First Person: How 11 Ecuadorian Cities Pooled Their Resources To Support Their Watershed

Renzo Paladines, Fabián Rodas, José Romero, Byron Swift, Luis López, and Matt Clark

Six years ago, southern Ecuador’s Regional Water Fund (FORAGUA) began to pool the resources of several municipalities to ensure safe and steady water supplies through sustainable watershed management. In so doing, they created a template for other small cities across the Andes, but that doesn’t mean the work is easy; as Nature and Culture International found when it spearheaded the effort. Here’s what they learned.

3 August 2015 | Loja, Ecuador receives much of its water from the El Carmen watershed, but since the city expanded in the early 2000s and its population shot up, the newer neighborhoods were only receiving 8-12 hours of water per day. So the municipality started buying properties within El Carmen and practicing conservation and sustainable land-use. After several years of land acquisitions that amounted to 830 hectares and 90% of the watershed, city officials realized their watershed investments were paying off and then some.

Immediately after the first land purchases in 2006, 200 cows were removed from the watershed, and our research shows that fecal pollution diminished by 80% while the color of the water from El Carmen darkened significantly through 2012 due to an increase in tannins– compounds found in plants-reflecting a major increase in vegetative cover. This can be directly attributed to the land purchases as well, and we’ve found no deforestation in the purchased areas. Additionally, since 2008, high school and university students have planted 60,000 native trees in the El Carmen watershed. Loja´s municipal water and sewer authority (UMAPAL) also reports that water is more consistently available during typical low flow periods in October and November.

The Power of Pooled Resources

Loja was able to purchase the land by participating in the Regional Water Fund of Southern Ecuador (FORAGUA), which is the first water fund in Ecuador to test the ways that municipalities of varying size and capacity can act together to form a single integrated water fund as a mechanism to manage water resources.

It was launched in 2009 and has enrolled 11 municipalities with four more pending; in aggregate, they have purchased 37,681 acres and legally protected 174,028 acres as municipal watershed reserves to conserve and restore ecosystems that supply water for more than 430,000 people. Additionally, the fund has generated, through water fees, an average of $388,651 annually for watershed management and conservation programs.

Loja is a founding member as the fund grew out of conservation programs it pursued together with Celica, another municipality, and our organization, Nature and Culture International (NCI), with support from The Overbrook Foundation, The Tinker Foundation, and other donors. Recently, we published a paper highlighting the program’s success in securing sustainable supplies of water– in a region that struggles with shortages– through conservation activities that also benefit forests and biodiversity.

 Loja Municipality FORAGUA Funds.

The Mechanism

Water funds are mechanisms to finance the management of water catchment areas in order to ensure water quality as well as the retention capacity of mountain ecosystems. In doing so, they also conserve biodiversity and other environmental values of mountain forests, linking water users to the ecosystems that provide the water they depend upon. They do this by implementing a conservation program planned and funded with resources provided by citizens living within the watersheds, and in doing so, build local capacity and sustainability.

Municipalities that participate in FORAGUA levy fees on water users, which are first aggregated within the FORAGUA trust fund and then used to finance the management and conservation of the municipalities´ watershed forests. Ninety percent of these funds are allocated to the municipalities´ own watersheds; the remaining 10% is used to fund administrative and technical assistance needs. This access to a high level of technical support allows smaller municipalities and rural populations-who would normally lack this resource- to participate.

A Problem to Solve

FORAGUA was established to solve specific problems regarding water resources in Ecuador. Most of southern Ecuador’s cities and towns are experiencing growing water shortages due to rapid population growth. This becomes most apparent during the dry season from September to December when most cities experience serious shortages, including intermittent supply.

Loja is just one city struggling with its water supply. Water scarcity is much worse in cities like Zaruma, Celica and Catacocha that are located on the drier western slopes of the Andes; during the eight month dry season, they typically have only two to four hours of water per day.

Climate change causing severe floods and droughts along with poor forest management in the valleys where water supplies originate has only exacerbated the problem. Trees capture moisture from clouds and forests act like sponges retaining and slowly releasing water for an even and timely supply. Historically, these valleys in Ecuador had forests to keep water flowing. In recent years, however, expanding land uses such as farming and livestock grazing have resulted in significant deforestation, reducing water quantity and quality, and the continuity of its supply.

