Water: Together we can care for it! A case study of a watershed conservation fund for , Roberto Troya1and Randy Curtis2 Unidad Técnica Regional, Quito, Ecuador1 The Nature Conservancy, Latin American and Caribbean Division, Arlington, Virginia2 1998 [email protected] [email protected]

Keywords: water resources, watersheds, freshwater, basins, reserves, conservation, management, strategies, initiatives, Ecuador.

The following is a proposal to:

• Conserve the water production capacity of Ecuador's watersheds. • Obtain stable and permanent financial resources for the protection of the watersheds. • Contribute to the conservation of the and Cayambe-Coca Ecological Reserves and eventually form the "Condor Bioreserve," which encompasses these reserves and the protected areas of and . • Draw on the strengths of various entities to reach a common goal for the well-being of all. • Produce a plan for the conservation of watersheds applicable to other regions of the country.

PROBLEM: DETERIORATION OF THE WATER RESOURCE

The world is three-quarters water and the Latin American and Caribbean region is considered to have comparatively greater availability of this resource: an estimated 30% of the world's fresh water2. But human activities are besieging this wealth of water, threatening both its quality and quantity.

Ecuador is not unfamiliar with this reality. The internal water resources available yearly are estimated at 314 km3, which for 1995 represents a volume of 27,400 m3 per inhabitant3. This extraordinary figure is in sharp contrast with the distribution of water. In 1996, according to data from the Ministry of Housing and Urban Development, only 61% of the population had access to drinking water. The country is also characterized by a high rate of deforestation, rapid population growth (with a tendency toward urbanization), and continual dumping of untreated refuse into streams and rivers. All of the above highlight the need for measures to protect the sources of Ecuador’s waters, the watersheds, in order to ensure a steady supply of clean water.

THE HYDROGRAPHIC BASINS OF THE ANTISANA AND CAYAMBE-COCA RESERVES

Quito and its neighboring towns and villages, among the country's most populated regions, receive their water supply from the high plateaus of the Andean mountain range. Some of these watersheds are located inside protected areas, such as the Antisana and Cayambe-Coca Ecological Reserves. As part of the country's natural resources, these reserves are true "water factories." If these areas are not protected, both their capacity to produce water and their unsurpassable natural wealth will be jeopardized.

With a surface area of more than 400,000 hectares, the Cayambe-Coca Ecological Reserve boasts ecosystems of great diversity, from the snow-capped mountain known as Nevado Cayambe at 5,790 meters above sea level, to the Amazon plain at 600 meters above sea level. Cayambe's glaciers alone are estimated to store a water volume of approximately 1.4 km3. Many lakes and wetlands and eleven major rivers begin in the subalpine rain plateau, which is characterized by semi-permanent cloudiness.

The Antisana Ecological Reserve, with a surface area of 120,000 hectares, was established in 1993. The high region includes the snow-capped and high plateaus, where extensive grazing of cattle and sheep occur, along with hunting, fishing, and tourism. Water is taken from the Tumiguina and Blanco Chico rivers for the Papallacta water system. The La Mica-Sur water system is under construction around the La Mica lake, which will supply drinking water to 600,000 persons in the southern neighborhoods of Quito.

A rich variety of spectacular and colorful flora and fauna exists in these Reserves, especially species of orchids, bromeliads, and birds. In addition, this area contains Andean species in danger of extinction, such as the condor, puma, jaguar, spectacled bear and tapir.

Although in good condition and abundant in these areas, this water does not enjoy unlimited or permanent availability-it needs protection. The Cayambe- Coca Ecological Reserve is inhabited by 7,000 persons dispersed throughout the area and in small communities such as Oyacachi and Cascabel, people who require water for crop and vegetable cultivation, and use the plateau for extensive livestock grazing. In the adjoining region, approximately 20,000 inhabitants live in tenant farmer cooperatives, indigenous communities, and as private landholders. Their main activity is the raising of dairy cattle and the controlled harvesting of wood. Poor agricultural practices, such as overgrazing and the burning of scrubland seriously damage the high plateaus.

The loss of watersheds in the high plateau affects the quantity and quality of water available for drinking, irrigation, power generation and recreation.

Petroleum development since the 1970's has produced significant migration to the Quijos river valley, which borders on the south side of the Cayambe-Coca Reserve. This growth has lead to the development of activities that can affect ecosystems and their water production potential.

