interviews). It is also clear, however, that if water charges are implemented, they will only be palatable for these groups if the proceeds return to the basins from which they are generated and thus benefit those who pay. The fact that financial sectors in the government are likely to resist letting basin committees define how revenues are spent worries users nearly everywhere in the country, since paying water charges is only acceptable to them if it is not defined as a “tax” and if the money returns to their basin. Water charging is often compared to the CPMF, a federal tax on financial transactions which was originally to be used only to finance the health sector but which has since been diverted to other purposes. (Laboratório de Hidrologia/COPPE/UFRJ, 2002a and 2002b, Folha de São Paulo, 03/28/2005). The first national battle around this issue occurred when the federal Paraiba do Sul basin committee began to implement water charges, creating intense pressure to resolve the issue of returning revenues to the basin, at least at the federal level. A 2004 law guaranteed that the proceeds of charges for the use of federal bulk waters be used only for investments in water resources and in the basin of origin, except for 7.5% to finance the national system (Lei 10,188/2004).

The Federation of **Irrigators** (FAESP-Federação dos Agricultores do Estado de São Paulo) has always demanded that this group be exempt from water charging until rigorous studies prove that they can afford to pay. This group also calls for the establishment of a series of “prior conditions” before implementing water charging, such as a mobilization program and the full legalization of water use for the sector (Meirelles, 2000 and 2004). Differently from what occurred in the Paraíba do Sul Basin, in São Paulo, various civil society groups, and recently even industrial groups, support differential treatment for the agricultural sector, because of its economic fragility and the fact that water is such a large production input (see for example Abe, 2000; Lahóz and Brochi, 2004; Piva, 2004)<sup>24</sup> . This demand was quickly attended by the state government, which has defended exempting the agricultural sector during the first five years of water charging. This proposal is included in the current draft law on water charging (PL 676/2000 which replaced the PL 20/1998).

The **industrial sector** , through its powerful state federation (FIESP- _Federação de Indústrias do Estado de São Paulo_ ), has actively resisted the introduction of any charges for water use. Up to the mid 1990s, the industrial sector maintained a moderate position. It then began to aggressively and publicly lobby against water charging (see for example, Albiero Filho, 2000, Laboratório de Hidrologia/COPPE/UFRJ, 2002a). However, more recently, FIESP seems to have become less reticent and have even taken steps towards promoting water resources conservation and institutional reform (Piva, 2004; FIESP/CIESP, 2004; and personal communication of FIESP representative, October 2004). For example, FIESP has created a special capacity building program to promote user participation in basin committees and in the State Water Council. FIESP was also responsible for important changes in the pending draft law on charges, such as limit on charging for the use of water (withdrawal) for all committees, and compensation mechanisms for users that return water that is at higher quality levels than environmental

> 24 Although the charges are only symbolic, irrigators began paying in March 2003 in the Paraíba do Sul basin, which covers parts of São Paulo, Rio de Janeiro and Minas Gerais states. That agriculture not be excluded from charging was a precondition imposed by the both the water and sanitation and the industrial sectors. For details see Formiga-Johnsson, Campos, Canedo de Magalhães, _et ali_ ,  2003.

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