The Economic Value of Basin Protection to Improve the Quality and Reliability of Potable Water Supply: Some Evidence from Ecuador

Urban households perceiving the existing water tariffs as too expensive have a
significantly lower WTP for the basin preservation program. To help determine the
appropriateness of the tariff in Loja, we compared the water tariffs in Loja with the tariffs in
other Ecuadorian cities of comparable size and demographic composition. For example, in 2002
the tariff paid by residential consumers in Ambato was $0.22/m³ and in Ibarra $0.16/m³ (Yepes,
2003). These values are 69% and 23% higher, respectively, than the average tariff of $0.13/m³
paid by residential consumers in Loja in 2004 and 2005 (Benavides and Arias, 2005). Hence,
and increase awareness of water tariffs in Loja versus other comparable cities in the country
could help to gain additional support for the basin protection and conservation projects.

Using the aggregate benefit estimate we evaluated the feasibility of financing a project to
preserve the basins. The project comprises purchasing the land and establishing a management
plan that includes natural regeneration of the forests and conservation of the basin areas. The
total cost of such project assuming an infinite horizon is substantially lower than the aggregate
benefits estimated using the WTP survey results. This indicates that Loja households would
strongly support a program to preserve the basins that deliver drinking water. The scope of the
project could easily be expanded to protect and preserve an additional 1,310 hectares in the two
other micro-basins that serve as source of the remaining 66% of water used in Loja (NCI, 2006).

There are also other possibilities regarding the project implementation arrangements. An
alternative to the purchase of the micro-basins land areas would be a payment to landowners to
protect the environmental services provided by the basins without changing land ownership.
Arrangements like this have been successful in other parts of the country (Wunder and Alban,
2008). Both systems should be equivalent in terms of the capital value of the projects but

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