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Valuation of Watershed services in Sundarijal Watershed

A Case Study on Payment for Ecosystem Services

By
RABIN RAJ NIRAULA
As an Partial Fulfillment of the requirements for the completion of
M.Sc. Ist Year.

Submitted To
Central Department of Environmental Science
Tribhuvan University

Kirtipur, Kathmandu
MARCH, 2008

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ACKNOWLEDGEMENT

This Report has only been possible due to the help of various persons whom I would like to
acknowledge. I wish to express my sincere gratitude to Prof. Dr. Umakanta Ray Yadav,
Head of Department, Central Department of Environmental Science, for his initiation and the
support.
I am equally thankful to Mr. Gyan Kumar Chippi Shrestha for his continued supervision and
enthusiastic support.

My humbliest Appreciation goes to Mr. Lekh Nath Koirala for providing me all necessary
informations in his reach.

Last but not the least, Genuine thanks goes to all my supporting friends for help, advice, and
information. All remaining errors are the authors’.

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ACRONYMS

ESA = Ecological Society of America


NRC = National Research Council
DNPWC = Department of National Park and Wildlife Conservation
PES = Payment for Ecosystem Services
DIIS = Danish Institute for International Studies
USDA = The United States Department of Agriculture
JAPOE = Junta Administradora de Agua Potable y Disposición de Excretas
ESPH = Environmental Sanitation and Public Health
RUPES = Rewarding Upland Poor for Ecosystem Services
DDC = District Development Committee
EMSF = Environmental Management Special Fund
CWR = Community Wholesale Rate
NEA = Nepal Electricity Authority
MLD = Million Liter Day
NWSC = Nepal Water Supply Corporation

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ABSTRACT

Sundarijal Watershed in Shivapuri National Park has been providing watershed services to
Kathmandu Valley population in terms of Hydropower generation and Drinking water
supply for which the local inhabitants or the upstream villagers have been paying an
opportunity cost implied by command and control method of conservation in the area. This
study carried out in January, 2008 is focused on the valuation of such service which collects
huge amount of revenue by selling the services. In this study, benefits generated by
Hydropower Generation and Drinking Water Supply are valuated in terms of per unit
volume of water consumed and per unit area of land contributing to the service. And finally
a economic environment around the aspects of watershed services are revealed in this study
that can promote livelihood supporting incentives to upstream villagers, motivate for
conservation activities and suggest economic tool between service provider, beneficiaries
and upstream villagers. I hope this study will be useful in developing economic tool for the
sustainable cooperation in the watershed.

Keywords: Payment for Ecosystem Service, Sundarijal, Watershed Service

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LIST OF TABLES
Table 3.1: Total Power generated by Sundarijal Hydropower Station
Table 3.2: Details on Sundarijal Hydropower station, 2007
Table 3.3: Details on Sundarijal Drinking Water Supply, 2006

LIST OF ANNEX

Annex 1.1 : Illustration of Electricity Generation in Sundarijal HPS in recent five fiscal
years.
Annex 2.1: Shivapuri National Park and Sundarijal sub-Watershed.
Annex 2.2: Satellite image of Sundarijan area showing Hydropower station and water
supply Reservoir.

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Table of Contents
ACKNOWLEDGEMENT.......................................................................................................iv
ACRONYMS............................................................................................................................v
ABSTRACT............................................................................................................................vi
LIST OF TABLES.................................................................................................................vii
1 INTRODUCTION..................................................................................................................1
1.1 Background......................................................................................................................1
1.1.1 Hydrological Services in Sundarijal Watershed.......................................................2
1.1.2 Payment for Ecosystem Services (PES)...................................................................3
1.2 Literature Review.............................................................................................................5
1.3 Rationale..........................................................................................................................7
1.4 Objectives........................................................................................................................8
1.5 Limitations.......................................................................................................................8
2 MATERIALS AND METHODS...........................................................................................9
2.1 Site description.................................................................................................................9
2.2 Data Collection Method...................................................................................................9
2.3 Data Analysis...................................................................................................................9
2.3.1 Valuing water used by Sundarijal Hydropower Station.........................................10
2.3.2 Valuing water supplied by NWSC..........................................................................10
3 RESULTS.............................................................................................................................11
3.1 Data Collection and Analysis.........................................................................................11
3.1.1 Hydropower Generation System.............................................................................11
3.1.2 Water Supply system..............................................................................................12
4 DISCUSSION.......................................................................................................................15
5 CONCLUSION.....................................................................................................................16
REFERENCES.......................................................................................................................17
ANNEX I................................................................................................................................19
ANNEX II...............................................................................................................................20
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1 INTRODUCTION

