User Fee Environmentally adjusted for ground and surface water Propuesta 2,29 – 4,25 colones por m3 / anual Fuente MINAE

15. Distributive analysis: Who will pay? Fuente MINAE

16. PROYECCIÓN DE APLICACIÓN DEL CANON AJUSTADO EN EL AÑO SIETE DE APLICACIÓN (a valores de hoy) Fuente Porpuesta MINAE 2004

17. Water as an intermediate good: Volunteer agreements • Energía Global, $10/hectare/year. • National Company of Light and Energy, $40/hectare/year. • Platanar, $15/hectare/year.

18. Energy Exchanges in Central America are growing (millions of US$)

19. Costa Rica will be exporting water as intermediate good to produce hydroelectricity for the Central American market Ref. Plan de Expansión de la Generación Eléctrica 2002-2016, ICE 2001

20. Water as a final good: New Law accepts full pricing • First mover: Public Services Utility of Heredia (ESPH) • Serves only 4% of the country’s final customers.

21. ESPH’s proposal included: • protection • recovery • investment fund • treatment cost of sewage • value of water

22. Valores económico ecológicos en la estructura tarifaria hídrica ambientalmente ajustada

23. Hydric Environmental Service • Reconocimiento del costo de oportunidad en el manejo de los ecosistemas garantes de la sostenibilidad de la oferta en cantidad y calidad del agua SAH = VC + VR VC = Valor de conservación de ecosistemas (¢/m3) VR = Valor de restauración de ecosistemas (¢/m3 Ref: Raimundo Castro

24. ESPH • Amount proposed: ± 25 ($0.07) per m3 of water • Amount approved only 2% of the water bill: 1.90 ($0.005) per m3 ESPH, S.A. autorizado por ARESEP al 2004 a cobra 3,80 Colones por m3

25. The ratio between bottled and tap water is more than 4,400 times Tap and Bottled water attributes • Bottled water retailed price is around $0.90 per liter is not regulated • Tap water retail price is around $ 0,00019 per liter is regulated Ref. CID/Gallup survey, December 2002

26. Vehicle for funds administration is Crucial Ref: ESPH 1999?

27. Recommendations • Increased participation and democratization of water policy. • Alternative uses should be considered in every project • Need for a solid environmental policy. • Need for a reliable land use plan. • Strong pricing system is important but not enough to ensure availability and quality of water. • Active national debate and decision for water exports both as intermediate and final good.