Success Stories

Ecosystem Services in Ecuador

The city of Quito offers a leading example of the potential for developing markets that channel economic demand for water to upstream areas from which it is supplied. In Quito’s case, the availability of water for the city of about 1.5 million inhabitants and surrounding areas depends on the conservation of protected areas upstream, with 80 per cent of the water supply originating in two ecological reserves, the Cayambe-Coca (400,000 ha) and the Antisana (120,000 ha).

The Fund for the Protection of Water – FONAG – was established in 2000 by the municipal government, together with a non-governmental organization, as a trust fund to which water users in Quito contribute. FONAG uses the proceeds to finance critical ecosystem services, including land acquisition for key hydrological functions.

Demand and supply
The users include farmers, hydropower companies, industries and households, who pay differentiated rates depending on use. The largest share of payments comes from the Quito water utility (Metropolitan Enterprise of Water and Sewer Systems in Quito – EMMAP-Q) which contributes one per cent of monthly water sales. Hydropower companies make fixed annual payments, as does the Cerveceria Andina brewery. Farmers drawing water through irrigation also contribute. The fund held more than US$ 7 million at the end of 2009 (up from US$ 3 million in 2005) and invested about US$ 0.8 million in 2008. Administration costs are limited to between 10 and 20 per cent of total expenditures.

FONAG finances both watershed management projects in micro river valleys and longer-term programmes (at least 20 years in duration) oriented towards communication, environmental education, forestry, and the river basin management training. These projects and programmes are undertaken with the participation of different community actors, local authorities, educational institutions, and governmental and non-governmental organizations.

FONAG is contributing to securing present and future water supplies for Quito. Through the fund , more than 65,000 ha of watersheds are now under improved management. Upstream farmers receive support for watershed protection programmes, as opposed to cash payments. More than 1800 people are estimated to be receive increased economic benefits associated with watershed management and conservation.

FONAG has served to inspire the development of similar schemes elsewhere in Latin America and beyond. For example, in South Africa, where water forms one of the greatest constraints on development, a recently-launched initiative in the Maloti Drakensberg Mountains aims to implement a payments for watershed services programme, with support from UNEP and the BASF Social Foundation. This initiative will use payments from downstream users to support the restoration of dongas, and the improvement of grazing and veld fire management regimes in order to reduce sedimentation and increase the quality and quantity of water flows. In so doing, employment will be generated for local households and the productive potential of agricultural activities should increase.

In sum, FONAG is one of a growing number of initiatives that bring together different stakeholders in the creation of innovative mechanisms to channel economic demand for water to areas critical for the supply, in the process improving livelihoods and generating employment, while investing in key ecosystem services.

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