1.1 Background
Ecosystem Services are the processes by which the environment produces resources that we
often take for granted such as water, food, fuel wood, biodiversity, weather and much more.
Whether we find ourselves in the city or a rural area, the ecosystems in which humans live
provide goods and services that are very familiar to us.
“An ecosystem is an aggregation of biological and physical environment interacting with
each other. Ecosystems include physical and chemical components, such as soils, water, and
nutrients that support the biological community within them. People are part of ecosystems.
The health and well-being of human populations depends upon the services provided by
ecosystems and their components - organisms, soil, water, and nutrients.” (Ecological
Society of America, 2000).
Environmentalists work to understand and explain as well, the interconnection and
interdependence of the components within ecosystems. Although substantial understanding
of many ecosystem services and the scientific principles underlying them already exists,
there is still much to learn. The tradeoffs among different services within an ecosystem, the
role of biodiversity in maintaining services, and the effects of long and short-term
perturbations are just some of the questions that need to be further explored. The answers to
such questions will provide information critical to the development of management strategies
that will protect ecosystems and help maintain the provisions of the services upon which we
depend.
Ecosystem services are so fundamental to life that they are easy to take for granted and so
large in scale that it is hard to imagine that human activities could destroy them.
Nevertheless, ecosystem services are severely threatened through (a) growth in the scale of
human enterprise (population size, per-capita consumption, and effects of technologies to
produce goods for consumption) and (b) a mismatch between short-term needs and long-term
societal well-being (America, Ecological Society of, 1997)
Until the economic value of ecosystem goods and services is acknowledged in environmental
decision-making, they will implicitly be assigned a value of zero in cost-benefit analyses, and
policy choices will be biased against conservation (The National Research Council, 2007).

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Sundarijal Sub catchment is situated in Shivapuri National Park in Nepal that protects a vital
catchment as it is the upstream watershed section for the Bagmati, Bishnumati, Nagmati and
Yashomati rivers. Water running out of this sub catchment has been utilized in
hydroelectricity production, irrigation as well as drinking water supply for downstream
(Kathmandu valley) residents. It is estimated that this watershed contributes up to a fifth of
the total drinking water demand for Kathmandu valley (Nepal Water Supply Corporation,
2005). This Sub-Catchment has been protected under Shivapuri National Park by DNPWC.
In Sundarijal Watershed, the most economically vulnerable groups exist to be located in
upstream areas, where land is more prone to suffer from erosion. Nevertheless, these rural
communities are often providers of environmental services benefiting other groups in
downstream areas with a better socioeconomic status.
When Shivapuri was declared as a protected area, the majority of villagers living within its
boundaries were resettled elsewhere (Emerton & Iftikhar, 2006). And, many more
Conservation activities has been carried out by the authorities for conservation of ecosystem
in this area despite the life supporting activities of villagers inside the park area still
responsible for the depletion of ecological resources in this area.
Now, accounting the fact that hydrological services provided by this catchments has
benefited downstream valley insiders, a new economic environment is essential to be created
in order to support livelihood of upstream inhabitants that can motivate them to stop
depleting activities related to their life supporting behaviors or carry out conserving activities
to establish sustainable and managed catchments.
Forests and forested watersheds are of particular interest among developing countries, whose
governments are said to ‘often look to their forests as a standing asset that can be liquidated
to solve financial problems (Kaiser & Roumasset, 2002).