Furthermore, several important development initiatives exist and affect the Reserves. The Quito Municipal Sewage and Water Agency, EMAAP-Q, is building the Papallacta System Optimization Project, which includes construction of a highway from Papallacta to Oyacachi, crossing the Cayambe-Coca Reserve from South to North. The Ministry of Social Welfare is developing the Cangahua Irrigation Project in the Oyacachi region, which will benefit the flower-growing region of Cayambe. Quito's Electric Company has been awarded the contract to develop the Quijos hydroelectric project, which will take waters from the Papallacta and Quijos rivers. In addition, the Instituto Ecuatoriano de Electrificación (INECEL) is planning to develop the Cuyuja and Coca-Codo hydroelectric plants in the Cayambe-Coca Reserve's buffer zones and in the Antisana and Sumaco Reserves.

The flow of tourists to the area who seek out its scenic beauty may cause damage if tourism is not carried out in a controlled manner. The growth of Quito and its neighboring areas produces greater demand for resources, and could in the future affect the Reserves. The development of the Puembo airport, the growth of flower crops for exportation, and future drinking water projects are examples of this trend.

The uncontrolled development of all of these activities affects the ecological balance of the Reserves, but also negatively impacts upon the activities themselves. The degradation of water quality affects the water supply reaching Quito and its neighboring communities. Erosion causes sedimentation in water flows and reduces power generation capacity. Degradation of the high plateau affects the timing and availability of water flows, causing floods in the winter and severe water shortages in the summer.

A number of public and private entities carry out conservation efforts in these areas. The national government conservation agency, the Forest and Natural Areas Institute or INEFAN, is responsible for the administration and protection of these Reserves and is developing the Reserve Management Plans. The Fundación Antisana, a non-governmental organization, has been carrying out biological and social research and provided community technical assistance in the Cayambe-Coca Reserve and its buffer zones since 1992.

The U.S. Agency for International Development (USAID) and a consortium of international organizations (The Nature Conservancy, CARE-Ecuador, and others) in agreement with INEFAN, developed the SUBIR I Project in 1992. This project supported management and conservation activities in a number of important natural areas, including the Cayambe-Coca Reserve. Activities were also initiated with communities in the buffer zones of these reserves, in an effort to promote sustainable economic development.

INEFAN, USAID, and The Nature Conservancy signed a new agreement, SUE.IR II, in 1995, to continue the activities begun in the Cayambe-Coca Reserve through the Fundación Antisana and to continue the execution of projects with local communities through the Fundación Ecológica Rumicocha.

In addition, the EMAAP-Q is currently developing an Environmental Control and Supervision Program in the area where the Papallacta System Optimization Project facilities are being constructed, inside the Cayambe-Coca Reserve. Contracted with the Fundación Rumicacha, this program has made controlling physical access to the Reserve possible.

Based on the work developed in these two Ecological Reserves, The Nature Conservancy, the Fundación Antisana, and the Fundación Rumicocha have presented a proposal to USAID to consolidate conservation actions in the two protected areas, for the purpose of creating a conservation unit formed by the Antisana and the Cayambe-Coca Reserves in the medium term, and in the long term, incorporating the Sumaco Napo and Cotopaxi National Parks. This innovative proposal is entitled the "Condor Bioreserve."

Unfortunately, the lack of resources for the operation and protection of these Reserves creates uncertainty about the long term conservation of these critical ecosystems. As a result, it is imperative to search for additional sources of funding to support INEFAN's efforts in managing these protected areas. For example, INEFAN set aside approximately 100 million sucres (US $25,000) for the management and protection of the Cayambe-Coca Reserve in 1997, whereas EMAAP-Q earmarked 183 million (US $50,000) to carry out control and supervision activities in the territory between Papallacta and Oyacachi during the June 1996 to June 1997 period.

SOLUTION: ASSESS THE ENVIRONMENTAL SERVICE RENDERED BY THE BASINS

Watersheds render a vital environmental service-they produce water. In Countries like Brazil and Costa Rica, this ecological service is recognized and receives compensation.

In order to conserve these areas of natural interest, society must be aware of the environmental services that these Reserves provide. The most obvious of these benefits is the Reserve's capacity to produce water. Vegetation in the water-sheds serves to retain moisture, accumulating it gradually so as to distribute it continuously in the feeding of springs, streams, and rivers. Plant cover also serves to filter and maintain the quality of these waters. When this hydrological capacity is damaged by human activities, a resource which serves the common interest is being placed at risk. This environmental service is valuable to all of society.