The land-use change has also led to an increase in severe water pollution that has led to illnesses. In Loja Province, where the city of Loja is located, there was a 10% increase in waterborne illnesses between 2004 and 2013. Conditions are worse in rural areas where drinking water, for the most part, is still untreated.

Origins of FORAGUA

FORAGUA was born into this situation. The initial programs that FORAGUA grew out of supported land purchases within municipalities’ watersheds to facilitate forest regrowth and reduce water pollution. At the time though, it was recognized that ongoing funding would be needed to manage those areas. The concept of a water fund was first proposed by NCI in 2007 as a way to finance ongoing management as well as to fund additional land acquisition for watershed protection. Over the next two years, the concept was discussed extensively with local governments, communities, and water users throughout the region. On July 8, 2009, the municipalities of Loja, Celica, Pindal, Macará and Puyango, together with NCI, signed a trust agreement with the National Financial Corporation as trustee, creating FORAGUA.

FORAGUA isn’t Ecuador’s first water fund, though it was the first to include multiple municipalities. In fact, the country has had relative success with the mechanism. The major cities, Quito and Cuenca, each established earlier funds. The Quito water fund, known as FONAG, was set up in 2001 by a consortium of organizations that included The Nature Conservancy, private companies and Quito’s water utility. FONAPA, the Cuenca fund, followed in 2008 and was also made up of public – private partnerships.

The funds differ in several ways starting with FORAGUA and FONAPA’s use of all revenue for programs whereas FONAG uses only the interest on its endowment to fund programs. For FORAGUA’s small and medium sized cities, paying into an endowment would not generate enough money to effectively manage their watersheds. They need to allocate all revenues to programs in order for the fund to have a meaningful impact.

Another innovative feature of FORAGUA is that it dedicates 90% of each participating municipality’s funds to an account for that municipality’s watershed protection. The remaining 10% supports the Technical Secretariat, which provides administrative and financial oversight, technical support, and raises money from outside sources. This 10% allows smaller municipalities to participate, those that would not earn enough money to create a water fund by themselves.

The funds also differ in the types of programs they support. FONAG invests primarily in communication, environmental education, and watershed planning and management activities. FORAGUA funds are spent on more direct conservation programs with a focus on developing and managing municipal watershed reserves. Activities include purchasing land, compensating landowners to remove cattle from the reserves to allow forest regrowth, and other direct land stewardship and protection activities.

An Innovative Solution

Within these watershed reserves, some areas were already owned by the municipalities or subject to some form of protected status. To conserve additional areas within their watersheds, virtually all of the municipalities have adopted land purchase as their primary conservation tool (with 37,681 acres purchased to date through the fund) instead of opting for annual compensation for environmental services (CES) payments to landowners.

There are several reasons for this. First, there is a need for permanent protection of land in these watersheds that provide the drinking water for the public. Second, it can be more cost-effective to make a one-time purchase of the land than to pay annual compensation for many years. Third, converting the land to public ownership avoids the risk of having to rely on future governments to continue annual CES payments.

 FORAGUA watersheds protection.

Protection of Watersheds under FORAGUA 2014. This table shows the total area declared as protected in every municipality and the percentage of that municipality´s main watersheds currently in conservation ownership. This includes areas bought or previously owned by the municipality and NCI, state-protected areas, and private lands that have entered into formal long-term conservation agreements. Source: FORAGUA archives

What about Biodiversity?

From a biodiversity perspective, the municipal reserves serve several functions: protecting critical remnants of highly-threatened ecosystems, serving as buffer zones that extend core protected areas, and increasing landscape connectivity by conserving forested riparian corridors. By protecting watersheds and their riparian forests, often in valley bottoms where these habitats are particularly scarce, municipal reserves can enhance habitat connectivity.

The fund also helps to protect aquatic ecosystems. Before the first land purchases in El Carmen, 100% of the stream flow was captured at the City of Loja´s intake. Now, an ecological (instream) flow usually remains immediately downstream of the intake, suggesting that reforestation has produced a larger and more consistent supply.