1.1.1 Hydrological Services in Sundarijal Watershed


A watershed service can be defined as the improvement or maintenance of the ecological
characteristics of the watershed that results from soil and water conserving land uses
(Pattanayak & Kramer, 2001).
Watershed services like hydroelectricity production, irrigation and drinking water supply are
the vital ecosystem services provided by the sundarijal sub-catchment and degradation in
quality as well as quantity of water yield can be of serious interest for authorities as well as

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downstream benefited population. Livelihood of villagers can be directly or indirectly
affecting the ecosystem that in turn can affect the services provided by it. Timber and fuel
wood harvesting activities can decrease water yield as well as degrade quality of water, also
agricultural practices and sanitation practices can affect the economic as well as ecological
quality of the hydrological service provided by the catchment basin. The hydrological
services from sundarijal watershed for downstream benefits are:
• Annual water yield (relative to rainfall received)
• Regularity of water flow (relative to pattern of rainfall)
• Quality of the water (in relation to that of the inflow)
• Micro-climate regulation (linked to evapotranspiration)
• Modification of mass movement (landslides) and soil fluxes

1.1.2 Payment for Ecosystem Services (PES)


The most precise – and, some would argue, restrictive – definition of PES is that offered by
Sven Wunder and his colleagues. They define PES as a “voluntary, conditional transaction
with at least one seller, one buyer, and a well-defined environmental service” (Wunder,
2005).
Payment for Ecosystem service (PES) is an economic tool in which the beneficiaries of
ecosystem services pay back to the providers or promoters of those services. The PES
concept can be thought as the complement to the “Polluter Pays Principle”. Services that are
mainly provided thanks to the well being of ecosystem come under ecosystem services. PES
can provide economic resource to managing authorities that creates an arrangement of
rewards and incentives for upstream villagers developing a well managed natural
environment as well as securing vital downstream water benefits (Danish Institute for
International Studies, 2007).
Payments for ecosystem services has been proposed as promissory tools, alternative to
command-and-control instruments for watershed management as well as forest and
biodiversity conservation.
The economic logic of PES schemes dealing with the promotion of particular land use
changes in watersheds is simple: by means of establishing market transactions between
downstream and upstream economic agents, the downstream effects are taken into account

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when upstream holders make decisions about their own land use. Still, the payment schemes
for environmental services should fulfill the following two conditions in order to be efficient:
i) the compensation of upstream landholders should be at least equal to the opportunity cost
of land use, and ii) the amount of the payment should be lower than the economic value of
the environmental externality (Kosoy et al., 2005)
Ecosystem Values ultimately originate from within the constellation of shared goals to which
a society aspires – value systems – as well as the availability of ‘production technologies’
that transform things into satisfaction of human needs (Farber, Costanza, & Wilson, 2002).
Valuation of ecosystem services should be elicited through free and open public debate. This
will enhance the social equity of the final decision, in contrast to other methods that rely on
individual estimates of WTP or WTA. Ideally, “fair social decisions are defined as those that
would be unanimously agreed upon by individuals conceived as free and equal moral persons
(Wilson & Howarth, 2002).
PES focuses on estimation of the value of indirect ecosystem services that do not contribute
to the production of a well-valued final good (e.g. public goods). It uses the shadow price as
calculated from an optimizing model to estimate the discounted net present value of water
resources with a conservation policy aimed at the indirect service (tropical forest cover, in
this instance), and without the conservation policy (Kaiser & Roumasset, 2002).
Based on analogy between ecological and economic systems – PES uses mathematical
economic price theory and applies to ecosystems to derive values based on gross ecosystem
outputs. Estimated prices are not comparable to economic prices because here is no relation
to individual evaluations, nor are they comparable over time (and structural changes).
Recommendations cannot be directly concluded for actions for society from ecosystem prices
since they reflect the functional interrelations in an ecosystem but not directly the social
desirability. However, the aggregate information about functional interrelations can of course
support the decision-making process (Klauer, 2000).
Putting a “price” on natural assets, recognizing the environmental, economic, and social
values of forest ecosystem services, is one way to promote conservation and more
responsible decision-making. There isn’t a single best approach to market-based
conservation. A variety of compensation mechanisms are often used jointly with traditional
regulation to successfully achieve conservation objectives. The most appropriate approach

