See roughly the context. In the highlands of Peru, there are downstream water users in Canete and Jequetepeque basins. There are also upstream water keepers in both basins. The idea is to launch a PES/CES initiative in order to preserve the service and make it institutional sustainable by means of a mixed trust fund.
Water demand is normally defined by the amount of water required from the hydrological system from various uses and several users.
There are, distinctively, three major water users in the Canete and Jequetepeque river basins, (a) hydroelectrical companies whose demand is non-consumptive; (b) city dwellers whose demand is consumptive; (c) irrigation users whise demand is consumptive. There are even some rural rates which are presently being paid.
Notice that the idea that power companies are going to be the greater contributors to the CES scheme is not fully valid. Their need for water is permanent but they do not deplete the water available. You cannot say that water resources, in their case, diminish, degrade or change. After passing through their dams, e.g. Galllito Ciego, that water can still be used by other or for other purposes.
Notice also that city dwellers already pay some small fee for the water available, very small indded. That is, they are not going to be keen on paying or contributiong further to the CES scheme proposed.
In the Canete and Jequetepeque river basins water competition is not terribly fierce. In both basins you may argue that water is relatively abundant. Water prices have been estimated in willingness to pay studies as roughly between S./ 0.0011 - S./ 0.0018 per cubic meter, which is very low indeed.
Water users might be concerned with water decrease in availability. But, this is not foreseable in the future. The hydroelectrical concerns in both areas e.g. Platanal, have already taken provisions in order not to suffer in the next decade from water shortages or large variations. Industries in the cities around are not fully developed, unless some gold mining firm discovers this mineral in the basin. That latter is not yet in sight.
The need for water augmentation is not fully visible as water is, again, relatively plentiful.
See the reasoning of the PES/CES proposal. Incentives are needed to preserve the actual functioning of the basins; that is, to preserve the environmental service. Community contests are one technique if not the effective one in the field. Contests have proved to be (a) all competitive i.e. it is based on open community rules and regulations; (b) incentives can be monitored and geared according to the CES projects goals; (c) incentives are a prize on investment as opposed to a recurreent cost run by the project; (d) contests have proved to be successful in community management of natural resources (IFAD has plenty to support on this statement, particularly in Peru).
Community contests, in the context of natural resources management, have shown a gradualism which is led by project officials. Beneficiaries have been prone to contests related to household improvement first, and then community assets (see PROMARENaA's, Corredor Puno Cuzco records (1990s and this decade).
Indeed water management contests are the creative and innovative way out of this riddle.
Here it goes.
Carlos ALBORTA (IFAD consultant)
Links and resources:
RPE/PES in the Agricultural and Food Sectors
Payment for Ecosystem Services and Food Security
Paying farmers for environmental services
FAO website on PES
Payments for environmental services - What role in sustainable agricultural development?
Climate Change Mitigation Finance for Smallholder Agriculture
Payment Schemes for Environmental Services in Watersheds
The new generation of watershed management programmes and projects
FAO's activities on watershed management and mountains