i

FINANCIAL MECHANISMS FOR WATER CONSERVATION AND THE

SURROUNDING DEBATES ABOUT PAYMENTS FOR ECOSYSTEM

SERVICES: AN ANALYSIS OF QUITO’S WATER FUND

by

Maria Jose Viteri Campuzano

(1311463)

2014

The dissertation is submitted as part of the Master of Arts degree in Evironment and

Development at King’s College London

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KING’S COLLEGE LONDON

UNIVERSITY OF LONDON

DEPARTMENT OF GEOGRAPHY

MA/MSc DISSERTATION

I, Maria Jose Viteri Campuzano hereby declare (a) that this

Dissertation is my own original work and that all source

material used is acknowledged therein; (b) that it has been

specially prepared for a degree of the University of London;

and (c) that it does not contain any material that has been or

will be submitted to the Examiners of this or any other

university, or any material that has been or will be

submitted for any other examination.

This Dissertation is 11060 words.

Signed: …………………………………….…………….

Date: …………………...………………………………

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ABSTRACT

Quito is among the nation's most populated areas that get their water supply structure from

the high plateaus of the Andean Mountains. Even though in great condition, this water does

not appreciate boundless or perpetual accessibility - it needs security. FONAG is the first

water fund created in Quito, and still is a working project. It is undeniable that in their

indicators, the watershed has been effectively preserved. However, there are still strong

difficulties, usually consequence of a market system, such as: poverty, and power and social

inequality. Also, there is a problem with representativeness from local groups, which makes

social exclusion a big limitation. The fund works with end users and resource providers in a

geographic area that spans the basin High Quality of Guayllabamba River in inter-Andean,

and the upper reaches of Oyacachi, Papallacta and Antisana. The difficulty FONAG support

for water users means that efforts have focused on the contributions of the largest users.

However, this also results in the concentration of power in decision-making and the right to

vote EMAAP-Q and EEQ.

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TABLE OF CONTENTS

ABSTRACT ............................................................................................................................ iii

TABLE OF CONTENTS ....................................................................................................... iv

TABLE OF FIGURES ............................................................................................................ vi

TABLE OF TABLES ............................................................................................................. vii

ACKNOWLEDGEMENTS ................................................................................................ viii

CHAPTER 1: INTRODUCTION ........................................................................................... 1

1.1 Background of the Study ............................................................................................... 2

1.1.1 Quito’s Water Fund Background ............................................................................... 4

1.1.2 Stakeholders of Quito’s Watershed ............................................................................ 6

1.2 Aim & Objectives of the Research ................................................................................ 6

CHAPTER 2: LITERATURE REVIEW .............................................................................. 8

2.1 Ecuadorian Legal Framework ...................................................................................... 8

2.1.1 Constitution and Sumak Kawsay (Good Living): the new environment and

development paradigm adopted in the Ecuadorian Constitution ........................................ 8

2.1.2 Legal and political context of water management in Ecuador ................................... 9

2.2 Incentives in the Natural Resources ............................................................................ 10

2.2.1 Sustainability in the Context of Natural Resources ................................................. 12

2.3 Payments for Ecosystem Services (PES) and Commodification Process ................ 15

2.4 Marx Ecology (and Engels) .......................................................................................... 17

2.5 Eco-Marxist approach .................................................................................................. 17

2.5.1 Economic Hegemony ............................................................................................... 18

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2.6 Political Ecology ............................................................................................................ 23

2.6.1 Deep Ecology ........................................................................................................... 24

2.6.2 Neo-colonialism ....................................................................................................... 25

CHAPTER 3: METHODOLOGY ....................................................................................... 28

3.1 Epistemology .................................................................................................................. 28

3.2 Research Methodology ................................................................................................... 28

3.3 Research Ethics ............................................................................................................... 30

CHAPTER 4: ANALYSIS AND DISCUSSION ................................................................. 32

4.1 Ecuadorian legal framework and FONAG ..................................................................... 32

4.2 FONAG as Payments for Ecosystem Services ............................................................... 33

4.3 Political Ecology for Quito Watershed ........................................................................... 36

CHAPTER 5: CONCLUSION.............................................................................................. 43

REFERENCES ....................................................................................................................... 45

APPENDIXES ........................................................................................................................ 53

APPENDIX 1....................................................................................................................... 53

APPENDIX 2....................................................................................................................... 53

APPENDIX 3....................................................................................................................... 55

vi

TABLE OF FIGURES

Figure 1: Life Cycle of Policy ........................................................................................ 11

Figure 2: Hierarchy of Power ......................................................................................... 22

vii

TABLE OF TABLES

Table 1: Initial Capital for FONAG’s Creation ................................................................ 4

viii

ACKNOWLEDGEMENTS

To my family and friends who through much love and support have helped me face this new

challenge.

To my supervisor Daanish Mustafa for encourage me to think outside the box.

To SENESCYT for financing the program.

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ABBREVIATIONS

Abbreviation Meaning

FONAG Fondo para la proteccion del agua

EMAAP-Q Empresa Municipal de Agua y Alcantarillado Publica - Quito

EEQ Empresa Electrica de Quito

NGO Non Governmental Organization

PES Payments for Ecosystem Services

TNC The Nature Conservancy

GTZ Deutsche Gesellschaft für Technische Zusammenarbeit

USAID United States Agency for International Development

SDC Swiss Development Corporation

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CHAPTER 1: INTRODUCTION

Jean Baptiste Say once said “the wind which turns our mills [...] and even the

heat of the sun, work for us; but happily no one has yet been able to say, the wind

and the sun are mine, and the service which they render must be paid for” (1829, p.

250). Since the beginnings of the economic conception of ecosystems and services

they generate to society, they have experimented fundamental changes (Gomez-

Bagguentum, 2011). The world faces a multidimensional crisis, economic, social,

ecological, and cultural where ecosystem services are not perceived as free public

gifts anymore; currently, there is a trend of incorporate them into a market system

through different financial mechanisms.

Ecuador, like many other countries, deals with environmental issues. Water

related problems are amongst the most sensitive ones especially in big cities. The

capital of the country, Quito, grapples with problems of water in quantity and quality

and the inability of keeping the supply for human consumption and irrigation

demands (SENAGUA, 2009). Consequently, some of the solutions set to cope with

the problem are related to financial mechanisms for watershed conservation.

Certainly, financing nature conservation under regular Payments for Ecosystems

System (PES) schemes has been largely contested.

However, some Ecuadorian and international NGOs and projects argue that

they have developed, over the last two decades, a new innovative, decentralized and

voluntary mechanism for watershed management: water trust funds. With these

characteristics in mind and after the incorporation of lessons from the early PES1

mechanisms, emerged FONAG (Quito’s Water Protection Fund), an innovative

mechanism capable of integrate water governance with conservation of watersheds,

1 Payments for Ecosystem Services

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thus improving the common practice of a PES due to include: public-private

partnerships in water funds, lowering transaction costs and provide long-term integral

watershed management (Goldman-Benner et. al, 2012; Kauffman, 2014).

In the following document, I will analyse the mechanism of water funds

through the lens of Political Ecology to understand if this innovative mechanism

allows people to have better living conditions whilst contributing to actual watershed

conservation. The purpose is to contribute to the academic debate on the matter by

establishing a framework and incentivizing further and deeper academic research on

PES and alternatives. Furthermore, to allow a constructive dialogue among different

proposals based on cultures and diverse views and promote reciprocity and back

feeding between all positions.

1.1 Background of the Study

Quito has a population of over 2.5 million. It is located in an Andean valley

2,800 meters above sea level (INEC, 2010). In total, the city consumes about 7 m3 of

water per second. A municipal public company, the Metropolitan Sewage and

Drinking Water (EMAAP-Q), distributes drinking water to more than 260,000

households. Consumption is expected to increase by 50% by 2025 (Southgate, 2001),

which will increase the pressure on water resources. At the same time, funding to

increase supply is scarce. An estimated 30% of consumption is not charged if water

rates are achieved receivable cover the costs of maintaining the distribution network,

much less reach to expand efforts to protect the watershed. Currently the municipality

and the central government have to subsidize the needs drinking water.