Maintaining the integrity of the water resource requires investment. Internationally, a trend is now emerging to search for mechanisms that recognize the economic value of water production. Interesting experiments of this type exist in Latin America, such as the case of the State of Paraná in Brazil, where 5% of the state's sales tax collection is earmarked for municipalities in which sources supplying water to aqueducts and ecological reserves are located4. The idea is to reward these communities financially for the environmental service that they offer by keeping these water-producing areas pristine.

In Costa Rica landowners are compensated for reforestation efforts, in recognition of the water regeneration service provided by trees.

In Ecuador, the city of Cuenca's municipal enterprises have invested more than US $2 million in the acquisition of approximately 5,000 hectares of woods and high plateaus in the main water supply basin: the Tomebamba river5. But the Quito Municipal Water Authority, which is supplied by the waters of the national Ecological Reserves, does not have this option. Guaranteeing the water production potential of these Reserves requires linking all water users to watershed protection and management programs both inside and outside the protected areas.

Although the value of water is difficult to measure, we recognize that it is indispensable. We must therefore preserve the sources of this water.

Traditionally, the economy considers natural resources, such as water, to be unlimited, and assigns them a low economic value. The price of drinking water or electrical power generation considers only the cost of transporting water to where it is consumed. The cost of maintaining the resource is not included in the price of water. Conservation programs tend to be financed in sporadic and haphazard ways. However, water is vital for a wide variety of human activities. It is difficult to estimate how many the services provided by water resources are worth, but their high opportunity cost is widely recognized. To quantity this environmental service, hydrological, social, and economic information must be gathered, so as to estimate the economic value of the water resource in Ecuador. Nonetheless, considering the risks associated with not preventing problems, work on this issue must begin and lead to actions that will guarantee the long term stability of this resource.

AN ECONOMIC AND FINANCIAL SYSTEM TO PROTECT THE REA AND RECAY BASINS

The Nature Conservancy and the Fundación Antisana, with financing from USAID, have proposed the creation of an economic and financial system for the management and conservation of the watersheds that supply water to the city of Quito. The plan was first conceived for the Papallacta, Chalpi Grande and Oyacachi basins in the Cayambe-Coca Reserve. However, this experiment must clearly be expanded to include the buffer zones of the Antisana Reserve and even the area known as the "Condor Bioreserve."

The proposal suggests the creation of a Fund that collects contributions from water users to finance projects for the conservation and management of the watersheds, as shown in the chart below:

The Fund's resources would receive financial management from an asset management company, thus lending stability to the programs. Contributions that would strengthen the Fund could also be attracted from national and international entities.

The projects developed by the Fund must be closely coordinated with the Reserves' Management Plans. The Fund's programs must not duplicate the efforts contemplated in the Plans, but rather complement and strengthen these for the protection of the watersheds.

This proposal would be a pilot project for the country. Similar experiences are already in existence in other countries, such as Colombia, and demonstrate the potential of such efforts. For example, in the Valle del Cauca Department in Colombia, a corporation called Corpocuencas was created, bringing together several entities interested in protecting the watersheds. On the basis of Corpocuencas' annual return on investments, requests for proposals are issued to finance watershed conservation projects at a regional or local level. In a parallel effort, associations of river users have been formed as a voluntary link among water users, especially farmers, to work for the conservation of water sources.

Thus, the precedent has already been established in countries such as Colombia, Costa Rica and Brazil. Strengthening and maintaining the Antisana and Cayambe-Coca Reserves guarantees water for many Ecuadoreans. The opportunity exists now, and action must be taken soon.

HOW WOULD THIS FUND OPERATE?

The users6 of water from the Cayambe-Coca and Antisana watersheds would make contributions to the Fund for the Protection of the Watersheds through a water consumption fee.

Distinctions can be made among different types of uses, since consumptive uses, such as the use of water for drinking and irrigation, may be distinguished from non-extractive uses, such as power generation and recreation, which return the water to its channels. Thus, it may be appropriate to charge a discounted fee for non-consumptive uses.

