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A Trust Fund As a Financial Instrument for Water Protection and Conservation: the Case of the Environmental Water Fund in Quito, Ecuador

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A Trust Fund As a Financial Instrument for Water Protection and Conservation: the Case of the Environmental Water Fund in Quito, Ecuador Conference on Water for Food and Ecosystems: Make it Happen! Title: A trust fund as a financial instrument for water protection and conservation: the case of the environmental water fund in Quito, Ecuador Supplied by: Pablo Lloret, FONAG Proposed presentation The payment scheme for environmental services in watersheds that supply water to the city of Quito through user payment schemes for energy, potable water and other services are channelled to a trust fund as a financial instrument for water protection. A summary description of the context The inter-Andean area of the Pichincha Province (Hoya de Quito) is one of the more densely populated areas of Ecuador (with around 2 million inhabitants in the Quito metropolis, as well as other minor populations like Machachi, Sangolquí, Cayambe, Tabacundo) and faces the largest national problem at hand because of water usage and critical direct water contamination or because of the shortage of water. The water resources that supply la Hoya de Quito’s population water needs come from: surface water from the upstream watershed on the Esmeraldas River (which just originates in la Hoya de Quito); some water transfers from Amazonian sub-catchments; and ground water, especially from the aquifers surrounding Quito. The unsatisfied needs in the interior of la Hoya de Quito have forced the community to use water transfers from watersheds in the Amazonian region that are mainly from: the Antisana river (at the Napo river source watershed), for Quito’s potable water; from the Antisana rivers, Oyacachi and Papallacta (at the Quijos river source) for Quito’s potable water; from the rivers Boquerón, Monteras and San Jerónimo (at the Aguarico River source), for the Tabacundo irrigation project and the Oyacachi River sources for the irrigation of Cangagua . For a long time, the aquifers of the city of Quito were provided the principle share of potable water supply. However, the deterioration of wells and the economic and operational advantages of surface water supply systems have led to the progressive closing of wells, although several of them have been reopened recently as a result of feared water shortage for Quito. The above situation is even further exacerbated in the face of the serious crisis in national water resources management. In the la Hoya de Quito’s watersheds, for instance, this crisis can be noted, among other things, in the problems of water conflicts that result from irregularities and defects in water concessions and the weak arbitration of water use conflicts and water theft that are growing at an alarming rate. It is no wonder that, now, one of the stronger demands in the country and in la Hoya de Quito is to increase the rationing, effectiveness and efficiency in water administration and the immediate solution to conflicts and problems. The poorest areas of Hoya de Quito are in the north towards the páramos (high-altitude Andean grasslands) of the Cayambe and Tabacundo districts (in the grasslands and the middle section of the Pisque River subwatersheds), areas whose unsatisfied needs remain at 54.7 and 64.3 percent. Nonetheless, equally significant percentages are those of the areas towards the grasslands of the Pita and San Pedro River watersheds and the lower area of the Pisque River (47 to 54.7 percent). In any case, the rest of Hoya covers 39.3 to 47 percent. This confirms the worrisome levels of poverty in Ecuador. In relation to the indicators that reflect the state of the population’s development, (Percentage of illiteracy, years of schooling, 24 year-olds and older with higher education, children under 5 with chronic malnutrition, population with access to sanitation services, population with trash collection Water for Food and Ecosystems: Make it Happen! Page 1 of 3 FONAG Conference on Water for Food and Ecosystems: Make it Happen! services, population with more than 12 years’ work experience, homeowners, population in poverty or extreme poverty), it can be noted that the indicators for the Pichincha Province are better than the national averages; within Hoya de Quito, Quito and Rumiñahui indicators are always better than their respective national ones and notoriously better than the rest of Hoya; both Cayambe and Pedro Moncayo districts report the greatest disadvantages, and still worse than the corresponding national averages. This situation presents an enormous contrast within the same region, meaning the best area of the country and the neighbouring worst area. Water contamination in la Hoya de Quito In 1999, the Directorate of Environmental Management of the Quito Metropolitan District produced the “Preliminary report of the monitoring programme on water quality in the Gyatllabamba River watersheds”. The report’s findings were based on the results of single measurements taken between September 1998 and February 1999 at 2 to 3 measurement points in each of the 14 sub-catchments, in the middle and lower zones. The