According Pourrut (1995), the basin has three types of climate: tropical

temperate semiarid; semi-wet and dry along the middle basin mesothermal; equatorial

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high mountain the eastern and western ranges. The variation in temperature ranges

from 24 ° C to 1,000 m, up less than 8 ° C, about 5,890 m in the Cotopaxi volcano.

The range of average annual rainfall is of 500-1700 mm (De Bievre et al., 2008). The

water resources that supply the needs of the population in the Upper Guayllabamba

come from transfers, surface water and groundwater- lines. Aquifers in Quito have

been gradually closed due to deteriorating wells and the economic and operational

advantages to supply potable water from surface water.

According to De Bievre and Coello (2008), the distribution of water demand

in the basin is for irrigation (49%), drinking water (22%), industry (20%) and

hydroelectricity (9%). Some of these needs are covered by transfers from the upper

reaches of the Amazon Andes: for drinking water (63%) and irrigation (0.21%). The

main basins where water is transferred to the Guayllabamba basin are high Oyacachi,

Papallacta and Antisana, where reservations are located Cayambe-Coca ecological

and Antisana. These, together with the Cotopaxi National Park and four protected

areas make up the Condor Biosphere Reserve, which is one of the most important

projects of conservation and sustainable use of Ecuador.

The goal is to establish FONAG integrated management of water resources in

the watersheds form their workplace. Management includes promoting the

strengthening and improvement of the application of national policies to override the

resource management sector, characterized by low governance. The actions

implemented should support clear and accurate information in the biophysical

performance of the basin and the socio-economic dynamics of its people. The

organizational scheme FONAG consists of a Board, a Secretariat-Technical and a

Technical Advisory Committee.

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The board is composed of one representative from each institution constituent

of the trust, who are managed with fairness and equality in participation and

decisions, however, the chair of the board is reserved for the senior partner, EMAAP-

Q. To support the ongoing work of the FONAG, the board appointed a technical

advisory committee composed for their technical representatives. Finally, the

Technical Secretariat is responsible for the administration of background; this

secretariat has an almost horizontal structure, divided between the technical secretary

and coordinators program.

1.1.1 Quito’s Water Fund Background

Effectively, the FONAG has come to be based on a value defined by each

participant as the entity's willingness-to-pay for the protection of the water resource:

EMAAP-Q with 1% of sales and EEQ with a set $45,000 a year contribution. It is

important to keep in mind that this case is a "work in progress". No projects have

been implemented yet, so results are still limited. The key result is that the fund has

been created and it is up and running, with one new member, the electrical utility, on

board, as shown in the following table:

Table 1: Initial Capital for FONAG’s Creation

Contribution to Fund

Payments starting

date Amount contributed

EMAAP-Q

Seed capital: $15,000

1% drinking water sales January, 2000 $305,000

TNC Seed capital: $1,000 $1,000

EEQ $45,000 per year September, 2001 $45,000

Source: (Pagiola, Bishop & Landell-Mills, 2002)

This amount of capitalization at the beginning was not sufficient to implement

activities. However, the expectation was that by the end of 2001 the fund should have

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closed to $450,000 due to an increase in EMAAP-Q sales and financial returns. This

would allow for some level of interest to implement a small project in the beginning

of 2002 (Pugh & Sarmiento, 2004).

The Nature Conservancy worked to develop FONAG’s institutional capacity

and strengthen community support. In this regard, FONAG permanently is making

efforts to look for alternatives, including a possible debt swap, user fees and transfer

of tax revenues for the Municipality of Quito. Currently, there are two other big

financiers CAMAREN and Tesalia Springs (Anonymous, 2014).

The fact that the Fund only uses the interest generated means that growth is

slow and that investment will also be slow. Yet, this is an advantage, because the

project can be learning and expanding its range of action over time, as it grows. And

this is where most watershed conservation efforts have failed. The money is available

for the initial years and when the project ends, there is no continuity (Moropoulou

et.al, 2003). A mechanism such as the FONAG complements other conservation

efforts underway. By involving the water users, those that benefit from the resource,

there is the expectation that the effort will continue for the long-term.

Watershed protection is a multi-stakeholder process with long-term goals. For

TNC, biodiversity conservation is the ultimate goal. For Condor, where a water-based

financial mechanism was created during one of the country's worst financial crisis, the

FONAG is seen as an effort that will take time to bear fruit. Experiences such as this

are few throughout the world, and the difficulties may be many (Echavarria, 2002).

The important message is that organizations involved, whether they are an

international or local NGO, a local government or business, have to give their

commitment for the long-term. The creation of the Fund guarantees a long-term

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institutional mechanism to pull together multi-stakeholder participation to leverage

the conservation of the Condor Bio-reserve.

1.1.2 Stakeholders of Quito’s Watershed

In order to design the mechanism, it is important to know which direct water

uses are involved. The Condor bio-reserve is the source of more than 20 rivers that

can be grouped in 6 large watersheds that provide water for the following uses:

Urban and rural drinking water (EMMAP-Q and communities)

Small and large-scale agricultural irrigation (commercial flower producers,

communities, etc.)

Small and large-scale electricity generation

Recreational uses such as fishing and hot springs

Additional users such as aquaculture, navigational, etc.

Each of these uses still needs to be studied in order to identify the

organization, individual or community involved. The amount of the current and future

water use must be determined as well as each organization's aims and projects, its

culture and its strengths and weaknesses. In addition, there are a series of actors that

do not directly use the water resource but have a stake in the resource whether

politically, legally or socially.

1.2 Aim & Objectives of the Research

The aim of this research is to evaluate the financial mechanism for Watershed

Conservation and analyse it under the lens of political ecology; specifically focused

on the financial mechanisms for Quito water conservation fund and the surrounding

debates about payments for ecosystem services.

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To highlight the ecosystem payment for Quito waterfund and its relation with

the National Legal Framework

To evaluate the impact of the political influence on the Quito waterfund and

its relation with communities and local people, through political ecology

To explain the problem, the global and regional water problem highlighting

how limited and threatened the water resource is, and evaluate if this financial

mechanism has a real impact on actual conservation and improving people’s

lives

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CHAPTER 2: LITERATURE REVIEW

This chapter provides the theoretical context needed to develop the questions

and to meet the objectives of the research. It basically covers Ecuador’s Legal

Framework for the development of financial mechanisms of watershed conservation;

and the basic theories of political ecology for analysing purposes. In this regard, this

review will focus on identifying the relevant aspects related to the establishment of

water funds for watershed conservation and the outcomes of the project. The proposed

approach of analysis for the water fund project through the political ecology lens will

allow a comprehensive understanding of the relation of this mechanism, effective

conservation and living conditions of people along the watershed.

2.1 Ecuadorian Legal Framework

2.1.1 Constitution and Sumak Kawsay (Good Living): the new environment and

development paradigm adopted in the Ecuadorian Constitution

Back in 2008, Ecuador adopted a new National Constitution where for the first

time in history Nature Rights were recognised. Furthermore, one of the main

objectives of the new Constitution was: to put an end to the classic neoliberal system,

responsible for leading Ecuador through several bad socio-economical crises (El

Universo, 2012). It establishes, as the main leading principle, that “We, the people of

Ecuador, hereby decide to build up a new form of public coexistence in diversity and

in harmony with nature, to achieve a fulfilled life, Sumak Kawsay” (Constitution of

Ecuador, 2008, p. 1). In this sense, it has been clearly stated that the new Ecuadorian

Constitution abandones the classic narrow views of development, exclusively based

on economic growth and instead, sets human beings as main priority in the process of

achieving Sumak Kawsay, or well living (SENPLADES, 2009). The concept of

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Sumak Kawsay is founded on the idea of a harmonic life among citizens, within

communities, with themselves, with their mates and with their surroundings and

nature (Acosta, 2013). It means that in Ecuador a new development paradigm must

emerge, one that merges development and environmental aspirations.