Upon creation of the Fund, the users themselves shall define the criteria for managing the Fund, including:

• The Funds resources shall be used exclusively for activities intended to manage and conserve the watersheds in the ecological reserves. • These activities shall be coordinated with INEFAN, on the basis of the guidelines established in the respective Management Plans. • The execution of these activities will be implemented through specified conservationist entities. • The work performed shall include the active participation of the surrounding communities. • A percentage of the resources may be earmarked far projects that provide alternative income sources to the region's inhabitants. • The assignment of the fund's financial administration to a private financial entity through the formation of a trust is proposed, so as to maximize the potential of the resources available. • The plan seeks to be as efficient as possible, limiting the percentage of resources which may be allocated to administration. A 15% limit is suggested.

To guarantee the linking and participation of users and entities working in the area, a Board of Directors would be formed, made up of three representatives, who may be selected from among:

• The Empresa de Alcantarillado y Agua Potable de Quito (EMAAP-Q). o Private users of the water resource, such as the HCJB hydroelectric plant and the Papallacta Hot Springs. • Other public users of the water resource, such as ElectroQuito and INECEL. • INEFAN, as a national body responsible for the protected areas. • The most important non-governmental organizations working in the region. • The local and sectional governments of the region. • Community representatives from the region.

As a first estimate, the Fundación Antisana funded a study to calculate the fee which could be charged on the consumption of drinking water in Quito. The results of this analysis, based on a "bare bones approach" to management in part of the park, indicated a minimum fee of US$0.001 per cubic meter of water in 1996. This would represent a monthly contribution of US$0.04 for an average family (comprising 5 persons) with a monthly consumption of 40 cubic meters of water. The study considered only the cost of patrolling the upper part of the Papallacta, Chalpi Grande, and Oyacachi river basins. In order to truly protect the sustainability of the watersheds, it would be necessary to develop an integrated management program in the total watershed area. This would entail a gradual increase of the fee. Currently, the Fundación Antisana is preparing for INEFAN a management plan for the Antisana Ecological Reserve. This plan will allow for the calculation of a fee that would generate sufficient revenues to protect the resource as a whole.

Furthermore, the Board of Directors could include a number of permanent observers selected on the basis of their importance in the region, such as the specialized conservation organizations working in the area, including the Fundación Antisana, the Fundación Rumicocha, the Fundación Natura, and others.

Additional funding could be obtained from national and international sources.

STEPS TO FOLLOW FOR ESTABLISHMENT OF THE FUND

Phase 1: Laying the Grounds for the Plan

To make this idea a reality, The Nature Conservancy and the Fundación Antisana have suggested that EMAAP-Q assume a position of leadership and designate a sum for the creation of a Fund for the Protection of the Watersheds, calculated on the basis of the cubic meters that EMAAP-Q is receiving from the Papallacta (Cayambe-Coca Reserve) and Mica-Quito Sur (Antisana Reserve) projects.

These resources will be used to form a trust within a private financial institution to guarantee the proper management and generation of returns.

EMAAP-Q, INEFAN, the financial entity and a specialized conservation organization shall enter into an Inter-institutional Agreement to launch execution of the Fund's projects, with duration of up to three years, on the basis of a strongly participatory work plan. Phase II: Establishment of Links with Other Users

Later, after executing the first phase and laying the foundations for the operation of this Fund, contributions will be gathered from the remaining water users.

Phase III: Obtainment of Other Contributions and Inputs

With the Fund already operating and strengthened, measures could be undertaken to expand the voluntary contributions of persons and entities committed to the protection of the watersheds.

WHAT WOULD WE ACHIEVE WITH THIS FUND?

The creation of this Fund would allow for even greater planning of the individual initiatives undertaken in the region. The links established with other entities, including those specializing in conservation, would permit access to their strengths and capabilities, while allowing for the coordination of efforts. This joint work would provide the transparency and continuity that are required for successful conservation, in this case the maintenance of a clean and abundant source of water.

On the basis of the establishment of a land-use zoning system for the Reserves and buffer areas, the Fund would make funds available for the development of the following types of programs, depending on the watersheds where the various users carry out their activities:

• Compensation for Land Possession: Since conflicts regarding land ownership continue to exist in the region, it might be necessary to purchase lands in critical and priority zones so as to protect water sources. • Control and Supervision Program: A permanent and stable supervision system is required to conserve the upper regions of the river basins and prevent their deterioration, so as to control access to water springs and sources. • Watershed Protection Measures: Projects such as the enclosure of springs to prevent trampling by livestock, and the digging of trenches to control erosion and stabilize banks are required to recover water production capacity. • Sustainable Production Systems: Education and Training: In order to reduce pressure on natural ecosystems, efforts must be made to work with the inhabitants of the Reserves and neighboring areas, so as to modify agricultural practices and generate alternatives that are not damaging to the watersheds' productive capacities, such as minimal cultivation and/or good agricultural management practices. The control of indiscriminate hunting and fishing, and the burning and disposal of refuse also require continual educational efforts. • Evaluation and Follow-up programs: Periodical evaluation of the results of the Fund's programs and projects is needed to ensure that its objectives are met. Indicators, such as changes in ground cover, and variations in water quality and flow will permit evaluation of the Fund's success or failure and the implementation of corresponding corrective measures.