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will depend on the ecosystem services of concern, potential buyers and sellers, the legal and
regulatory climate, institutional capability, and local and regional conditions (The US
Department of Agriculture, 2007).
Until the economic value of ecosystem goods and services is acknowledged in environmental
decision-making, they will implicitly be assigned a value of zero in cost- benefit analyses,
and policy choices will be biased against conservation (The National Research Council,
2007).

1.2 Literature Review


A report of Danish Institute for International Studies, 2007 regarding Payment for Ecosystem
services revealed the fact that among a total of 167 cases of specific types of ecosystem
services, almost two-thirds deal with hydrological services, while around half deal with
biodiversity conservation and carbon sequestration, respectively. Also comparing all the PES
experiences, 45% of those have taken place in Watershed.
The PES concept developed during the 1990s. Although it is hard to locate the exact origin of
the concept, many associate PES with Latin America and particularly Costa Rica. For several
years, the Costa Rican government had been granting tax deductions, and later subsidies, in
return for reforestation. However, as part of the negotiation of the third structural adjustment
loan, the Costa Rican government had to eliminate these direct subsidies. Instead, the
Payments for Environmental Services was introduced with the amendments to the Forestry
Law, to be financed through a tax on fossil fuel consumption (Danish Institute for
International Studies, 2007).
Jesus de Otoro, Honduras has about 5,200 inhabitants, 70 % of which benefit from water
services from the watershed of the Cumes River. PES scheme was introduced in this locality
in 2002. The local Council for Administration of Water and Sewage Disposal (Junta
Administradora de Agua Potable y Disposición de Excretas –JAPOE) administers the fund of
the scheme. The JAPOE charges water users for its services to 1,269 households. Water users
also pay an additional fee in their water bill for the PES scheme, which in 2004 was 0.06
US$ (1 Lempira) per household, per month. The Municipality is supposed to contribute with
1% of its annual income to the PES fund. This scheme signed a contract between service
providers and JAPOE regarding the amount of payment and commitment for land use

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change. Though, the actual fee for PES was only 3.6 % of the estimated willingness to pay
among water users (Kosoy, et al., 2005).
Heredia, a city in Costa Rica is provided with water service from the watershed of the Virilla
river, particularly from the sub-watershed of the rivers Segundo, Ciruelas y Tibás. The PES
scheme in this locality was designed and is currently managed by ESPH, a public local
enterprise for water provision and sanitation. 48,667 households legally hire the services of
ESPH. The PES scheme was created in 2002, by initiative of ESPH, in order to avoid
deterioration of the upstream area of the watershed, where water sources are located. As in
the case of Jesus de Otoro, in Heredia water users contribute to the PES scheme by means of
an additional fee to their regular water bill that happens to be 0.008 US$/m3, which was
about 6% of the normal water fee for households. The amount of the fee charged to users was
decided on political grounds, and it is lower than the estimated willingness to pay of users
(Kosoy et al., 2005).
In Costa Rican PES experience, in the arrangement negotiated with Energía Global, a private
electricity provider; landowners in watershed areas are paid US$ 10/hectare/year to maintain
or restore forest cover on their plots. The company’s rationale for this investment is that the
maintenance of forest cover smoothes streamflows, which guarantees water supply to small
hydropower reservoirs, which in turn maximises electricity output and revenues. When
streamflow exceeds the plant’s capacity for more than five hours, the excess water must be
spilled. Each lost cubic metre of water translates into approximately US$ 0.065 in lost
revenue. It is estimated that the company’s investment in payment to landholders will pay off
if it succeeds in capturing an extra 460,000 cubic metres per year for generation (Chomitz,
et al., 1998).
In Portland Oregon, Portland Maine and Seattle Washington it has been found that every
US$ 1 invested in watershed protection can save anywhere from US$ 7.50 to nearly US$ 200
in costs for new water treatment and filtration facilities (Reid 2001). Similarly, through
conserving upstream forests in the Catskills range, New York City hopes to have avoided
investing an extra US$ 4-6 billion on infrastructure to maintain the quality of urban water
supplies (Isakson, 2002).
RUPES is a program for developing mechanisms for rewarding the upland poor in Asia for
the environmental services they provide. Kulekhani watershed drains to a reservoir that