This new vision of development is different from the development vision of

classical and neoclassical economics, where market beliefs are the ones that determine

concept of development; the idea of the liberals about market is based on believing

that high per capita incomes and economic growth are essential for upkeeping

sustainable development as well as human welfare (Clapp and Dauvergne, 2011).

After the adoption of nature rights, the perspective is the maintenance of its

evolutionary processes, functions, vital cycles, and structure, (Constitution of

Ecuador, 2008), always highlighting the relation with people, communities and

indigenous nations. Furthermore is recognised as a strategic sector where the State has

the control. Consequently, the logic of a liberal market is not acceptable, because the

use of resources and nature protection does not depend on the forces of the market but

rather relies on State priorities.

2.1.2 Legal and political context of water management in Ecuador

Communities in Ecuador play a very important role in systems for water

consumption and irrigation, especially in rural areas (FONAG, 2014). The 2008

Constitution establishes that water management is exclusively public or

communitarian; also, it sets State responsibility of supporting community

management and public-community alliances. However, there always have been gaps

in the law. The Organic Code for Land Management, Autonomy and Decentralization

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(COOTAD) designates water management competences to Local Governments and

the recently approved water resources law forbids any type of water privatization.

2.2 Incentives in the Natural Resources

Degradation of the environment occurs when a resource is exploited beyond

the ecosystem’s means of replenishing it. This reflects a disequilibrium between the

demand for a natural resource and its supply, which in turn denotes lack of resource

management expertise in the decision making process governing its use. It also points

out that there is insufficient information on the resource resulting in its inappropriate

valuation. With insufficient information resource managers, farmers and society

cannot place a proper value on the resource making for inappropriate use.

When incentives to promote sustainable resource management are designed

from a single disciplinary perspective, or within the context of a single sector of the

economy, they may be ineffective or even counterproductive. As Schneider and

Ingram (1997) state, "Public policy serves multiple roles in a democratic society: It

must solve problems as emphasized by the policy scientists; it must support

democratic values and institutions with rules and ethics through which communities

can engage in collective action for the common good; it must reflect and respond to

the mobilization and exercise of political power as emphasized by the pluralists; and it

must engage, enlighten, and emancipate citizens and serve justice as the critical

theorists contend. None of these perspectives, alone, is adequate to address the crisis

of policy and confidence in politics we now experience. Each must be considered as

part of a larger causal model."

Governments establish natural resource policies to recognize or change human

behaviour and its impact on the natural resource base and environmental quality.

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Frequently, policies are implemented to change behaviour that are perceived as

detrimental to the common good or to specific sectors affecting the common good. It

is important to understand that policy formulation is a never ending cycle. Today’s

solution will be tomorrow’s problem (Figure 1.1). As new information reaches

stakeholders, new groups have access to the decision making process, or as values

change, solutions that once seemed appropriate become obsolete. The policy cycle is a

normal process that is distinct from the issue of policy failure.

Figure 1: Life Cycle of Policy

In the interests of effective public policies with respect to natural resources,

policy makers are being directed to increase their reliance on incentive mechanisms

targeted at a broad spectrum of stakeholders, and to decrease their reliance on

command and control approaches (Tietenberg, 1993). Policy failure can be classified

as procedural or instrumental. Procedural failure often derives from the lack of a

sufficiently broad-based approach to policy formulation. Instrumental failure, on the

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other hand, refers to the result of an incorrect choice of the instrument of change (e.g.,

misspecified or inappropriate incentives). Procedural and instrumental failure are

often linked, with the latter being a consequence of the former. Inappropriately

designed incentives may actually motivate stakeholders to adopt behaviours very

different from those desired. This is especially likely when resources are not properly

valued by either markets or policy analysts.

2.2.1 Sustainability in the Context of Natural Resources

The stewardship of their natural resource base by a community reflects their

understanding of the importance of that resource base to their well being (Vosti and

Reardon 1994), and the signals they receive (e.g., through legislation, taxation,

subsidies) with respect to appropriate use and access. Poorly formulated signals can

impose unwarranted hardships and lead to the misuse of resources, as those affected

attempt to compensate by utilizing the resource base in a non-sustainable manner.

2.2.1.1 Land Tenure

One situation leading to misuse of natural resources is lack of secure land

tenure. A number of studies have shown that insecure tenure does not provide the

correct signals for sustainable husbandry of the land, and can lead to rapid

deforestation and soil erosion (Palmer and Synnott 1992, Rivas 1996, World Bank

1997a).

2.2.1.2 Access to Credit

Forest clearing in the Brazilian Amazon was the condition set forth in a

policy whose objective was to expand the frontier (Mahar, 1989). In Quito, Ecuador

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Government failure (through strict forest legislation which was unenforceable due to a

weak forest institution and lack of a clear land tenure situation) has effectively

reduced the original forest cover to 2 percent of the countries’ total area. Land tenure

is defined as the bundle of rights and obligations associated with access to and use of

land. Land tenure security refers to the extent to which these rules are binding. It

involves a combination of objective and subjective factors that affect an individual’s

assessment of the likelihood of maintaining his/her access to land. Access to credit is

a major limiting factor in the adoption of conservation practices that involve a change

in technology. The literature indicates that lifting this barrier can have a positive

effect on natural resource management, although access to credit is certainly not

equivalent to conservation (Cabezas 1998, Ledec 1992, McDowell 1998).

2.2.1.3 Education

A lack of education can also be an important stumbling block for the adoption

of sustainable resource management practices. Farmers with higher levels of

education have been shown to be more likely to adopt new environmentally friendly

technologies and practices (USAID 1996). Traditional farming practices are harder to

break away from when an individual has had little exposure to formal or non-formal

education. Education has the effect of expanding participants’ horizons, exposing

them to new concepts and practices. From an incentive perspective, education often

plays an important supporting role in the adoption of sustainable practices by farmers

and resource users.

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2.2.1.4 Access to Appropriate Technology

Appropriate technology is generally identifiable for specific agricultural and

natural resources situations (USAID, 1996a). The limiting factors for adoption of

appropriate technology are usually access to credit and information. Getting

appropriate technology to the right people is a critical task for any government

searching for a sustainable development path.

2.2.1.5 Transportation (access to markets)

Appropriate means of transportation (roads and vehicles) provide access not

only to markets, but also to health care, education and culture on a year round basis.

While providing many benefits to communities, transportation often also has the

dubious distinction of removing a principal barrier to higher rates of deforestation.

2.2.1.6 Poverty Alleviation

A number of authors have looked at the expansion of the frontier and the

reasons that people engage in environmentally deleterious practices. These authors

seem to agree that poverty drives people to resource frontiers and influences their

resource use patterns once they arrive (Cunha and Sawyer 1991, Pingali 1991,

Schneider et al. 1993, Vosti 1997). Relieving their poverty, and simultaneously

addressing environmental concerns will require new combinations of technologies,

policies, institutional arrangements and public participation - all of which shape the

incentives faced by households (Vosti 1997).

There have been fewer analyses of resource degradation in countries without a

large land base for expansion such as Quito, Ecuador. Countries that have already

reached the far comers of their borders no longer have the option of offering new land

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to offset the pressures created by internal migration and population expansion, and are

therefore in many ways worse off (USAID, 1996). Resources that are already in

scarce supply simply come under even more pressure.

2.3 Payments for Ecosystem Services (PES) and Commodification Process

The concept of sustainable development has become the centre of economic,

scientific, and even social disciplines, and it is mainly under the concept of Ecosystem

Services. For instance: forests provide protection to watersheds and they do not need a

societal cost for water creation or purification whatsoever. The values for ecosystem

services are calculated basically obtaining the cost of providing the service and

maintenance of facilities (Rojas and Aylward, 2003). The valuation exists as a way to

generate revenues, money from ecosystems, assuming that if it does not have a value

the forest would get cut down. In addition, in order to this idea to succeed a market

must be created. The idea behind it is the internalization of environmental costs of

capitalist production into economic calculations (Escobar, 2008). That is how PES are

calculated.