These types of initiatives must be the result of short, medium, and long term inter-institutional planning for the complete management and conservation of the watersheds. They must also be consistent with the emerging content of the Reserve Management Plan, currently under development.

Conservation of watersheds is a long term task. Let us begin today.

WE MUST BEGIN NOW

This proposal requires a decision by the parties involved in order to move forward. Some details remain to be worked out, but the interest and the will to proceed exists.

Making the conservation of our watersheds a reality not only allows the development of activities which benefit everyone now, but it also guarantees greater well-being for future generations. A Preliminary Estimate of the Possible Users of the RECAY Basins:

USER UTILITY CURRENT FUTURE SOURCE USE USE m3/week m3/week

EMAAP-Q Drinking 1.5 2.2 EMAAP-Q Water

MBS- Irrigation 2.3 MBS Cangahua Project

Private Irrigation 2.1 Silva, 1996; Farmers p.25

HCJB Power 4.8 Ibid. Generation

Papallacta Recreation 0.008 Ibid. Hot Springs

Electro Power 6.5* INECEL Quito- Generation Quijos Project

INECEL- Power 4.3* Cuyuja Generation Project

INECEL- Power Coca Codo Generation Sinclair Project

*Project Design Flow

REFERENCES

Avila M., Jose. "Sistema económico-financiero para el manejo y administración de las cuen-cas hidrográficas papallacta, Chalpi y Oyacachi de la Reserva Ecológica Cayambe-Coca." August 1996. Olander, Jacob and Mauricio Castro. La gestión ambiental en Los proyectos de inversión pública. "Estudio de caso-Desde el bosque a la llave: El sistema de agua potable de la Ciudad de Cuenca." BID-CONADE Program, 1997.

PERSONS INTERVIEWED

• Maria Helena Jervis, Director, Fundación Antisana • Roberto Troya, Director, Ecuador Program, The Nature Conservancy • Enrique Barrau, Agency for International Development • Patricio Coro, Executive Director, Fundación Rumicocha • José Avila, Economist-Consultant • Raúl Paredes, Fundación Antisana • Carlos Landin, Environmental Consultancy Director EMAAP-Q April 21, 1997 • Rafael Negret, Environmental, Inter-American Development Bank • Carlos Fierro, Fundación Natura • Gustavo Mosquera, Fundación Antisana • Othon Zevallos, Comisión Asesora Ambiental • UMASE, INECEL Officials

We would like to thank Marta Echavarria, from Ecodecision, for her assistance in writing this document. We also wish to thank Fundacion Antisana and Fundacion Rumicocha for their diligent work during the preparation of this document. Finally, this study was made possible through the generous support of the U.S. Agency for International Development, especially the local USAID mission in Ecuador.

2 WWF. "Un futuro incierto: la crisis del agua y sus impactos en America Latina y el Caribe." p.2.

3 World Resources Institute, World Resources 1996-97, p. 307.

4 This is referred to as the ICMS Ecologico and was approved by Complementary Law 59 of October 1, 1991 by the Legislative Assembly of the State of Parana.

5 Olander et al., 1997.

6 See attached chart of main users.

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Notes to readers

The authors may be reached at:

Roberto Troya Unidad Técnica Regional Avenida 12 de Octubre #394 Edificio Centurion, Piso 7 Quito, Ecuador Tel: (593-2) 523 320 Fax: (593-2) 523 323

Randy Curtis Latin American and Caribbean Division 1815 North Lynn Street Arlington, Virginia 22209 Tel: (703) 84I-4860 Fax: (703) 841-4880

The Mountain Forum would like to thank the Latin American and Caribbean Division of The Nature Conservancy for their permission to include this article on our Mountain Forum Online Library.

No reproduction is allowed without permission.