Introduction to the Economics of Water Resources: An International Perspective

By Stephen Merrett | Go to book overview

CHAPTER THREE

Supply: the economist's perspective

3.1

Capital and current spending

Chapter 2 has given a brief account of the nature of the hydrological cycle and a fuller description of what may be fairly called the hydrosocial cycle. The purpose of Chapter 3 is to consider the supply of fresh- and wastewater services as an economic phenomenon, principally with reference to the costs of production, although here excluding environmental costs, a subject to be returned to in Chapters 7 and 8.

The hydrosocial cycle illustrated in Figure 2.1 (see p. 6) draws on an immense variety of the economy's real resources. These include fresh water itself, at the point of abstraction; the land sites required for the system's infrastructure and a reserved catchment area, where land access and use may need to be restricted; boreholes; pumping stations; reservoirs; plant for mechanical, biological and chemical treatment of both fresh- and wastewater; an extensive system of pipes and other channels, including aqueducts, water mains, culverts, stormwater drains, sewers and individual house connections; a wide variety of monitoring, measurement and control devices, much of which may be computer-based; switchgear, and standby equipment to generate electricity in case of power failure; electric power itself; materials such as filter sand and chlorine gas; spare parts; the means of transport of sewage sludge and the use of landfill sites and aquatic media for disposal; and the human resources necessary to design, build, operate, monitor, maintain, repair, rehabilitate, manage and administer the whole. Headworks costs are those of abstraction, storage and treatment. Network costs are those of freshwater distribution, stormwater and foul water collection, and wastewater disposal after treatment (see Fig. 2.1).

In the analysis of the supply of water services, the economist converts the tabulation of real resources into money expenditures, on the basis of the resources' market prices. Expenditure can then be divided into capital account spending and current account spending.

Capital expenditure is defined as that where the resource purchased has an expected life of more than 12 months. This would include land; civil engineering

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