During the time of their implementation, PES have risen big expectations in

the transition to a less natural resources predator Economy which allows reconciling

conservation whilst improving indigenous and peasant communities lives (Gomez-

Baggethun, 2011). However, under current conditions PES does not only offer few

possibilities of acting as efficient mechanisms for wealth distribution but also can act

as a powerful vector of Westernization of conservation and of ecosystem

commodification. Firstly, the logic of PES responds more to the very worldview of

Western urban society than to the traditionally held by indigenous and peasant

communities to which these schemes are mainly directed (Gomez-Baggenthum,

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2010). PES promotion in the global South, from developed countries and from

international credit institutions, incorporates logic of conservation specific to their

market societies.

Its application can be especially disruptive in rural and indigenous

communities, where the utilitarian conceptions of nature, and private property of land,

often collide with the indigenous conception of reciprocity between human and nature

that still persists in greater or lesser extent within these communities. For instance: the

World Bank has promoted in Asia, land market in poverty areas. This situation has led

to the erosion of ancient systems of communal property (Toro, 2012). The idea of

extending private property to new ecosystems could end centuries of tradition and

equilibrium. In this sense, International Institutions (including ecologist NGOs)

promoting PES in the global south, as conservation and development mechanisms, act

as a new vector of westernization of cultures, to enhance the reproduction of specific

ideological and institutional structures of the market society.

Secondly, once PES is adopted, they imply that ecological functions become

commodities thus can be bought and sold in the market. This concept coined by

Gomez-Baggenthum: in reference to the absorption by the market of nature goods and

services, to inference of traditional goods have been neither produced by humans nor

intended for sale in the market (Gomez-Baggenthum, 2011). Once nature services

have transmuted into commodities, this functions are incorporated to capital

accumulation processes and they placed to the economic growth. From this optic PES

can become as a new way of accumulation by dispossession through market

appropriation of subsistence ecological means.

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2.4 Marx Ecology (and Engels)

In Marx’s manuscripts back in 1948 Marx manifests that humanity lives and

dies with nature. We are nature, and nature lives within us. If nature dies, we die.

From the mid 60’s of the XX century we face a growing tendency of caring about the

environment and its problems. These are the years of development of modern

environmental movements from the Rome Club, Stockholm, the Oil Crisis, and the

antinuclear demonstrations in the 70’s; everywhere, big industrial catastrophes help

build consciousness.

Definitely, it is just another recognition of what is already known, modern

societies are ecosystem dependent; as Ramon Fernandez Duran (2010) “human beings

are interdependent and ecodependent: the Homo economicus competitive and

independent of others and of nature is an absolute fiction” (Fernandez, 2010, p. 15).

An adequate approach should be socio-ecological. It is not possible to split society

and nature: human societies cannot escape entirely from their natural determinations,

nor nature is, since a long time, other than a humanised nature (Tanuro, 2011).

Therefore, the ecological crisis is a sociological crisis. What is failing is not nature, is

the society. “The ecological crisis and the social crisis are one and the same crisis: the

crisis of the capitalist system” (Tanuro, 2010, p. 168).

2.5 Eco-Marxist approach

The social ecosystem approach is not that apart from the eco-socialist

approach or the eco-Marxist approach; where the interrelations between population,

environment, productive sources and social organization provide explanations for

most of the dramatic environmental changes. Marx and Engels identified correctly the

emergence of class relations en the dialectic among nature and humanity, where

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dominant groups use to slave subordinated groups in order to expand their productive

capacity. From this perspective the ecological challenge lower or subordinated classes

face is, precisely, subvert the individualistic and alienating logic of the capital, the

commodity fetishism, in order to eradicate the objectification of the subject and

nature.

From this view it is consciously assumed that productive forces are not

neutral: they are capitalists in its dynamic and operation, therefore they are destroyers

of people’s health and of the environment. It is not just a relation of production and

property relations but the structure of productive forces. Marx thought of that logic:

workers cannot appropriate the bourgeois state apparatus and use it to the service of

the proletariat; it is not possible, because the bourgeois state will never be at workers

service. Thus, in order for it to change, it is about destroying that state and developing

other kind of power. A radical change for preserving the life in our planet; a social,

democratic and communitarian change (Tanuro, 2011).

This change should look for ending with the valuation of value, located

precisely in the private property of production means and the commodification of the

social and natural world, which is better expressed in a private and authoritarian

management of society and nature.

2.5.1 Economic Hegemony

“Native Americans from a very early date occupied the institutional position

of Other, as essentially different from their observers (Spanish), whereas the

descendants of black Africans have been located much more ambiguously, as both

inside and outside the society of their masters and observers” (Wade, 1997, p. 3).

History have discriminated Native American peoples. Being a Native American was

19

cultural, rather than a natural characteristic, therefore, a racial denomination. These

groups have experienced different ethnic and racial identities; and treated as marginal

groups with different roles in the nation, and forms of state control over them (Toro,

2012).

There are other factors and limitations of discussion such as gender that I will

not discuss in this document. Sundberg suggests that ethnicity/race and the

environment in Latin America was multi-leveled: “not only did` the colonial legal

system divide people into racial categories, it also defined their differing rights and

responsibilities accordingly, including what jobs they were eligible for, whether or not

they could pursue formal education, where they could live, and whether or not they

had access to natural resources” (Sundberg, 2008, P. 571). From colony times, there

has been a division among race and ethnicity. Each of these groups was considered

suited for a particular job.

At the beginning of 19th

century, after several generations of Spanish

descendants born in America, a process called as ‘mestizaje’2 begun and a landscape

of racial and ethnic heterogeneity was a possibility. However, “the type of mixedness

invoked was often biased towards whitening... and the process itself could be seen as

a progressive ‘whitening’ of the population” (Wade, 1997, p. 32). These racial and

ethnical categories are still present in Latin America (Toro, 2012).

Currently, the access and control of natural resources has been contested from

development and environmental perspectives. Even the same conservation

movements must be analysed critically. It turns out is not that outrageous to say that

protection of land and resources are coded by class, ethnicity or race. Furthermore, a

post-structural political ecology overview about the discourse of democracy and

2 Process where races of Spanish and Native American mix.

20

conservation is necessary. Often is very popular in Ecuador but mostly supported by

nation’s conformity to what economic development means for developed countries.

As stated before, it seems that there is a trend of commmodifying the natural world

into an economic market.

Environmental services have become one of the principal ways of

commodifying nature; the justification behind it is to internalize the externalities.

Consequently, the idea of an economic valuation for conservation rather than the

extraction for the use of resources is growing as the most sustainable way of resource

management, turning it into a profitable activity. Problems with environmental

degradation have a deep connection with capitalism and the ‘western’ capitalist

economy.

Reviews of development in the literature offer a historical perspective from

mercantilism to the current neoliberal model. Richard Peet attempts for explaining

reasons of how the world splits into two “the developed world” and the

underdeveloped (Peet, 1999). A neo-Marxist approach focuses on the dependency of

the relationships in terms of the geographical localization of economic power. As

such, the developed countries are enabled by destruction of the global south, through

control over their resources. This dependency theory is based on the fact that the

Global South exports cheap goods to the Global North and in return it gets expensive

goods. Also, most of big business and multinationals are in hands of the global north,

therefore small businesses in the global south tend to be only branches of

multinationals and become totally dependent of them. This theory have been

contested by saying that is too simplistic for analysing development as just part of the

dichotomy of industrialized or traditional means and sectors of production; however,

it is a good way to understand global power dynamics.