Most of the 37,681 acres of purchased land and 174,028 acres of watershed reserves created by FORAGUA´s municipalities protect and restore Andean cloud forests. Conservation International describes these forests as a “biodiversity hotspot,” one of the richest, most diverse ecosystems on earth with about one-sixth of all the world´s plant life in 1% of the world´s land area.

The areas around Loja city are particularly important as they protect the buffer zones of Podocarpus National Park, known for having the highest concentration of endemic plant species of any protected area in Ecuador as well as almost 600 species of birds. The remaining lands protected in FORAGUA are the species-rich, seasonal dry forests on the western slope of the southern Ecuadorian Andes. According to Birdlife International, this dry forest has the highest concentration of endemic birds of any non-rainforest ecosystem in Latin America.

FORAGUA’s Structure

FORAGUA is structured as a public trust fund with an eighty year term, and is governed by its constituent municipalities and NCI. As it is a regional fund, it’s composed of separate accounts or sub-funds for each participating municipality.

 FORAGUA Municipalities /></a><br /> <p style=

Municipalities in different phases of participation in FORAGUA (2014)


Joining FORAGUA is voluntary but if a municipality does decide to participate, it must adopt an ordinance with three elements:

• Establish the municipality´s authority to declare municipal reserves to protect both watersheds and other areas of high conservation value.

• Impose a fee on potable water users and designate that the fee money collected and passed to the FORAGUA trust fund be used only for watershed conservation purposes and management of the municipal reserves.

• Authorize enrollment in FORAGUA.

The water fees vary from 2 to 15 cents per cubic meter of water used per month, depending on the municipality and the user type (domestic, commercial, industrial, or government). This generally represents between 20% and 25% of the total monthly bill paid by users for clean water, or about a dollar per user per month.

Some municipalities tier their domestic user fee depending on high or low usage. The municipality of Paltas is unique in that it charges a flat fee of $0.50 per user per month regardless of the quantity of water consumed, and the city of Zamora is also unique in charging a $1 annual fee to the property rather than a water user fee.

 FORAGUA Users/></a><br /> <p style=

Number of users, water fee charged per cubic meter, and total amount contributed to FORAGUA by municipality. Sources: FORAGUA financial statements and ordinances

The funds raised can only be invested in specific measures that conserve, protect or recover environmental services and biodiversity within the participating municipalities. These activities include: land purchases, payments or compensation for environmental services, control and protection of natural vegetation, prevention and control of forest fires, reforestation and restoration of habitats, reserve management (basic infrastructure, trails, fencing, signage), environmental education, support to conservation processes in rural areas, and the monitoring of water quality and quantity.

Transparency in handling these funds as well as throughout all operations is a key feature of FORAGUA. The monthly water bills received by each user are clearly marked with the amount charged for the municipal watershed protection program. Additionally, citizens are informed of the activities and achievements of the municipal watershed protection programs through print and other media.

The FORAGUA website also publicizes FORAGUA’s achievements and provides samples of ordinances, maps and other information helpful to participating municipalities as well as those seeking to or in the process of joining.

A detailed procedure precedes participation in FORAGUA that involves technical assessments and multiple studies of the municipality’s water system and water quality issues. FORAGUA’s ultimate objective is to encompass the southern region of Ecuador that includes 39 municipalities spread over three provinces.

Fulfilling a Need

A water fund such as FORAGUA creates a local mechanism and capacity that achieves both water and biodiversity conservation. In doing so, it builds a local and financially sustainable response to the global crises of loss of natural habitat and ecosystem functions that sustain life on earth. It builds these municipalities´ economies and welfare, making them more in command of their water supply and less vulnerable to new threats such as global climate change.

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Renzo Paladines is Vice President and Director of NCI Ecuador. Fabian Rodas is the Cuenca Region Coordinator at NCI. Jos&eacute; Romero is NCI’s FORAGUA Coordinator. Byron Swift is NCI’s President. Luis L&oacute;pez is a technician and Matt Clark is a Senior Advisor at NCI.

Please see our Reprint Guidelines for details on republishing our articles.

Read the paper in full here.

Image courtesy of Juan Carlos Valarezo.

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