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supplies water to two hydroelectricity plants located downstream. Land use behavior of
people residing in this watershed can influence Electricity generation capacity and life of
hydropower plants. By adopting appropriate land use practices, the residents of the
Kulekhani watershed were providing valuable environmental services that were benefiting
the hydropower developer, central and local governments of Nepal, and electricity users.
RUPES program helped to establish a mechanism to reward these upland communities for
supplying beneficial environmental services.
In late 2006, the Makwanpur DDC deposited a first installment of US$6,850 (of the
allotment of US$54,795 for 2006-07) in a new Environmental Management Special Fund
(EMSF). Deposits for all 2006-07 will total US$54,800. The EMSF is managed by a newly
established group made of representatives from the Kulekhani communities. The EMSF
receives 20 percent of the royalty share of Makwanpur DDC, and will support conservation
and development programs proposed by the communities. A committee of stakeholders
including representatives from the suppliers and beneficiaries of environmental services will
select the proposals to be supported by EMSF. (Kallesoe & Iftikhar, 2006).

1.3 Rationale
Payment for Ecosystem Services (PES) is an excellent economic tool in reallocating the
economic resources by collecting revenues from beneficiaries, and providing rewards or
incentives to upstream villagers whose livelihood activities directly affect the environment of
the watershed. The conservation activities of upstream people for the preservation of the
ecosystem in one way or other compromises their livelihood, it is therefore why those who
are benefited by the services should pay for the benefits and those who are working for the
preservation should be rewarded in turn. In most cases, park managing authorities are unable
to support livelihoods of rural people with insufficient economic resources that may lead to
mismanagement of natural ecosystem, but PES can effectively create economic resource that
will empower the management activities in such areas. PES can clear out the misleading idea
of common property resources by setting certain cost for the ecosystem service instead of
providing it as granted. PES in sundarijal watershed can collect revenues from downstream
beneficiaries and support upstream villagers economically maintaining a sustainable
interaction and ecosystem regulation.

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1.4 Objectives
The general objective of this study is to identify the possibilities of arrangements for PES for
Hydrological (Watershed) services in the area.
The specific objectives of this study are:
• To valuate the generation and benefits from hydropower system,
• To valuate the supply of drinking water and its benefits,
• Projection of possible incentives for the upstream people,

1.5 Limitations
• Unavailability of data in the department of Water supply created gaps in the result.
• Benefit of drinking water supply was not calculated due to lack of supply and
maintenance data.

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2 MATERIALS AND METHODS
2.1 Site description
Located 12 km north from Kathmandu,in the southern fringe of Shivapuri National Park,
Sundarijal Watershed covering an area of 15.76 km2 is a vital Catchment for Bagmati,
Bishnumati, Nagmati along with some streams ( illustration in ANNEX II). Shivapuri was
declared as protected area in 1973 and was raised to Watershed and Wildlife Reserve; later in
2002 it was gazette as Shivapuri National Park. Presently, it is managed by Department of
National Parks and Wildlife Conservation with the support of Nepal Army. More than
1000,000 people live in and beside the park and depend on its resource in some way
(Emerton & Iftikhar, 2006). Particularly, there are three villages within the park boundaries
namely Okhreni, Mulkharka and Une containing more than 500 households. These
households largely depend upon resources of the watershed for agriculture, fuel-wood,
timber and fodder. Most importantly, these households show high incidents of poverty.
Whereas, it is stated that majority of villagers living within the boundaries were resettled
elsewhere when shivapuri was declared as protected area (Emerton & Iftikhar, 2006).