21

In a Post-structuralist perspective, current scholars have began to think about

disparities in power at global level, starting from the very definition of development

Driven by the necessity of explaining economic disparities, ‘Western’ policy makers

have used NGOs like the UN to achieve a global development equal for all nations.

Basically, the goals are set under the standards of the prosperous and developed

countries (Escobar, 1995). It means that they are principally measured by

accumulation of capital; translated also into “industrialization, urbanization,

agricultural modernization, infrastructure, increased provision of social services, and

high level of literacy” (Escobar, 1995, p. 38). The countries that do not meet these

goals are considered as underdeveloped, therefore, in need of international

intervention. There is an imagined need of helping poor nations through institutions

such as: World Bank, International Monetary Fund, United Nations agencies. That

way, the control over the funds of the developed world is not seen as unequal power,

instead, is legitimised by the hegemonic discourse of development.

In his book Territories of Difference (2008), Escobar refers to the control over

resources, at a global scale, where the ‘white privilege’ prevails. It is important to say

that this does not have anything to do with the phenotype of people; it refers to a

world dominated for a Eurocentric view: “a way of life that worldwide has

historically privileged white peoples and the expense of non-European and colored

peoples; this is global coloniality at its most material” (Escobar, 2008, p. 20). In this

context, neo-colonialism within this document refers to the legacy of economic and

cultural power, currently present in local communities of the Global south.

In the Global South is common to find stratification based on class, race or

ethnicity, is the result of the colonial influences. In this case, the “whiter” would be

the powerful authorities. Often, the power lies on this authorities and allow the nation

22

or state to rule in favour of the dominant social groups and left aside minority groups.

Likewise, Global North has a major influence on the ways of pursuing economic and

social development in the Global South. Consequently, at a local and community level

every policy or governance strategy follows international models, mostly because

these groups do not have any political power. History has shown that attempts of

autonomy or power of minority groups often is significantly limited (Figure 2):

Figure 2: Hierarchy of Power

Local communities are shown at the bottom of this pyramid of world power

model; disempowered even when they represent the majority of world’s population.

The Global North, with the lesser population, has the highest power; whereas the

Nation-State stays in the middle dealing with international pressures of developing at

economic and political Global North demands and giving less attention to local

communities. Source: Toro, V. 2012.

23

Currently, Ecuador is part of conservation market-based schemes wave. As a

reflection of spaces that developed countries and NGO’s want to see: democracy,

homogeneity and stability. This imaginary adds elements to international concern for

conservation and underdevelopment (Toro, 2012).

2.6 Political Ecology

Political ecology applies Marxist theory to ecology. Under this conception,

social inequality is perceived as a class struggle where “the bourgeoisie” (dominant

class) controls all means of production at the expense of “the proletariat” (lower

class). Consequently, the control over economic resources is a political move that

results in power and class disparities (Escobar, 2008). Where Marxists theory

understands, at economic level, that social conflicts are result of unequal distribution

of wealth, political ecology understands social conflicts interconnected with natural

resources distribution.

It also acts as a framework for questioning the role of market and politics,

institutions, state and environmental problems. Is in this sense that political ecology

has opened the understanding of issues over natural resources from a new perspective;

as concerned by environmental degradation, it arises from the social/power struggle,

associated with poor land use policies, either for agriculture or for conservation.

However, political ecology also has received many critiques, arguing that it has not

explored enough socio-economic differences between local, state and international

actors (Escobar, 2008). In 2002, Campbell characterizes a post-structural ecology

where discourse and knowledge becomes the centre of power and inequality analyses.

Hence, discourse is used as a political tool where powerful groups are

dominant. Likewise Escobar (1998) applies this post-structural theory to critic the

24

concept of “biodiversity” frequently employed for legitimizing conservation

measures. Escobar says that even when biodiversity contains “concrete biophysical

referents.. it anchors a discourse that articulates a new relation between nature and

society in global context of science, cultures and economies” (1998, p. 55).

Furthermore, this discourse about biodiversity conservation is almost a luxury of the

scientists and the “environmentally conscious”. In consequence, it can underestimate

the ways of life of rural people and some ethnic and racial minorities; and

highlighting a nature apart from people.

However, Arturo Escobar, in 2008, has taken this as a framework for

proposing a new term “political ecology of difference”, in his book “Territories of

Difference: plan, movement, life, redes”, referring to a post-structuralist political

ecology. Under this Foucauldian perspective, environmental conflicts arise from “the

relative power, or powerlessness, accorded to various knowledges and cultural

practices” (Escobar, 2008, p. 14). The unfair knowledge-power relations are a result

of cultural differences where “western” thought and politics are taking the upper

hand, “ecological, economic, and cultural distribution conflicts are intimately

intertwined” (Escobar, 2008, p. 13).

2.6.1 Deep Ecology

Martinez-Alier and Guha make an analysis of the term deep ecology, which

basically argues that the environmental movement must shift its perspective and

become biocentric instead of anthropocentric. Preserving nature according to the deep

ecologists brings benefits not only for current human kind but for future generations.

A second characteristic of deep ecology is its approach to preserve unspoilt nature and

restoration of degraded areas into the most pristine conditions. This approach follows

25

the biocentric perspective; basically it states that plants, animals, and nature itself

have intrinsic value and the right to exist.

Deep ecology, have been suggested, has been practiced by ancient eastern

religions and now the ones who practice it, share the belief that they are at the

political vanguard of world environmentalism. It is worthy to say that the transition

from the arrogant anthropocentric view, in almost all traditions, should be welcome;

the problem relies on the radical conclusions of some groups that say that it is

primordial to preserve biotic integrity rather than satisfy human needs (Guha and

Martinez-Alier, 1997). Evidently, this approach shows little understanding of the

problems the world is facing: overconsumption by the developed world and by the

urban elites of the underdeveloped world, and the militarisation (arms race and

nuclear annihilation).

None of these causes has any connection with a biocentric or with the

anthropocentric philosophies. However, irrelevant, sometimes the emphasis on

wilderness is dangerous, when applied to the ‘third world’ (Martinez-Alier, 1997). It

sets aside poor people from areas where they have usually developed their lives in

order to preserve elements of nature the ‘first world’ considers important or of value.

2.6.2 Neo-colonialism

Many definitions of sustainable development, basically the one adopted by

NGOs, has shifted the discourse from the paradigm of development, of making the

underdeveloped nations into developed nations, to a discourse where the ‘first world’

lead the ‘third world’ towards a sustainable development. The principle is based on

the focus of internalizing environmental concerns into economic models.

26

However, this does not necessarily implies the restructure of western

economic models, specifically of Western neoliberal economics; instead there is a

continuous infiltration of the Western economic dominant view in the ecological

issues. “Discourses do not replace each other completely but build upon each other as

layers that can be only partly separated. The sustainable development: basic needs,

population, resources, technology, institutional cooperation, food security, and

industrialism are all found in the Bruntland report, reconfigured, and reshuffled”

(Escobar, 1995, p. 195).

Guha and Martinez Alier found in the Bruntland report a disturbing statement

about how poverty is the main cause of environmental degradation. Even more

difficult to understand is why all the incentives for conservation set aside poor people

and they are the main affected by any market based measure to preserve nature such

as PES (mentioned above). These kinds of incentives support a national agenda and

usually are internationally funded. International institutions donate money just for

specific purposes, aligned with their institutional mission, that way funding stays

concentrated in certain ecological regions.

The term neo-colonialism refers to any interference: religious, economic,

political, and cultural practices in the affairs of developing countries, or ex-colonial

territories. Simply, it switches tactics of imperialisms claiming of providing

independence to its former subjects by ‘aiding’ for their development through

international organisations (Nkrumah, 1965).

In recent years, the term has taken a huge significance especially by activists

of developing countries against big international climate or environmental

negotiations. President Evo Morales, from Bolivia, has stated that green economy is a

new way of submission from capitalist governments, where life natural sources are

27

commodified and become prey of the relentless laws of market. The developed

countries seem to be trying to eliminate developing countries’ sovereignty over

natural resources through financial mechanisms as they interfere with national

policies (Morales, 2012).

