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

LETTER OF APPROVAL........................................................................................................ii

ACKNOWLEDGEMENT........................................................................................................iii

ACRONYMS............................................................................................................................iv

ABSTRACT..............................................................................................................................v

LIST OF TABLES....................................................................................................................vi

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 BackgroundEcosystem 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 WatershedA 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

when upstream holders make decisions about their own land use. Still, the payment schemes

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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

will depend on the ecosystem services of concern, potential buyers and sellers, the legal and

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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 ReviewA 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

change. Though, the actual fee for PES was only 3.6 % of the estimated willingness to pay

among water users (Kosoy, et al., 2005).

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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

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

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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 RationalePayment 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 ObjectivesThe 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 descriptionLocated 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 MethodThe 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 AnalysisFor 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 StationThe 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 NWSCThe 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 SystemSundarijal 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 systemSundarijal 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 m3 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%

Average value of Water ( NRs / m3) 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) = C X R

= 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 m2. 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 CONCLUSIONThe 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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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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