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 NRC DNPWC PES DIIS USDA JAPOE ESPH RUPES DDC EMSF CWR NEA MLD NWSC = Ecological Society of America = National Research Council = Department of National Park and Wildlife Conservation = Payment for Ecosystem Services = Danish Institute for International Studies = The United States Department of Agriculture = Junta Administradora de Agua Potable y Disposición de Excretas = Environmental Sanitation and Public Health = Rewarding Upland Poor for Ecosystem Services = District Development Committee = Environmental Management Special Fund = Community Wholesale Rate = Nepal Electricity Authority = Million Liter Day = 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 20

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). 1|Page

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 2|Page

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 3|Page

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 4|Page

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 6|Page

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 Till 059/60 060/61 061/62 062/63 063/64 TOTAL Source: NEA Generation Report, 2007. Detailed diagram is shown i in ANNEX I For the Fiscal Year 063/64 Discharge Rate Total Running Hours Total Generation O & M Expenditure Operation Cost, Rs/unit Generation Cost, Rs/Unit Transfer Cost, Rs/ Unit Productivity Ratio (MWh/Employee) Community Wholesale Rate (NRs./KWh) Source: NEA Generation Report, 2007. Total Power Generation in MWh 63453.29 4092.95 4211.62 2612.39 4355.48 78,725.73

150 liters/seconds 15,298 Hrs 4355.48 MWh 6,800,990 NRs 1.56 1.72 1.75 150.19 3.5 (After deducting O & M Cost, Generation
Cost and Supply Cost etc.)

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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 Production Deficit Average leakage Average value of Water ( NRs / m ) 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 12 | P a g e
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224 MLD 136 MLD 88 MLD 38% 11.98

= 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 Average Tariff (NRs/ m3) Total Revenue Generated Contribution per unit catchment (W) = 33.3 million m3 = 11.98 = 33.3 X 1,000,000 X 11.98 = NRs 398,934,000 = 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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REFERENCES
America, Ecological Society of. (1997, Spring). issue2.htm. Retrieved January 15, 2008, from http://www.esa.org/: http://eee.esa.org/sbi/issue2.htm Chomitz, K., Brenes, E., & Constantino, L. (1998). Financing Environmental Services: the Costa Rica Experience. and its Implications. Environmentally and Socially Sustainable Development, Latin America and Caribbean Region. Washington DC: World Bank. Danish Institute for International Studies. (2007). Payment for Ecosystem Services- Issues and Pro-Poor Opportunities for Development Assistance. Danish Institute for International Studies. Ecological Society of America. (2000). Ecosystem Services. Washington, USA. Emerton, L., & Iftikhar, U. A. (2006). Investigating the Delivery of Ecosystem Economic Benefits for Upland Livelihoods and Downstream Waster Users in Nepal. Colombo: IUCN The World Conservation Union. Farber, S., Costanza, R., & Wilson, M. (2002). Economics and Ecological Concepts for Valuing Ecosystem Services. In Ecological Economics (pp. 375-392). Isakson, R. S. (2002). Payments for Environmental Services in the Catskills: A SocioEconomic Analysis of the Agricultural Strategy in New York City’s Watershed Management Plan . FORD Foundation and Fundaci‘òn PRISMA, “Payment for Environmental Services in the Americas” Project, San Salvador. Kaiser, B., & Roumasset, J. (2002). Valuing Indirect Ecosystem Services: the Case of Tropical Watersheds. In Environment and Development Economics (pp. 701-714). Kallesoe, M., & Iftikhar, U. (2006). Conceptual Framework for Economic Valuation of Environmental Services in Southeast Asia for the RUPES Program. Klauer, B. (2000). Ecosystem Prices: Activity Analysis Applied to Ecosystems. In Ecological Economics (pp. 473-486). Kosoy, N., Tuna, M. M., Muradin, R., & Alier, J. M. (2005). Payment for Environmental Services in Watersheds: Insight From a Comparative Study of two Cases in Central America. Oxford.

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Nepal Water Supply Corporation. (2005). Annual Report. Kathmandu: Nepal Water Supply Corporation. Pattanayak, S., & Kramer, R. (2001). Worth of Watersheds: a Producer Surplus Approach for Valuing Drought Mitigation in Eastern Indonesia. In Environment and Development Economics (pp. 123-146). Rosa, H., Kandel, S., & Dimas, L. (2003). Compensation for Environmental services and rural Communities: lessons from the America and key issues for strengthening community strategies. San Salvador: PRISMA. The National Research Council. (2007). Valuing Ecosystem Services: Toward Better Environmental Decision-Making. Washington: The National Academy of Sciences. The US Department of Agriculture. (2007, February). Capturing the true value of nature’s capital. Valuing Ecosystem Services . Wilson, M., & Howarth, R. (2002). Discourse-based Valuation of Ecosystem Services: Establishing Fair Outcomes Through Group Deliberation. In Ecological Economics (pp. 431-443). Wunder, S. (2005). Payments for environmental Services: some nuts and bolts. CIFOR Infobrief , 9.

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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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