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CHAPTER 3: METHODOLOGY

3.1 Epistemology

Based on philosophy; epistemology is a realm mostly concerned about the

nature of knowledge, its limitations and the origin of the sources (Kleim, 2005);

basically, it focuses on the comprehension of issues related to the circulation

understanding, and dissemination of knowledge and information (Steup, 2005). For

this research the methodological currents will be focused on: naturalism. It states that

the real world exists by its own and it is independent of the human experience of it;

thus humanity gains knowledge out of that world by recording their experiences lived

in it (Moses and Knutsen, 2007). This methodology is based on the observation and

description of nature patterns, and their hypothesis can be empirically proved;

therefore, knowledge is created through fact accumulation and it become the

foundation of law. According to this current, sciences should be objective and free of

value (Bryman, 2012).

On the contrary, but also important to understand for this analysis the current

of constructivism in modern social science uses a different approach; it assumes and

recognises that each person has a particular view of the world, and that those views

are determined by contextual influences or presuppositions and a mix of social

encounters (Moses and Knusten, 2007). This is the reason why elements like politics

and money cannot be fully understood because it relies on interpretations of different

social actors.

3.2 Research Methodology

Literature indicates that qualitative methods enable an inductive approach to

study relationships between theory and research (Bryman, 2012). In this sense,

29

qualitative research relies on constructivist approach of epistemology, basically

because it highlights the social understanding of the world and nature and how

people’s ideas and beliefs are shaped (Dezin and Lincoln, 1994). A quantitative

research would be based on a positivist epistemology, meaning that it tries to test

theories based on observing interactions in societies as an external observer (Bryman,

2012). In order to meet the aims and objectives of the research, the approach for this

dissertation will be qualitative, principally because this work intends to understand the

FONAG project and how it is or not related or contested by theories and debates

surrounding payments for ecosystem services schemes. Therefore it is important to

understand the construction of these theories as a dynamic process where on social

actors and political elements interact.

For trying to clear doubts on the research and fulfil the objectives of this

dissertation, there are methods that could be useful:

Discourse Analysis: The objective is to understand how the knowledge or

truth has been constructed through spoken and written language. It mainly focuses on

socio-psychological characteristics of who developed the discourse, what are the

intentions, but it does not pay attention on the textual content (Gee, 1999).

Document Analysis: With this method the objective is to gain understanding,

elicit knowledge and develop knowledge (Bowen, 2009). The reviewing and

evaluation of documents is made systematically to sort information. In order to

develop a good understanding, discover new insights and meanings about the

research, it is important to have documents of all types; this provides relevance to the

research problem (Merriam, 1998). Although it is important to point out that these

documentation is created with specific objectives, and not just for a research purpose;

30

in fact they are related with an agenda, but they are not reactive, meaning that the

presence of the researcher does not affect the content (Bowen, 2009).

All of these methods have their uses because they allow analysing

perspectives, different people of the project and citizens, peasants and from other

institutions (Phillips and Jogersen, 2002). However the information gathered through

documents needs to be enhanced and validated with additional information for

analysis and discussion; consequently, in order to do that six interviews will be held

to people from different backgrounds: who have worked or know the situation of the

FONAG program, its influence area, and of the institutions that have worked or have

been somehow related to FONAG’s project.

The main objective of this is to improve and validate the information, as well

as covering possible information gaps. The qualitative method for this research

corresponds to semi-structure interviews. It is important to be consequent to the other

methods so this one is correspondent to the epistemological tradition of

constructivism, basically because it permits exploring emergent ideas to support

knowledge construction (Hockey et. al., 2013). The main characteristics of this kind

of interviews is that they are flexible; therefore they offer a fluid process where the

interviewer and the interviewee interact during the time they talk, also it allows to

explore different topics and different depths of those topics (Mason, 2004).

3.3 Research Ethics

This dissertation topic was chosen based on a well-intentioned approach and

trying provide the most of benefits from the research in order to make it an attractive

topic, and to encourage further analysis and discussion. There is no possibility of any

psychological, economic, or social harm, to any person or entity involved while

31

conducting the research. Also, ethical considerations and parameters have been

followed strictly throughout all the dissertation: respect, confidentiality, voluntary

participation, and anonymity have been the guidelines and foundations of the entire

research. It is also worth mentioning that any kind of bias has been avoided.

32

CHAPTER 4: ANALYSIS AND DISCUSSION

4.1 Ecuadorian legal framework and FONAG

In 2008 with the approval of the new Constitution the Ecuadorian and the new

water resources law, it seemed like FONAG was going to have problems because the

national legal framework emphasises water as a strategic resource, not susceptible of

ownership and management is only as public and communitarian. However, after an

extensive analysis it turns out that FONAG is running under approach of the legal

national framework.

The concept of water management used in the law is understood in the field of

supply services (Benitez, 2014). It is not part of the management of water

conservation activities or mechanisms to protect water sources; this is the key factor

for water funds. Water funds do not supply water as such, instead they work

protecting and restoring ecosystems that regulate the quality and quantity of water

(Saenz, 2014). The FONAG is conceived by TNC and their partners as an entity that

only works for water conservation, it has nothing to do with water supply.

Hence, it is unlikely to speak of water resources privatization because the fund

works for conservation purposes. Malki Saenz (2014), also have argued that FONAG

has not any conflicts about environmental services; all of FONAG’s decisions are

taken by the stakeholders, who are mainly public stakeholders: public enterprises and

municipality. There is a number of private funding but these are also designated to the

activities biggest stakeholders consider more important. There is another aspect of the

recent approved law that FONAG considers as a support for its activities.

The water resources law incorporates several areas in water pricing, including

the environmental component. This constitutes a nod to conservation and restoration

33

of water sources through funding mechanisms that support the actors responsible for

water management (Water National Authority and Local Decentralised

Governments). However, it is inconsistent with national guiding principles. As stated

in the literature review and in the first part of the discussion, the Ecuadorian law

forbids any kind of water resource privatization. By allowing more financial

mechanisms to manage public goods, some privatization is implicit. Every big

decision will be in the hands of ‘technocrats’ (Lowy, 2011); whereas these decisions

should be taken democratically, from the societal objectives and needs of the

population covered by the same national plans. Water is a fundamental right, the law

acknowledges it, so it should be available to everybody, by pricing it automatically it

is exlusive for those who can afford it. In a eco-socialist society all decisions must be

democratic (Lowy, 2011). Therefore the establishment of any mechanism should be

made after a true representation and active participation of all groups involved.

4.2 FONAG as Payments for Ecosystem Services

FONAG is a non-decreasing endowment fund which can receive money from

the government, private organizations and NGOs (FONAG, 2001). An independent

finance manager invests the funds and returns on investments are used for watershed

protection. The endowment fund is not depleted. The logic of using only the financial

returns is to ensure the availability of resources in the future. FONAG is governed by

a contract that states the terms of the fund, its institutional structure and resource

purposes.

The fund's objective is to gather payments from water users and channel these

funds to activities of watershed protection (FONAG, 2001). To achieve its objective,

FONAG is managed by a board of directors and overseen by a technical secretariat to

34

review its financial performance and ensures the implementation of projects. After an

open tender was selected Link Funds, part of a particular bank socially responsible as

CFO FONAG. The technical secretariat checks how CFO distributes investment and

sends periodic reports to the board of directors. Currently being developed regulations

to establish project management procedures and project areas to be financed.

In fact, having a structure with an open government, which aims to encourage

broad participation of all stakeholders, is particularly important because the payments

water users make are volunteers and the success depends on there being a willingness

to pay. To encourage participation, all contributing money to the fund can become

board members, either individually or elect a representative in the case of a small

group of users in an irrigation system. To ensure commitment, donors must sign the

contract of the fund. The power of the vote depends on the amount of resources

contributed to the fund.