2.2 Data Collection Method


The field visit was conducted on February 2008. Sundarijal Sub- catchment was the area of
study which contained one hydroelectricity power plant and one water supply system
distributing hydrological service from the watershed. Primary data collection regarding
drinking water supply and hydroelectricity production was not feasible. Hence, secondary
data from reliable sources were appreciated for the study. Attributes of Ecosystem services of
the watershed was analyzed by self observations and interviews.

2.3 Data Analysis


For the calculation of value of watershed services by hydropower and drinking water supply,
simply cost- benefit analysis method is applied. Revenue collected by each of the
organization is noted, and all the expenses made during that income generation is deducted to
find the net benefit made by the organization. After having calculated the net profit made, the
unit value of water is obtained by dividing the net profit by the total volume of water used.

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2.3.1 Valuing water used by Sundarijal Hydropower Station
The Discharge rate of the penstock pipe as well as total working hours of the station were
used to calculate the total volume of water used as a service from the watershed. Annual as
well as Average Hydropower production information were used to determine the monetary
value of the service produced from the station. Also, the Operational and maintenance cost
were deducted from the total production to calculate the net benefit from the station.
Mathematically,
Total volume of water used (V) =Q X H
Where,
Q = Discharge Rate (m3/s)
H = Total running hour of the system (secs)

Total Profit for NEA in NRs.(M1) = Energy in kWh X CWR


Where, CWR = Community Wholesale Rate of NEA (NRs/kWh)
Value per unit volume of water (NRs/m3) = Total Profit (NRs)/ Volume of water used (m3)

Water Yield per unit catchment (C1) = V / catchment area (in m3 per year per unit area )

2.3.2 Valuing water supplied by NWSC


The total volume of drinking water supply contributed from sundarijal watershed is
calculated and valuation in monetary term is done on the basis of tariff rate.
Average value of supplied water (NRs/m3) = Total volume supplied X tariff rate
Total profit for NWSC (M2) = Total volume supplied X (tariff-supply cost)
Water yield per unit catchment (C2)= Supply / catchment area (in m3 per year per unit area
of land

Total economic value


Total valuation is done by adding the monetary valued of hydropower generation and water
supply.
Total economic value of watershed service = M1 + M2
Total revenue generated per uint catchment = C1 + C2

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3 RESULTS
3.1 Data Collection and Analysis
3.1.1 Hydropower Generation System
Sundarijal Hydropower Station is a run-off-river power station having installed capacity of
0.64 MW with 2 units of 0.32 MW each. The powerhouse was commissioned in the year
1991 BS with designed annual generation of 4.77 GW h. The water supply to Kathmandu has
been tapped from the tail-race of this powerhouse, which gives this powerhouse a great
importance and also forced the NEA, to keep this powerhouse running most of the time.
Fiscal Year Total Power Generation in MWh
Till 059/60 63453.29
060/61 4092.95
061/62 4211.62
062/63 2612.39
063/64 4355.48
TOTAL 78,725.73
Source: NEA Generation Report, 2007.
Detailed diagram is shown i in ANNEX I

For the Fiscal Year 063/64


Discharge Rate 150 liters/seconds
Total Running Hours 15,298 Hrs
Total Generation 4355.48 MWh
O & M Expenditure 6,800,990 NRs
Operation Cost, Rs/unit 1.56
Generation Cost, Rs/Unit 1.72
Transfer Cost, Rs/ Unit 1.75
Productivity Ratio (MWh/Employee) 150.19
Community Wholesale Rate (NRs./KWh) 3.5 (After deducting O & M Cost, Generation
Cost and Supply Cost etc.)
Source: NEA Generation Report, 2007.