report concludes that: the Pita River does not show good quality characteristics for various uses; San Pedro River water is not suitable for use without prior treatment; Machángara River water is not suitable at all; Chiche River water could be assigned certain uses with high restrictions; Guambi River water could be used with certain aims in mind, with restrictions due to coliforms; the water from the Uravia and Coyago Rivers allows for restricted use due to bacteriological levels; Pisque River water with restrictions due to coliforms; Monjas River waters are not suitable; the quality of the Cubi River water is good for all uses; Guayllabamba River water could be used after specific treatment is carried out. The general conclusions indicate that the bacteriological contamination is such in all watersheds that untreated water cannot be used for human consumption or other uses of direct contact. Watersheds whose rivers are most contaminated are Machángara, Monjas, San Pedro and Chiche. In some watersheds, high levels of suspended solids can be observed, which could be an indication of the occurrence of erosion within the watershed. All the rivers sampled, typical for mountainous areas, demonstrate a great capacity for re-aeration that make the levels of dissolved oxygen almost always the same as those for saturation, even though in some cases the levels of contamination are pretty high. A trust fund as an alternative instrument for water protection To contribute to solving the problems mentioned in water resource management, the FONAG Water Fund was created as a financial mechanism to execute the projects related to the conservation and maintenance of basins and watersheds supplying the Metropolitan district, in the rural sector of la Hoya de Quito, especially in the east. These basins and watersheds are located in the following jurisdictions: The idea behind creating FONAG was lead by The Nature Conservancy (TNC), based on diagnostic studies and the Communication and Education Programme on Quito’s water problems, elaborated with the aid of the United States Agency for International Development (USAID). An autonomous public company in Quito known as the Quito Metropolitan Area Sewage and Potable Water Agency (Empresa Municipal de Agua Potable y Alcantarillado, EMAAP-Q), along with TNC endorsed the Fund’s Constitution Contract on 25 January 2000, with the legal representative from a private trust fund, under protection of Ecuador’s Equity Market Law. Later, the electricity supplier for Quito (Empresa Eléctrica Quito) entered as a constituent in May 2001 as did Cervecería Andina, in March 2003. Constituent contributions vary and run from a fixed amount of 1 percent of potable water sales by EMAAP-Q to an annual fixed amount by other subscribers, with written agreements for the 80 years of the Fund’s constitution but which constitute payment schemes carried out by the users on a permanent basis. Currently, the Fund has close to 2 million dollars and investment bonds for the year 2005 are estimated at close to 500 thousand dollars. Water for Food and Ecosystems: Make it Happen! Page 2 of 3 FONAG Conference on Water for Food and Ecosystems: Make it Happen! This involves a financial/economic mechanism, both permanent and stable, that allows the use of revenues towards the financing of conservation and maintenance activities for water sources that supply the human and productive needs of Quito’s Metropolitan district and of those areas influenced by the watersheds. The Fund is a facilitating organisation that deals with the watersheds indirectly through third parties and therefore relies on the strengths of local organisations for water protection. Viewed in this way, FONAG is an environmental payment scheme that services ecosystems whose aim is that of providing sufficient amounts of good quality water by protecting water resources for long-term natural regeneration. The layout of the financial services initiated by FONAG is oriented towards the realisation of investment donations and investment loans, in a second phase, to local organisations specialised in the formulation and execution of projects, -in the watersheds that supply water to Quito, to implement programmes of interest to FONAG. Furthermore, support from international organisations is also intended to increase FONAG’s patrimony, with the aim of strengthening the trust fund, whose implementation will make it possible to meet objectives. The central theme of this proposal is based on the International Water Programme that relies on integrated water resource management. FONAG’s objectives are also focused towards conserving water sources through the control of water depleting activities, the respect for the surrounding biodiversity and conservation, as well as reforestation at the water’s source and in watersheds. In this case, the proposal coincides with the biodiversity conservation objectives and the support for the carbon sequestration to benefit the climate change programme. Conclusions/considerations The most important consideration that comes to mind is that funds coming directly from water users who assign a payment scheme to the protection of water sources are local funds and do not depend on government or foreign resources.
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