Although it is a voluntary mechanism, has made an effort to establish a

common approach to determine the amount to be provided by users. Ideally, the

amount paid into the fund should reflect the value of water for domestic use.

However, due to missing information on the value of water, it has been suggested that

a more practical option is to encourage water users who rely heavily on water

resources for their business, pay a percentage of their monthly sales.

FONAG received initial funding EMAAP-Q and The Nature Conservancy.

With regard to establishing a sustained flow of funds, is committed FONAG two

major water users: the EMMAP-Q and EEQ. In January 2000, the EMMAP-Q agreed

to pay 1% per month from sales of drinking water, making an average of $ 14,000 a

month. The decision to pay contributions from their income because it was believed

that the creation of a fee to users was not feasible was noted. However, when taking

35

into account the inadequacy of existing income, the expectation is that an additional

fee will be instituted in the future. The EEQ council also agreed to pay a fixed U.S. $

45,000 a year from September 2001 rate. To the last days of August 2001, the U.S.

had received FONAG $ 301.700.

Financial returns FONAG to date are overshadowed by the fast deterioration

in the global economic scene. Since 1998, Ecuador has one of the worst economic and

financial crises. As a result, revenues from investments FONAG, all placed in the

country, have averaged 7.6%, well below expectations (FONAG, 2001).

The activities implementation begun on the second half of 2002 after FONAG

accumulated enough resources. According FONAG rules, resources can be applied in

the project areas identified environmental education, communication, water

monitoring, productive alternatives. FONAG expected channel resources through

independent private and public organizations that meet a defined set of criteria, such

as a track record in the area to which the proposed project (for three to five years),

good relations with communities, institutional credibility and linking their proposal

with the business plans of reserves.

Although a cost analysis was not performed - benefit FONAG hopes to

provide powerful benefits. First, FONAG intended to protect the quantity and quality

of drinking water, household electricity use and the inhabitants of Quito. In particular,

it is likely that investment in the maintenance of water balance reduces current and

future costs of maintaining the water supply and electricity infrastructure, in addition

to investment costs in the future (Southgate, 2001). Although no estimates of how

much maintenance costs and reduced investment, the EMAP-Q feels confident

enough to think of a project to increase water $ 600 million, and thus enhance the

supply for 2016-2050.

36

Given the importance of domestic water consumption in total consumption, it

is reasonable EMAAP-Q which has the predominance. But the fact that two users

control the flow of water revenue FONAG is not only disturbing because it exposes

FONAG to changes in the willingness to pay of the two organizations, but also

because it gives these institutions a key role in FONAG government (Saenz, 2014).

EMAAP-Q, as the largest user of water, has enough power to impose their will and

their interests may differ from those of other users. For example, EMAAP-Q requires

large amounts of high quality water, which could result in denying access to other

users or limit their activities.

The hierarchy of power is also reflected in this situation. Communities of the

watershed almost completely disempowered, not only communities who don’t belong

to the metropolitan area of Quito, but from other cities that share the watershed as

well. In some areas where there are water catchments there is a big resistance against

FONAG, because it almost represent completely to the EMAAP-Q, the very public

enterprise who catches water that born in their territories to provide the big city;

leaving the locals with less access to the resource (Anonymous, 2014) supplying to

the big city whereas peasants receive less attention and sovereignty over their

resources and needs.

4.3 Political Ecology for Quito Watershed

FONAG is a budget financial mechanism established to operate for eighty

years as permanent and stable. The endowment allows you to use yields for co-

financing activities of conservation and protection of water sources that supply the

needs of Metropolitan District of Quito. Thus, it is intended to achieve goals and long-

range and ensure positive and lasting impacts on the conservation of water sources.

37

The fund works with end users and resource providers in a geographic area that spans

the basin High Quality of Guayllabamba River in inter-Andean, and the upper reaches

of Oyacachi, Papallacta and Antisana.

The difficulty FONAG support for water users means that efforts have focused

on the contributions of the largest users. However, this also results in the

concentration of power in decision-making and the right to vote EMAAP-Q and EEQ.

While it is important that those who pay say on how to spend the resources FONAG

(as this gives them a greater incentive for their contributions), there is a risk that the

interests of the poorest groups are not taken into account. Ecuador applies policies to

make pricing more transparent water and to eliminate subsidies in stages, particularly

for irrigation and drinking water. In 1998, the profits of the Q-EMAAP covered only

54% of their costs (Southgate, 2001). Although the company increases its prices

gradually to reflect the operational and administrative costs, to date does not take

account of watershed management.

However, this needs to change to the extent that the EMAAP-Q increase

payments for watershed protection and derive these costs to their customers. A survey

of water users in Quito reveals their willingness to pay higher fees (Corporación

OIKOS, 2002). However, this information or any information about FONAG,

whatsoever is not available to everybody in the city. FONAG has concentrated its

efforts to educate people in the countryside, where the peasants and local

communities live. They have taught them how to ‘improve’ their lifestyles, and

change their common productive practices into something more ‘environmentally

friendly’; whereas in Quito, almost nobody make an effort to change their ways

(Mancheno, 2014).

38

The signing of the indenture, the constituents formed an equity seed capital

U.S. $ 21,000, and the Q-EMAAP pledged to contribute 1% of their monthly billing

sheets of water and wastewater. During the first three years FONAG designed and

implemented an investment model in order to achieve the best return on capital. This

model considered three key variables: safety, yield and liquidity. From the third year

they began the first planning, institutional organization and socialization.

At present, and with the contributions of new members, the equity capital is

U.S. $ 4,451,000 (FONAG 2008b). The amount Total investments used by the Fund

in its programs and projects, 25% correspond to the yield and 75% to financial

contributions from donors and partners. Hence, activities and projects funded by that

25% of the investments are not necessarily priorities of the local people but rather

respond to donors demands. For instance one of the principal financer of projects has

been USAID. This agency has an agenda in several parts of the developing world. In

FONAG’s report to USAID for the period 2007-2014, they mentioned that water and

biodiversity are amongst USAID priorities rather than the ones of local people.

Consequently, they have supported three main areas: the commitment of water

users to conserve certain areas and ecosystem services, contribute to sustainability of

protected areas and, promotion of sustainable use of natural resources as alternative

productive activities for communities in the upper parts of the basin (Mancheno,

2014). As explained in the literature review, there is a tendency of developed

countries for guiding their way to ‘sustainable development’. Even more, aid agencies

and ecological movements are the ones promoting the idea that the poor are

endangering the environment, so they need ecological and financial ‘adjustments’ in

order to achieve ‘world’s’ conservation goals (Guha and Martinez-Alier, 1997).

39

It is worth to say that FONAG have found resistance to implement programs

in some places of the watershed, specially the sub-watershed of Pita River, a place

where a big amount of indigenous people from the Quitu-Cara and Cayambi cultures

live. The indigenous movement in this area is politically very active and they reject

any international intervention, especially from the US government; because they

perceive it as a way of resource appropriation (Anonymous, 2014), therefore, even

when the Ecuadorian state has banned the intervention of International Aid Agencies,

there are mechanisms that still are linked to North’s political and economic power,

and somehow can sway the economic, political and social structure. This kind of

power is part of what academia has denominated ‘neo-colonialism’ (Escobar, 2008;

Peet, 1999)

It is clear that the amount of procedures is not sufficient for the achievement

of objectives; therefore, in 2004, undertook FONAG a search strategy of investment

funds. To date, the administration has been effective and has enabled it to achieve

significant contributions from national and international donors, as well as

cooperation of local strategic partners. Collaboration helps to strengthen and reached

expansion of the Fund's objectives for management and management of water

resources and replication of experiences at national and regional level. Most of this

collaboration comes from the private sector.