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3.1.2 Water Supply system
Sundarijal Water Treatment Plant was constructed in the year 1966. The system for the
collection and supply of water is gravity flow. The plan is managed by Nepal Water Supply
Corporation, under the Nepal Government. There are two intakes for the collection of water,
one is the tail-race of the Sundarijal Hydropower Station and the other is from the Diversion
made on Bagmati Main River about 100m upstream from collection tank. The maximum
capacity of the system is 50MLD of which, 30 MLD is for raw water to Mahankal Water
Treatment Plant (MWTP) and 20MLD for Treated water.

Altogether there are 4 reservoirs in mahankal and 3 in Sundarijal, with a total storage
capacity of 9 Million liter and 14.4 Million liter respectively at each location. Water
contribution of Sundarijal Watershed to Kathmandu Valley for the Drinking water purpose
distributed by NWSC is accounted to be 27% that becomes 33.3 million m 3 in volume while
compared with a total of 162 million m3 of water volume supplied in the valley annually.
Though exact information of Sundarijal supply is lacking, an overall scenario of Kathmandu
valley as presented by NWSC is as follows:
For the Fiscal Year 061/062
Demand 224 MLD
Production 136 MLD
Deficit 88 MLD
Average leakage 38%
3
Average value of Water ( NRs / m ) 11.98
Source: NWSC, Annual Report 061/062

3.1 Analysis of Water supplied to Hydropower Station


The Annual Hydropower generation for the fiscal Year 063/064 is analysed as follows:
Total Volume of Water Supplied (V) = Discharge Rate (Q) X Running Hours (H)
= 150 lt/s X 15,298 X 3600 secs
=8,260,920,000 liters per year
=8260920 m3 per year
Total Profit for NEA in NRs (M1) = Generated Energy (KWh) X CWR

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= 4355.48 X 1000 X 3.5
= 15,242,500 (in NRs)
Profit per unit Volume of Water (R) = Total Profit (M1) / Total Volume (V)
= 15242500 / 8,260,920
= 1.845 NRs per m3
Water Yield per unit Catchment (C1) = Volume (V) / Catchment Area (A)
= 8260920 m3 / 15.76 km2
= 0.524 m3/ area in m2
Contribution per unit area of land (C) =CXR
= 0.524 X 1.845
= 0.966 NRs per m2 of land

3.2 Analysis of Drinking Water supplied by NWSC


Total volume of water supplied = 33.3 million m3
Average Tariff (NRs/ m3) = 11.98
Total Revenue Generated = 33.3 X 1,000,000 X 11.98
= NRs 398,934,000
Contribution per unit catchment (W) = Total Revenue / catchment area
= NRs 398,934,000 / 15.62 km2
= NRs 25.54 per m2
(without deduction of overall costs)
NOTE I: Economic valuation of catchment area in reference of drinking water supply
shows monetary conversion without deduction of operation and maintenance cost, supply
cost and overhead cost.
NOTE II: Hydroelectricity generation doesn’t consume the water but makes use of
potential energy of the water. Hence Profits made by NEA are only required to be
considered for economic valuation. Whereas, Drinking water supply consumes water
flowing out of the watershed, hence revenue generated by water supply is subject of
interest for the valuation of watershed service.

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3.3 Calculating Total Value
Total economic value of the hydrological services provided by the Sundarijal watershed can
be calculated by summing up the revenues generated by hydropower generation as well as
drinking water supply.
Total economic value of watershed service = M1 + M2
= 15,242,500 + 398,934,000
= 414,176,500 NRs.
Total Contribution per unit area of catchment = C + W
= 0.966 + 25.54
= 26.54 NRs per unit area of catchment.

NOTE: the result should not be misinterpreted as the share of benefit from water supply was
not available and total valuation was applied for water supply.