The total investment amount is distributed as follows: 10% for administrative

costs and 90% for investment; of this amount, 80% goes to the implementation of

programs and projects 20%. The menu of financial services offered FONAG aims:

firstly, to donations investing in a second stage, specialized investment loans to local

authorities in formulate and implement projects in areas of interest related to the lines

of action of its programs. However, sometimes the work has its limitations due to

40

several factors, for instance: other smaller municipalities, which are also beneficiaries

of the ecosystem service, still do not have access to the same water conditions, as

Quito does (Anonymous, 2014).

The efficiency and effectiveness of investments are controlled and monitored

at different levels; and according to the accountability report, the areas effectively

conserved have improved according to FONAG’s indicators. For year 2013 numbers

show that there are 248900 new plants planted in the forests, 198 hectares of degraded

land recovered, 53 new hectares have been fenced to allow its natural recovery.

Additionally, FONAG with and Quinchucajas community plus USAIDs financial aid

has built a irrigation system that will beneficiate 105 families, also they are constantly

providing training to park rangers to support the work of Protected Areas (FONAG,

2013).

In terms of effective conservation FONAG is performing an outstanding job;

in fact its work has been an example in other places of the country and other countries

and the project is now being replicated, in each site with its own particularities. In

theory it seems like a great deal, however the impacts of the activities in the

watershed are, again, focused on the interests of the stakeholders. In the case of

FONAG, the social component is a little set aside, actually its aim is to assure water,

in quality and quantity to Quito and not focusing in support actions to alleviate

poverty or improve people’s lives (Saenz, 2014); there are no representatives of

communities in planning or management projects included, so basically the

participation of local people is minimal.

Consequently, the social power relations due to geography and economic

resources are manifested. The public water supply enterprise is who determines and

makes decisions over priorities to work and even the places where the fund should

41

intervene (Lopez, 2014). Sometimes places where the water catchments are people are

affected because they are left with less water for their own activities. This means that

the water supply is primarily to the urban and metropolitan area of Quito, and almost

nothing to the rural areas; and a conservation project that focuses its efforts only to

preserve nature and forget about people seem unethical (Mancheno, 2014;

Anonymous, 2014).

As Martinez-Alier and Guha in his book environmental of the poor say:

“diversity, sustainability and equity: these are the building blocks of the

environmental ethic in the making (...) an emerging philosophy called social ecology”

(Guha and Martinez-Alier, 1997; p.91). It is only fair to mention that in several stages

of FONAG the vision of Integrated Water Resources Management was being applied,

meaning that they worked in an effort to promote participation and integration of

communities from the upper watershed with the ones in the down side of the

watershed. They were applying an interesting mechanism for conflict resolution,

however, in the recent years, and under the pressure set by EMAAP-Q they have left

that activity aside, and now they are mainly focus on amount and quality of water for

the city and some big enterprises, such as: the national bottling company or the

national brewery which are project financers (Anonymous, 2014).

Several critiques imply that this kind of mechanisms implicitly incentive

privatization of water rights. According to them, the application of neo-liberal models

implemented on rural areas and policies supporting these do not tackle the root

problem: the different ways of economic, political and social exclusion, nor

acknowledge any cultural practice.

There is another issue with the strategy used by FONAG to collect the amount

the percentage of the 1% of the monthly bill of water users of Quito. The amount is

42

not visible in the monthly bill; in consequence, any of the citizens know they are not

aware of the work that is being done (Isch, 2004). Saenz (2014) considers this is not a

problem because who decides to provide the funding is not Quito’s population but the

EMAAP-Q, the public water supplier enterprise. However, if one of the activities of

the water fund is to create consciousness and awareness about the importance of water

and conservation of watersheds, as they do in the watershed, they should show it to

the people of the urban area as they do in upper areas of the watersheds.

43

CHAPTER 5: CONCLUSION

By means of conclusion, the main argument of these mechanisms of payments

for Ecosystem Services is to stop and revoke the continuous environmental

degradation of forests and soils process; it says that through flexible platforms of

negotiation of rights among groups of suppliers and beneficiaries it is possible to: stop

environmental degradation, assure urban supply and promote local sustainable

development. Under this logic, through these mechanisms it is expected that relentless

use of hydrological resources in urban zones and development sectors must be

beneficial for providers in the upper zones of the watersheds. Consequently,

impoverishment should, in theory, be gradually coped and the programs of rural

development, education and conservation would finally be a reality. Although, reality

have proved these mechanisms wrong.

FONAG is the first water fund created in Quito, and still is a working project.

It is undeniable that in their indicators, the watershed has been effectively preserved.

Actually they are trying to run models to show the real impact of this project by

setting different scenarios of how would the watershed be currently without the

presence of the fund (Benitez, 2014). Although, the result would be uncertain because

this work can only be made upon assumptions and it is very likely that without the

presence of the fund other kind of mechanisms would have appeared throughout time;

who knows, maybe even mechanisms proposed by local people applying and

respecting their views and traditions.

There are still strong difficulties, usually consequence of a market system,

such as: poverty, and power and social inequality. There is no clarity about what

territorial extension is part of the watershed, how do they developed and where to

apply any valuation model, or what method is used to negotiate. Also, there is a

44

problem with representativeness from local groups, which makes social exclusion a

big limitation. Even when FONAG’s aim is merely nature conservation, is

discouraging knowing that most of the priorities of the waterfund are developed to

meet donors demands rather than address social problems along the watershed.

One characteristic of water funds is the flexibility and the capability of

adaptation to different realities (Benitez, 2014), this is why the initiative is being

replicated in other parts of the world. There are other water funds in Ecuador, but

there is one specific fund in Tungurahua province, where groups of peasants and

indigenous peoples are part of the decision makers of the water fund, without

necessarily make financial contributions. The name is actually: Paramos and fight

against poverty fund, it would be interesting to see how they manage social conflicts

and if the limitations of FONAG are not applied; and also to see if the social

inequities and the environmental debt are finally copped and contested. However, this

would require further research.

Environmental services have become one of the principal ways of

commodifying nature; the justification behind it is to internalize the externalities.

Consequently, the idea of an economic valuation for conservation rather than the

extraction for the use of resources is growing as the most sustainable way of resource

management. However, this line of thought sets aside the relation of social problems

with environmental degradation, and does not recognise that they have a deep

connection with capitalism and the ‘western’ capitalist economy. The creation of a

market based solution to a market created problem points to Escobar’s criticism

of sustainable development is “that it continues the same market based mechanism

focused on the end goal of development, without questioning the problematic of

development or market based policies themselves” (Escobar, 2005, p. 53).

45

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APPENDIXES

APPENDIX 1: Geography Department’s Forms

Geography Research Ethics Screening Form

Geography Risk Assessment Form (Approved via email)

Ethical Approval Notification

54

APPENDIX 2: List of interviewees and interview questions

Malki Saenz Technical Secretary, FONAG

Silvia Benitez Replenishment Manager Water Security

Team Latina American Region, TNC

Carolina Mancheno Director of Water Monitoring, FONAG

Luisa Lopez Former Director of the Environmental

Education Program, FONAG

Anonymous Director of Conflict Resolution, FFLA

Interview questionnaire

1. Brief description of the project Quito’s Water Fund

2. What kind of contributions to communities, poverty reduction and the city does your

organization provide?

3. Describe the main challenges that the project has faced: economic, social, and

environmental…

4. How could those challenges be overcome?

5. What is the level of commitment and participation from the community? Is it different

among the communities?

6. Do you consider the financial mechanisms of the Quito water fund a payment for

ecosystem services?

7. What is your view of the financial monitoring systems for the project?

8. How do conflict resolution mechanisms of the project work?

9. To what extent is the project a top down formulations as opposed to a response to

demands from the community?

10. What is your view of the monitoring and evaluation systems for the project? How do

you define success in the long run in this case?

11. How would you respond to the criticism that inducting community’s life worlds into

the market system is morally and functionally wrong?

12. What do you think are the most valuable lessons and key aspects of the Fund that

make it so successful and an example for other funds development?

55

APPENDIX 3: FONAG’s Counterpart funds in 2008

Source: FONAG, 2008

56