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4 DISCUSSION
Mathematical calculations have derived general information about the economic value of
Sundarijal watershed and the monetary value of the payment from the beneficiaries that
are collected by the service providers. In this context, Sundarijal Hydropower Station has
used some 8260920 m3 volume of water annually and 4335.48 MWh electricity was
generated in the fiscal year 2063/064. Hence it has collected revenue of NRs 15,242,500.
Also, calculating the value of hydrological service provided by unit area of land
regarding electricity generation, it was obtained to be NRs 1.845 per m 2. Also, a total of
33.3 million m3 of water supplied as drinking water to Kathmandu valley per year
generates revenue of NRs 398,934,000 per year. Now converting the total revenue into
revenue generated per unit area of the catchment, it happens to be NRs 25.54 per m2 of
area.
Finally, the sum of revenue per unit area in terms of electricity generation and drinking
water supply gives the total economic value of unit area of Sundarijal catchment, which
is calculated to be NRs 26.54 per m2.
The total Land area in Sundarijal watershed does not account to be under private
authority of person or community, but occurs as a public property managed by the
government. But for the villagers occurring inside the catchment area the small portion of
their private land provides year round livelihood support for them. They certainly harvest
various resources from the watershed for different purposes. Now, incurring command
and control for the conservation or economic purpose incorporates an opportunity cost
for the villagers. This may bring chaos for villagers and managing authorities. Or even
preventing local inhabitants from using their local resources for mere harvest of services
to far situated population should not be practiced.

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5 CONCLUSION
The economical study of watershed services in Sundarijal sub catchment area showed
that the harvest of hydropower generation and drinking water supply from Sundarijal
creates an economic environment with certain cost and benefits for the service providers,
as well as opportunity cost for the local inhabitants in terms of watershed resources. The
value per cubic meter of water used by Sundarijal Hydropower station is found to be
1.845 NRs per m3. Whereas the water yield per unit area of catchment is found to be
0.524 m3 per m2. The contribution of catchment in terms of benefit for hydropower
station is found to be 0.966 NRs per m2.
As supply and maintenance cost for drinking water supply was not available, the total
revenue generated by NWSC from sundarijal water supply was calculated to be NRs
398,934,000 and the contribution of the catchment was found to be 25.54 NRs per m2 of
land.
In total, 26.54 NRs per m2 of land of the catchment seems to be what service providers
are harvesting in benefits. Without exact information of how much earning of local
inhabitant is the cost.
For the sustainable interaction between watershed, local inhabitants and service providers
a need is studied that the local inhabitants should be rewarded if their conservation
activities provides increase in revenue for the service providers or even better service for
the beneficiaries should collect a monetary compensation for the opportunity cost for the
upstream villagers.

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Nepal Water Supply Corporation. (2005). Annual Report. Kathmandu: Nepal Water Supply
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ANNEX I

Annex 1.1 : Illustration of Electricity Generation in Sundarijal HPS in recent five fiscal
years.

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ANNEX II

Annex 2.1: Shivapuri National Park and Sundarijal sub-Watershed

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Annex 2.2: Satellite image of Sundarijan area showing Hydropower station and water
supply Reservoir.

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AUTHOR

Rabin Raj Niraula


M. Sc. 1st Year
Central Department of Environmental Science
Tribhuvan University
Kirtipur, Kathmandu

For any comments:


Robin.niraula@gmail.com, Robain12@hotmail.com
+977-984-159-6629
OM Nagar Marg, -413/17
Sinamangal, Kathmandu, Nepal

Declaration:
The findings, interpretations, and conclusions are the authors’ own, and are
not to be attributed to the Central Department of Environmental Science, its
Head of the Department, or any of its teachers or students.

The Report may be freely cited as: (handle errors on your own)

Niraula, R.R. 2008. Valuation of Watershed services in Sundarijal Watershed: A Case Study
on Payment for Ecosystem Services. Kathmandu: Central Department of
Environmental Science, Tribhuvan University.

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